<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRITON GROUP LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 33-0318116
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
TRITON GROUP LTD.
550 WEST "C" STREET, SUITE 1880
SAN DIEGO, CALIFORNIA 92101
(619) 231-1818
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------
MICHAEL M. EARLEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRITON GROUP LTD.
550 WEST "C" STREET, SUITE 1880
SAN DIEGO, CALIFORNIA 92101
(619) 231-1818
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
LATHAM & WATKINS MORGAN LEWIS & BOCKIUS LLP
701 "B" Street, Suite 2100 101 Park Avenue
San Diego, California 92101-8197 New York, New York 10178
(619) 236-1234 (212) 309-6000
Attn: David A. Hahn Attn: David P. Blea
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
effective time of the merger (the "Merger") of a subsidiary of Triton Group Ltd.
and Security Systems Holdings, Inc. ("Alarmguard"), as described in the
Agreement and Plan of Merger, dated December 23, 1996 (the "Merger Agreement"),
attached as Appendix A to the Proxy Statement/Prospectus forming a part of this
Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value................... 2,923,371(1) Not Applicable $4,645,557(2) $930(3)
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
(1) INCLUDES THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK TO BE REGISTERED
HEREUNDER THAT MAY BE ISSUABLE PURSUANT TO THE MERGER AS DESCRIBED HEREIN.
(2) ESTIMATED SOLELY FOR THE PURPOSE OF COMPUTING THE REGISTRATION FEE PURSUANT
TO RULE 457(F)(2) OF THE SECURITIES ACT. PURSUANT TO RULE 457(F)(2), $930
REPRESENTS ONE THIRD OF THE PAR VALUE OF THE ALARMGUARD COMMON AND PREFERRED
STOCK TO BE EXCHANGED IN THE MERGER (AS A RESULT OF ALARMGUARD'S ACCUMULATED
CAPITAL DEFICIT), AS OF DECEMBER 23, 1996.
(3) PREVIOUSLY PAID.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TRITON GROUP LTD.
------------------------
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act of 1933, as amended, and Item
501(b) of Regulation S-K Showing the Location in the Prospectus of the
Information Required by Part I of Form S-4
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside Facing Page of the Registration Statement; Outside Front
Front Cover Page of Prospectus...................... Cover Page of Proxy Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages of Available Information; Table of Contents
Prospectus..........................................
3. Risk Factors, Ratio of Earnings to Fixed Charges and Summary; Risk Factors
Other Information...................................
4. Terms of the Transaction............................ Summary; Proposal 1: The Merger and the Issuance of the
Merger Shares; The Merger Agreement; Description of
Triton Capital Stock; Comparative Rights of Triton
Stockholders, Alarmguard Stockholders and Holdings
Stockholders
5. Pro Forma Financial Information..................... Summary; Proposal 1: The Merger and the Issuance of the
Merger Shares; The Merger Agreement; Unaudited Pro Forma
Condensed Combined Financial Information
6. Material Contacts with the Company Being Acquired... Summary; Proposal 1: The Merger and the Issuance of the
Merger Shares; The Merger Agreement
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters.......
8. Interests of Named Experts and Counsel.............. Not Applicable
9. Disclosure of Commission Position on Indemnification Not Applicable
for Securities Act Liabilities......................
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants......... Not Applicable
11. Incorporation of Certain Information by Reference... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
12. Information with Respect to S-2 or S-3 Available Information; Incorporation of Certain
Registrants......................................... Documents by Reference; Summary; Proposal 3: Election of
the Triton Board; Security Ownership of Certain
Beneficial Owners and Management of Triton Common Stock;
Ownership of Holdings Securities after the Merger;
Description of Triton; Triton Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Description of Triton Capital Stock;
Comparative Rights of Triton Stockholders, Alarmguard
Stockholders and Holdings Stockholders
13. Incorporation of Certain Information by Reference... Available Information; Incorporation of Certain
Documents by Reference
14. Information with Respect to Registrants Other than Not Applicable
S-2 or S-3 Registrants..............................
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies........... Not Applicable
16. Information with Respect to S-2 or S-3 Companies.... Not Applicable
17. Information with Respect to Companies Other than S-2 Summary; Description of Alarmguard; Ownership of
or S-3 Companies.................................... Alarmguard Securities Prior to the Merger; Ownership of
Holdings Securities After the Merger; Alarmguard
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Description of
Alarmguard Capital Stock; Comparative Rights of Triton
Stockholders, Alarmguard Stockholders and Holdings
Stockholders; Index to Consolidated Financial Statements
and Financial Statement Schedule of Security Systems
Holdings, Inc.
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Outside Front Cover Page of Proxy Statement/ Prospectus;
are to be Solicited................................. Available Information; Incorporation of Certain
Documents by Reference; Summary; The Annual Meeting;
Proposal 1: The Merger and the Issuance of the Merger
Shares; The Merger Agreement; Proposals 2(a)-(g): The
Restated Charter Proposals; Proposal 3: Election of the
Triton Board; Proposal 4: Adoption of the 1997 Stock
Incentive Plan; Security Ownership of Certain Beneficial
Owners and Management of Triton Common Stock; Ownership
of Alarmguard Securities Prior to The Merger; Ownership
of Holdings Securities After the Merger; Management of
Holdings After the Merger
19. Information if Proxies, Consents or Authorizations Not Applicable
Are Not to be Solicited or in
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LOCATION OR CAPTION IN PROXY
ITEM OF FORM S-4 STATEMENT/PROSPECTUS
- -------------------------------------------------------- --------------------------------------------------------
an Exchange Offer...................................
</TABLE>
<PAGE>
TRITON GROUP LTD.
550 West "C" Street, Suite 1880
San Diego, California 92101
March 14, 1997
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Triton Group Ltd. ("Triton"), which will be held on April
14, 1997 at 10:00 a.m., local time, at Club 101 at 101 Park Avenue, New York,
NY, 10178, for the following purposes:
1. To approve and adopt an Agreement and Plan of Merger, as amended (the
"Merger Agreement"), among Triton, Security Systems Holdings, Inc.
("Alarmguard") and a wholly-owned subsidiary of Triton ("Merger Sub"),
pursuant to which Merger Sub will be merged with and into Alarmguard (the
"Merger"), with Alarmguard surviving as a wholly-owned subsidiary of Triton.
The Merger Agreement provides that Alarmguard's stockholders will receive an
aggregate amount of approximately 2,877,368 shares (the "Merger Shares") of
common stock, par value $.0001 per share, of Triton ("Triton Common Stock")
(excluding approximately 46,003 shares of Triton Common Stock issuable upon
the exercise of certain stock options of Alarmguard to be assumed by
Triton), which will represent, in the aggregate, approximately 57% of the
shares of Triton Common Stock that will be outstanding upon consummation of
the Merger (giving effect to a one-for-ten reverse stock split of the Triton
Common Stock to be effected prior to the Merger (the "Reverse Stock
Split")). No fractional shares of Triton Common Stock will be issued in the
Merger. In lieu of any such fractional securities, each Alarmguard
stockholder who would otherwise have been entitled to a fraction of a share
of Triton Common Stock will be paid an amount in cash, rounded to the
nearest cent, determined by multiplying (x) the average closing price per
share of Triton Common Stock on the American Stock Exchange for the ten
trading days immediately preceding the second business day prior to the
Merger by (y) the fractional interest to which such holder otherwise would
be entitled. Triton estimates that the total amount of cash required in lieu
of the issuance of any fractional shares will not exceed $10,000, which will
be paid from cash on hand.
2. To approve and adopt the following amendments to Triton's Amended and
Restated Certificate of Incorporation (the "Restated Charter"): (a) to
change the name of Triton to "Alarmguard Holdings, Inc."; (b) to authorize
the Triton Board of Directors to provide for the issuance of preferred stock
(the "Triton Preferred Stock") in one or more classes or series, having such
rights, privileges, designations and preferences as may be determined by the
Triton Board of Directors; (c) to change the authorized capital stock of
Triton to 25 million shares of Triton Common Stock and 5 million shares of
Triton Preferred Stock; (d) to effect the Reverse Stock Split; (e) to
classify the directors of Triton into three classes, with staggered
three-year terms; (f) to eliminate the ability of Triton stockholders to act
by written consent; and (g) to eliminate Triton stockholders' ability to
call a special meeting of the stockholders (collectively, the "Restated
Charter Proposals"). The approval and adoption of each Restated Charter
Proposal is conditioned on the approval and adoption of each of the other
Restated Charter Proposals, and the approval and adoption of the Restated
Charter Proposals is a condition precedent to the obligation of Alarmguard
to consummate the Merger.
3. To elect four persons to the Triton Board of Directors to serve until
the earlier of (a) the next Annual Meeting of Stockholders of Triton and the
election and qualification of their respective successors or (b) the
consummation of the Merger contemplated by the Merger Agreement, in which
case the Triton Board of Directors will consist of seven persons as
described in the attached Proxy Statement/Prospectus.
4. To approve and adopt the 1997 Triton Group Ltd. Long-Term Stock
Incentive Plan (the "1997 Stock Incentive Plan").
5. To transact such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
<PAGE>
Details of the Merger and other important information concerning Triton and
Alarmguard, including certain pro forma financial information, are set forth in
the accompanying Proxy Statement/Prospectus, which you are urged to read. Also
enclosed for your information are copies of Triton's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996 and its Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
The Triton Board of Directors has fixed the close of business on March 13,
1997 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof.
Alarmguard's stockholders who comply with the requirements of Section 262 of
the Delaware General Corporation Law will be entitled to appraisal rights in
connection with the Merger. Holders of Triton Common Stock will not be entitled
under Delaware law to appraisal rights in connection with the Merger.
The accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement/Prospectus contain information about the Merger, the Restated Charter
Proposals, the election of Triton directors, the 1997 Stock Incentive Plan and
the Annual Meeting. The Proxy Statement/Prospectus also provides a detailed
description of the business, operations and recent financial results of
Alarmguard, a privately-held company. We urge you to give this material your
complete attention.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER, THE RESTATED CHARTER PROPOSALS, AND THE 1997 STOCK
INCENTIVE PLAN AND RECOMMENDS THAT ALL TRITON STOCKHOLDERS VOTE TO APPROVE THESE
MATTERS AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
If the accompanying proxy card is properly signed and returned to Triton
prior to the Annual Meeting and not revoked, it will be voted in accordance with
the instructions contained therein. IF NO INSTRUCTIONS ARE GIVEN, THE PERSONS
DESIGNATED AS PROXIES IN THE ACCOMPANYING PROXY CARD WILL VOTE FOR (I) THE
ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE ISSUANCE OF THE MERGER
SHARES; (II) THE RESTATED CHARTER PROPOSALS; (III) THE ELECTION OF THE NOMINEES
TO THE TRITON BOARD; AND (IV) THE APPROVAL OF THE 1997 STOCK INCENTIVE PLAN.
Sincerely yours,
/s/ Michael M. Earley
Michael M. Earley
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ii
<PAGE>
TRITON GROUP LTD.
550 West "C" Street, Suite 1880
San Diego, California 92101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 14, 1997
TO THE STOCKHOLDERS OF TRITON GROUP LTD.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders of Triton
Group Ltd., a Delaware corporation ("Triton"), will be held at Club 101 at 101
Park Avenue, New York, NY 10178, on April 14, 1997 at 10:00 a.m. local time (the
"Annual Meeting"), or at any adjournments or postponements thereof, for the
following purposes:
1. To approve and adopt an Agreement and Plan of Merger, as amended (the
"Merger Agreement"), among Triton, Security Systems Holdings, Inc.
("Alarmguard") and a wholly-owned subsidiary of Triton ("Merger Sub"),
pursuant to which Merger Sub will be merged with and into Alarmguard (the
"Merger"), with Alarmguard surviving as a wholly-owned subsidiary of Triton.
The Merger Agreement provides that Alarmguard's stockholders will receive an
aggregate amount of approximately 2,877,368 shares (the "Merger Shares") of
common stock, par value $.0001 per share, of Triton ("Triton Common Stock")
(excluding approximately 46,003 shares of Triton Common Stock issuable upon
the exercise of certain stock options of Alarmguard to be assumed by
Triton), which will represent, in the aggregate, approximately 57% of the
shares of Triton Common Stock that will be outstanding upon consummation of
the Merger (giving effect to a one-for-ten reverse stock split of the Triton
Common Stock to be effected prior to the Merger (the "Reverse Stock
Split")). No fractional shares of Triton Common Stock will be issued in the
Merger. In lieu of any such fractional securities, each Alarmguard
stockholder who would otherwise have been entitled to a fraction of a share
of Triton Common Stock will be paid an amount in cash, rounded to the
nearest cent, determined by multiplying (x) the average closing price per
share of Triton Common Stock on the American Stock Exchange for the ten
trading days immediately preceding the second business day prior to the
Merger by (y) the fractional interest to which such holder otherwise would
be entitled. Triton estimates that the total amount of cash required in lieu
of the issuance of any fractional shares will not exceed $10,000, which will
be paid from cash on hand.
2. To approve and adopt the following amendments to Triton's Amended and
Restated Certificate of Incorporation (the "Restated Charter"): (a) to
change the name of Triton to "Alarmguard Holdings, Inc."; (b) to authorize
the Triton Board of Directors to provide for the issuance of preferred stock
(the "Triton Preferred Stock") in one or more classes or series, having such
rights, privileges, designations and preferences as may be determined by the
Triton Board of Directors; (c) to change the authorized capital stock of
Triton to 25 million shares of Triton Common Stock and 5 million shares of
Triton Preferred Stock; (d) to effect the Reverse Stock Split; (e) to
classify the directors of Triton into three classes, with staggered
three-year terms; (f) to eliminate the ability of Triton stockholders to act
by written consent; and (g) to eliminate Triton stockholders' ability to
call a special meeting of the stockholders (collectively, the "Restated
Charter Proposals"). The approval and adoption of each Restated Charter
Proposal is conditioned on the approval and adoption of each of the other
Restated Charter Proposals, and the approval and adoption of the Restated
Charter Proposals is a condition precedent to the obligation of Alarmguard
to consummate the Merger.
3. To elect four persons to Triton's Board of Directors to serve until
the earlier of (a) the next Annual Meeting of Stockholders of Triton and the
election and qualification of their respective successors or (b) the
consummation of the Merger contemplated by the Merger Agreement, in which
case the Triton Board of Directors will consist of seven persons as
described in the attached Proxy Statement/Prospectus.
4. To approve and adopt the 1997 Triton Group Ltd. Long-Term Stock
Incentive Plan (the "1997 Stock Incentive Plan").
<PAGE>
5. To transact such other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
Only holders of record of shares of Triton Common Stock at the close of
business on March 13, 1997, the record date for the Annual Meeting, are entitled
to notice of, and to vote at, the Annual Meeting and any adjournments or
postponements thereof. A list of stockholders entitled to vote at the Annual
Meeting will be available for examination by any stockholder, for any purpose
relevant to the Annual Meeting, on and after April 4, 1997, during ordinary
business hours at Triton's principal executive offices located at the address
first set forth above.
Alarmguard's stockholders who comply with the requirements of Section 262 of
the Delaware General Corporation Law will be entitled to appraisal rights in
connection with the Merger. Holders of Triton Common Stock will not be entitled
under Delaware law to appraisal rights in connection with the Merger.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW THE PROXY AND VOTE IN
PERSON.
If the accompanying proxy card is properly signed and returned to Triton
prior to the Annual Meeting and not revoked, it will be voted in accordance with
the instructions contained therein. IF NO INSTRUCTIONS ARE GIVEN, THE PERSONS
DESIGNATED AS PROXIES IN THE ACCOMPANYING PROXY CARD WILL VOTE FOR (I) THE
ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE ISSUANCE OF THE MERGER
SHARES; (II) THE RESTATED CHARTER PROPOSALS; (III) THE ELECTION OF THE NOMINEES
TO THE TRITON BOARD; AND (IV) THE APPROVAL OF THE 1997 STOCK INCENTIVE PLAN.
By Order of the Board of Directors
/s/ Mark G. Foletta
Mark G. Foletta
SECRETARY
San Diego, California
March 14, 1997
ii
<PAGE>
TRITON GROUP LTD.
PROXY STATEMENT/PROSPECTUS
FOR ANNUAL MEETING OF STOCKHOLDERS OF TRITON GROUP LTD.
TO BE HELD ON APRIL 14, 1997
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation on behalf of the Board of Directors of Triton Group Ltd., a
Delaware corporation ("Triton"), of proxies for use at the Annual Meeting of
Stockholders (including any adjournments or postponements thereof) (the "Annual
Meeting") to be held at Club 101 at 101 Park Avenue, New York, NY 10178, on
April 14, 1997, at 10:00 a.m. local time, for the purposes set forth in the
accompanying Notice. This Proxy Statement/Prospectus is accompanied by Triton's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996 (the "Triton
10-K") and Triton's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996 (the "Triton 10-Q").
This Proxy Statement/Prospectus also constitutes the prospectus of Triton
relating to 2,923,371 shares of its common stock, par value $.0001 per share
(the "Triton Common Stock"), to be issued in accordance with the terms of the
Agreement and Plan of Merger, dated December 23, 1996, as amended (the "Merger
Agreement"), described in this Proxy Statement/ Prospectus and attached hereto
as Appendix A, by and among Triton, Triton Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Triton ("Merger Sub"), and Security
Systems Holdings, Inc. ("Alarmguard"), a Delaware corporation that operates
through its wholly-owned subsidiary Alarmguard, Inc. Pursuant to the Merger
Agreement, Merger Sub will merge with and into Alarmguard (the "Merger"), with
Alarmguard surviving as a wholly-owned subsidiary of Triton, and Alarmguard's
stockholders will receive an aggregate amount of approximately 2,877,368 shares
(the "Merger Shares") of Triton Common Stock (which excludes approximately
46,003 shares of Triton Common Stock issuable to the holders of the Assumed
Options (as defined herein) upon the exercise thereof), which will represent, in
the aggregate, approximately 57% of the shares of Triton Common Stock that will
be outstanding upon the consummation of the Merger (giving effect to a
one-for-ten reverse stock split of the Triton Common Stock to be effected
pursuant to the Restated Charter (as defined below) prior to the Merger (the
"Reverse Stock Split")). The 21,553,502 shares of Triton Common Stock that are
currently outstanding (without giving effect to the Reverse Stock Split) will
remain outstanding upon consummation of the Merger and will represent, in the
aggregate, approximately 43% of the Triton Common Stock outstanding upon the
consummation of the Merger. No fractional shares of Triton Common Stock will be
issued in the Merger. In lieu of any such fractional securities, each Alarmguard
stockholder who would otherwise have been entitled to a fraction of a share of
Triton Common Stock will be paid an amount in cash, rounded to the nearest cent,
determined by multiplying (x) the average closing price per share of Triton
Common Stock on the American Stock Exchange (the "AMEX") for the ten trading
days immediately preceding the second business day prior to the Effective Time
(as defined herein) by (y) the fractional interest to which such holder
otherwise would be entitled. Triton estimates that the total amount of cash
required in lieu of the issuance of any fractional shares will not exceed
$10,000, which will be paid from cash on hand.
A condition precedent to the obligation of Alarmguard to consummate the
Merger is the approval and adoption by Triton's stockholders of an amendment and
restatement of Triton's Amended and Restated Certificate of Incorporation (the
"Restated Charter"). In the event that the Merger is approved by the requisite
vote of Triton stockholders, an amendment and restatement of Triton's Amended
and Restated By-Laws (the "Restated By-Laws") also will be effected upon the
consummation of the Merger. See "PROPOSALS 2(a)-(g): THE RESTATED CHARTER
PROPOSALS."
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED WHEN EVALUATING THE MERGER.
This Proxy Statement/Prospectus also relates to proposals to (i) elect four
persons to the Board of Directors of Triton (the "Triton Board") to serve until
the earlier of (a) the next annual meeting of the Triton stockholders and the
election and qualification of their respective successors or (b) the
consummation of the Merger, in which case the Triton Board will consist of seven
persons as described herein; (ii) approve and adopt the 1997 Triton Group Ltd.
Long-Term Stock Incentive Plan; and (iii) transact such other business as may
properly come before the Annual Meeting.
This Proxy Statement/Prospectus and the accompanying proxy card, together
with the Triton 10-K and the Triton 10-Q, are first being mailed on or about
March 17, 1997 to all stockholders of Triton. Only holders of record of Triton
Common Stock at the close of business on March 13, 1997 (the "Record Date") will
be entitled to vote at the Annual Meeting.
Alarmguard's stockholders who comply with the requirements of Section 262
("Section 262") of the Delaware General Corporation Law (the "DGCL") will be
entitled to appraisal rights in connection with the Merger. A copy of Section
262 is attached to this Proxy Statement/Prospectus as Appendix C. Holders of
Triton Common Stock will not be entitled under the DGCL to appraisal rights in
connection with the Merger.
This Proxy Statement/Prospectus does not cover any resales of the Merger
Shares to be received by Alarmguard stockholders upon consummation of the
Merger, and no person is authorized to make use of this Proxy Statement/
Prospectus in connection with any such resale. This Proxy Statement/Prospectus
does not constitute the solicitation of any proxy or written consent of
Alarmguard stockholders.
--------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MARCH 14, 1997.
<PAGE>
AVAILABLE INFORMATION
Triton is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files
periodic reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Triton has filed with the Commission a
Registration Statement on Form S-4 (herein, together with any amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Triton Common Stock to be
issued pursuant to the Merger. The Registration Statement and the exhibits
thereto, as well as the reports, proxy statements and other information filed by
Triton, can be inspected and copied, at prescribed rates, at the public
reference facilities maintained at the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: Seven World Trade Center, Suite 1300, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition,
the Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants, including Triton, that
file electronically with the Commission. The address of such Web site is:
http://www.sec.gov. Such materials and other information concerning Triton also
can be inspected and copied at the offices of the AMEX at 86 Trinity Place, New
York, New York 10006-1888. Alarmguard is not subject to the reporting
requirements of the Exchange Act.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Proxy Statement/Prospectus, or in any document incorporated in
this Proxy Statement/Prospectus by reference, as to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
1. Triton's Annual Report on Form 10-K for the fiscal year ended March 31,
1996, as amended by Triton's Report on Form 10-K/A filed with the Commission on
July 26, 1996 and Triton's Report on Form 10-K/A filed with the Commission on
March 12, 1997;
2. Triton's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996;
3. Triton's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996; and
4. Triton's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
All reports and other documents filed by Triton pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Annual Meeting shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement contained in a report or
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed report or document which also is incorporated or deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE SALE OF ANY
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TRITON OR ALARMGUARD SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ ii
SUMMARY.................................................................................................... 1
General.................................................................................................. 1
The Annual Meeting....................................................................................... 3
Proposal 1: The Merger and the Issuance of the Merger Shares............................................. 4
Proposals 2(a)-(g): The Restated Charter Proposals....................................................... 13
Proposal 3: Election of the Triton Board................................................................. 13
Proposal 4: Adoption of the 1997 Stock Incentive Plan.................................................... 13
Triton Summary Selected Historical Consolidated Financial Data........................................... 14
Alarmguard Summary Selected Historical Consolidated Financial and Operating Data......................... 15
Summary Unaudited Pro Forma Financial Information........................................................ 18
UNAUDITED PRO FORMA BALANCE SHEET DATA..................................................................... 19
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA........................................................... 19
RISK FACTORS............................................................................................... 20
Dependence Upon Direct Marketing Program and Acquisitions for Growth..................................... 20
Risks Related to Dependence Upon the Direct Marketing Program for Growth................................. 20
Risks Related to Dependence Upon Acquisitions for Growth................................................. 21
Need for Additional Capital.............................................................................. 22
History of Net Losses; Anticipated Future Losses......................................................... 23
Impact of Growth Strategy on Quarterly Results of Operations............................................. 23
Risks Related to High Leverage and Debt Service.......................................................... 24
Risks Related to Holding Company Structure............................................................... 24
Restrictions Under New Credit Facility; Consequences of Failure to Comply................................ 24
Management of Growth..................................................................................... 25
Attrition of Subscriber Accounts......................................................................... 25
Possible Adverse Effect of "False Alarm" Ordinances...................................................... 26
Government Regulations; Risks of Liability of Operations................................................. 26
Geographic Concentration................................................................................. 27
Competition.............................................................................................. 27
Dependence on the Central Monitoring Station............................................................. 27
Dependence on Senior Management.......................................................................... 28
Low Trading Volume....................................................................................... 28
Shares Available for Future Sale......................................................................... 28
Absence of Market Prices of Alarmguard Common Stock...................................................... 28
Dilution................................................................................................. 28
Antitakeover Effects of Certain Charter Provisions, Delaware Law......................................... 29
Absence of Fairness Opinion.............................................................................. 29
COMPARATIVE PER SHARE DATA................................................................................. 30
DIVIDENDS AND MARKET PRICES OF TRITON COMMON STOCK AND TRITON PUBLIC WARRANTS.............................. 31
CAPITALIZATION............................................................................................. 32
THE ANNUAL MEETING......................................................................................... 33
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General.................................................................................................. 33
Matters to be Considered at the Annual Meeting........................................................... 33
Voting at the Annual Meeting; Record Date................................................................ 33
Vote Required............................................................................................ 34
PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES............................................... 35
General.................................................................................................. 35
Effective Time........................................................................................... 35
Conversion of Shares..................................................................................... 35
Background of the Merger................................................................................. 35
Recommendation of the Triton Board; Reasons for the Merger............................................... 41
Recommendation of the Alarmguard Board; Reasons for the Merger........................................... 42
Opinion of Financial Advisor to Triton................................................................... 42
Alarmguard Financing..................................................................................... 47
Resale of Holdings Common Stock.......................................................................... 49
The Registration Rights Agreement........................................................................ 50
The Lock-up Agreement.................................................................................... 51
Interests of Certain Persons in the Merger............................................................... 52
Listing of the Merger Shares on the AMEX................................................................. 54
Certain Federal Income Tax Consequences.................................................................. 54
Appraisal Rights......................................................................................... 56
Accounting Treatment..................................................................................... 58
THE MERGER AGREEMENT....................................................................................... 59
General.................................................................................................. 59
Effective Time of the Merger............................................................................. 60
Representations and Warranties........................................................................... 60
Business of Alarmguard Pending the Merger................................................................ 61
Business of Triton Pending the Merger.................................................................... 62
No Solicitation.......................................................................................... 64
Certain Other Covenants.................................................................................. 65
Conditions; Waivers...................................................................................... 66
Amendment; Termination................................................................................... 68
Expenses; Termination Fee................................................................................ 68
PROPOSALS 2(a)-(g): THE RESTATED CHARTER PROPOSALS......................................................... 70
Recommendation of the Triton Board....................................................................... 76
PROPOSAL 3: ELECTION OF THE TRITON BOARD................................................................... 77
Nominees for Election as Directors....................................................................... 77
Directors and Executive Officers of Triton............................................................... 77
Executive Compensation................................................................................... 78
Recommendation of the Triton Board....................................................................... 84
PROPOSAL 4: ADOPTION OF THE 1997 STOCK INCENTIVE PLAN...................................................... 85
Description of the 1997 Stock Incentive Plan............................................................. 85
Federal Tax Consequences................................................................................. 87
Recommendation of the Triton Board....................................................................... 87
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TRITON COMMON STOCK...................... 88
OWNERSHIP OF ALARMGUARD SECURITIES PRIOR TO THE MERGER..................................................... 90
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OWNERSHIP OF HOLDINGS SECURITIES AFTER THE MERGER.......................................................... 92
MANAGEMENT OF HOLDINGS AFTER THE MERGER.................................................................... 94
Directors and Executive Officers of Holdings After the Merger............................................ 94
Executive Compensation................................................................................... 96
Directors Compensation................................................................................... 99
Certain Transactions..................................................................................... 99
DESCRIPTION OF TRITON...................................................................................... 100
General.................................................................................................. 100
Major Developments During 1995 and 1996.................................................................. 101
Financial Reorganization Pursuant to Chapter 11.......................................................... 102
Business................................................................................................. 103
Employees................................................................................................ 103
Properties............................................................................................... 104
Legal Proceedings........................................................................................ 104
Environmental Matters Relating to Certain of Triton's Former Divisions and Subsidiaries.................. 105
DESCRIPTION OF ALARMGUARD.................................................................................. 106
General.................................................................................................. 106
Business................................................................................................. 106
Market Overview and Trends............................................................................... 107
Business Strategy........................................................................................ 109
The Direct Marketing Program............................................................................. 111
The Acquisition Program.................................................................................. 111
Recent Developments...................................................................................... 113
Traditional Sales and Marketing.......................................................................... 113
Sonitrol Franchise....................................................................................... 114
Description of Operations................................................................................ 114
Competition.............................................................................................. 117
Regulatory Matters....................................................................................... 117
Risk Management.......................................................................................... 118
Trademarks............................................................................................... 119
Legal Proceedings........................................................................................ 119
Employees................................................................................................ 119
Facilities............................................................................................... 119
TRITON SELECTED HISTORICAL FINANCIAL DATA.................................................................. 119
TRITON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 121
Background and Recent Developments....................................................................... 121
Business Developments.................................................................................... 122
Financial Reorganization and Basis for Preparation of Financial Statements............................... 124
Liquidity and Capital Resources.......................................................................... 124
Results of Operations.................................................................................... 125
ALARMGUARD SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA................................... 128
ALARMGUARD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 131
General.................................................................................................. 131
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Results of Operations.................................................................................... 134
Liquidity and Capital Resources.......................................................................... 136
Adoption of Recent Accounting Standards.................................................................. 138
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................................... 139
DESCRIPTION OF TRITON CAPITAL STOCK........................................................................ 144
General.................................................................................................. 144
Common Stock............................................................................................. 144
Public Warrants.......................................................................................... 144
DESCRIPTION OF ALARMGUARD CAPITAL STOCK.................................................................... 145
General.................................................................................................. 145
Common Stock............................................................................................. 145
Preferred Stock.......................................................................................... 147
Large Institutional Stockholders......................................................................... 149
Directors' Liability..................................................................................... 149
COMPARATIVE RIGHTS OF TRITON STOCKHOLDERS, ALARMGUARD STOCKHOLDERS AND HOLDINGS STOCKHOLDERS............... 149
Authorized Shares of Capital Stock; Dividends............................................................ 150
Redemption and Repurchase of Capital Stock............................................................... 150
Liquidation Rights....................................................................................... 151
Voting Rights............................................................................................ 151
Supermajority Voting Requirements for Business Combinations.............................................. 151
Preemptive Rights........................................................................................ 152
Registration Rights...................................................................................... 152
Appraisal Rights......................................................................................... 152
Annual Meetings of Stockholders.......................................................................... 152
Special Meetings of Stockholders......................................................................... 153
Stockholder Actions Without a Meeting.................................................................... 153
Stockholder Proposals Procedures......................................................................... 153
Stockholder Rights Plan.................................................................................. 153
Classified Board of Directors............................................................................ 153
Nominations of Directors................................................................................. 154
Removal of Directors..................................................................................... 154
Vacancies in the Board of Directors...................................................................... 154
Indemnification.......................................................................................... 155
Limitation of Personal Liability of Directors............................................................ 155
Amendment of Charter Documents........................................................................... 155
Amendment of By-Laws..................................................................................... 155
LEGAL MATTERS.............................................................................................. 156
EXPERTS.................................................................................................... 156
OTHER BUSINESS............................................................................................. 156
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING.......................................................... 156
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE OF SECURITY SYSTEMS HOLDINGS,
INC. .................................................................................................... F-1
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Appendix A: Agreement and Plan of Merger, as amended
Appendix B: Fairness Opinion of Patricof & Co. Capital Corp.
Appendix C: Section 262 of the Delaware General Corporation Law -- Appraisal Rights
Appendix D-1: Second Amended and Restated Certificate of Incorporation of Triton Group Ltd.
Appendix D-2: Second Amended and Restated By-Laws of Triton Group Ltd.
Appendix E: 1997 Long-Term Stock Incentive Plan
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. THIS SUMMARY IS NOT
INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE
DETAILED INFORMATION CONTAINED ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. UNLESS OTHERWISE INDICATED
OR THE CONTEXT OTHERWISE REQUIRES, AS USED IN THIS PROXY STATEMENT/PROSPECTUS,
THE TERM "ALARMGUARD" REFERS TO SECURITY SYSTEMS HOLDINGS, INC., A DELAWARE
CORPORATION ("SSH"), AND ITS SUBSIDIARIES PRIOR TO THE CONSUMMATION OF THE
MERGER. IN ADDITION, AS USED IN THIS PROXY STATEMENT/PROSPECTUS, (I) THE TERM
"HOLDINGS" REFERS TO ALARMGUARD HOLDINGS, INC. (FORMERLY KNOWN AS TRITON) AND
ITS SUBSIDIARIES AFTER THE CONSUMMATION OF THE MERGER; (II) THE TERM "HOLDINGS
BOARD" REFERS TO THE TRITON BOARD AFTER THE CONSUMMATION OF THE MERGER; AND
(III) THE TERM "HOLDINGS COMMON STOCK" REFERS TO THE TRITON COMMON STOCK AFTER
THE CONSUMMATION OF THE MERGER. UNLESS OTHERWISE INDICATED OR THE CONTEXT
OTHERWISE REQUIRES, ALL REFERENCES TO THE TRITON COMMON STOCK OR THE HOLDINGS
COMMON STOCK GIVE EFFECT TO THE REVERSE STOCK SPLIT.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITH
RESPECT TO ALARMGUARD, TRITON AND HOLDINGS, INCLUDING WITHOUT LIMITATION
STATEMENTS WITH RESPECT TO MONTHLY RECURRING REVENUE OF ALARMGUARD ("MRR"),(1/)
WHICH INVOLVE RISK AND UNCERTAINTIES. THE ACTUAL RESULTS OF ALARMGUARD, TRITON
AND HOLDINGS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF TRITON AND ALARMGUARD ARE URGED TO
READ THIS PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO IN THEIR
ENTIRETY.
GENERAL
TRITON.
Triton is a holding company which historically conducted business through a
number of operating subsidiaries in various industries. Triton emerged from
bankruptcy proceedings under Chapter 11 of the U.S. Bankruptcy Code ("Chapter
11") in June 1993 with operating control of six subsidiaries and a significant
equity interest in a seventh company. Triton announced in August 1993 a plan to
realize value for its stockholders over a relatively short period of time in the
form of either cash or securities which, in the opinion of Triton's management,
would be liquid and fairly valued given the underlying assets. A number of
transactions have occurred since 1993 consistent with this strategy, including a
distribution to Triton's stockholders in December 1995 valued in the aggregate
at $52 million ($2.54 per outstanding share of Triton Common Stock). Triton has
no remaining consolidated operations but owns 676,050 shares of common stock of
Mission West Properties ("Mission West"), a publicly-traded real estate company,
with a quoted market value of $1.4 million at March 13, 1997, and 450,000 shares
(with a face value of $3.6 million) of Series A Convertible Preferred Stock of
Ridgewood Properties, Inc. ("Ridgewood"), a diversified real estate company. At
March 13, 1997, Triton also had $15.3 million in cash and held certain other
miscellaneous assets and liabilities.
Triton's principal executive offices are located at 550 West "C" Street,
Suite 1880, San Diego, California 92101, and its telephone number is (619)
231-1818. See "DESCRIPTION OF TRITON" for a more detailed description of
Triton's business and "RISK FACTORS" for a discussion of the risks associated
with the ownership of Holdings Common Stock.
- ------------------------
1/ As used in this Proxy Statement/Prospectus, MRR means monthly recurring
revenue that Alarmguard (or, if the context requires, another company in the
security alarm industry) is entitled to receive under contracts in effect at the
end of such period. MRR is a term commonly used in the security alarm industry
as a measure of the size of a company. It does not measure profitability or
performance, and does not include any allowance for future subscriber attrition
or for uncollectible accounts receivable.
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ALARMGUARD.
Alarmguard was formed on December 4, 1991 to acquire and manage companies in
the security alarm system installation and monitoring business. Alarmguard sells
and installs burglar and fire alarm systems and provides security alarm
monitoring services and security system repair and maintenance services to
homeowners and businesses, principally in the Northeast and Mid-Atlantic regions
of the United States. Alarmguard provides its security alarm systems and
services primarily under its trademark "Alarmguard." Alarmguard had
approximately 49,000 monitored subscriber accounts as of December 31, 1996
(approximately 68% of which were residential) with an aggregate MRR of
approximately $1.4 million as of December 31, 1996. Based on a survey of
recurring annual revenue set forth in the May 1996 issue of SDM, a security
alarm industry publication, Alarmguard is the fifteenth largest residential and
commercial security alarm monitoring company of the 79 security companies
reported in such survey.
Alarmguard's objective is to provide residential and commercial security
services to an increasing number of subscribers by making such services
affordable and by focusing on markets with attractive demographics. Alarmguard's
growth strategy is to enhance its position in the security alarm monitoring
industry in the Northeastern and Mid-Atlantic United States by increasing the
number and density of subscribers for whom it provides services. Alarmguard is
pursuing this strategy through a balanced growth plan incorporating acquisitions
of portfolios of subscriber accounts in existing and contiguous markets,
internal growth through direct marketing (primarily by means of telemarketing)
to obtain new subscribers (the "Direct Marketing Program") and the continued
growth of Alarmguard's core business through referrals and traditional local
marketing. Alarmguard believes that increasing the number and density of its
subscribers will help it to achieve economies of scale and improve results of
operations, thereby increasing utilization of Alarmguard's central monitoring
station and improving efficiency of its service operations.
On December 20, 1996, Alarmguard entered into a Stock Purchase and Sale
Agreement (the "Stock Purchase Agreement") with respect to a proposed
acquisition (the "Proposed Acquisition") of Protective Alarms, Inc. ("Protective
Alarms"). Protective Alarms is a security alarm systems company doing business
primarily in Connecticut and Westchester County, New York, that provides
security equipment and monitoring services to homeowners and businesses.
Protective Alarms had approximately 9,000 subscribers as of December 31, 1996
(approximately 70% of which were residential). In addition, Protective Alarms
specializes in providing security and monitoring services to businesses with
multiple locations ("Chain Account Sales"), primarily in the Northeastern United
States, under the name "Pro National." Pursuant to the Stock Purchase Agreement,
Alarmguard has agreed to purchase all of the issued and outstanding shares of
capital stock of Protective Alarms for an initial purchase price of
approximately $17.1 million (including $0.1 million of estimated expenses),
subject to certain terms and conditions. Up to $1.6 million in additional
consideration will be paid to the sellers of Protective Alarms, upon the
installation of national account contracts pending on the closing date, during
the year following the closing of the Proposed Acquisition. If the Proposed
Acquisition is consummated, Alarmguard expects to be able to develop its
business with respect to Chain Account Sales. See "DESCRIPTION OF
ALARMGUARD--Recent Developments." Alarmguard continuously pursues both solicited
and unsolicited acquisition opportunities; however, there are currently no
acquisitions (other than the Proposed Acquisition) pending or agreements subject
to which Alarmguard would be bound.
Alarmguard's principal executive offices are located at 125 Frontage Road,
Orange, Connecticut 06477, and its telephone number is (203) 795-9000. See
"DESCRIPTION OF ALARMGUARD" for a more detailed description of Alarmguard's
business.
MERGER SUB.
Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Triton,
was incorporated on December 16, 1996 solely for the purpose of effecting the
Merger. Merger Sub engages in no other business. Merger Sub's principal
executive offices are located at 550 West "C" Street, Suite 1880, San Diego,
California 92101, and its telephone number is (619) 231-1818.
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THE ANNUAL MEETING
The Annual Meeting of stockholders of Triton will be held on April 14, 1997,
at 10:00 a.m. local time, at Club 101 at 101 Park Avenue, New York, NY 10178.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
The purpose of the Annual Meeting will be to (i) consider and vote upon a
proposal to adopt the Merger Agreement and to approve the issuance of the Merger
Shares; (ii) consider and vote upon a proposal to approve and adopt the Restated
Charter Proposals; (iii) elect four persons to the Triton Board to serve until
the earlier of (a) the next annual meeting of Triton stockholders and the
election and qualification of their respective successors or (b) the
consummation of the Merger; (iv) consider and vote upon a proposal to approve
the 1997 Stock Incentive Plan; and (v) transact such other matters as may
properly come before the Annual Meeting. A condition precedent to the obligation
of Alarmguard to consummate the Merger is the approval and adoption of the
Restated Charter Proposals. See "THE ANNUAL MEETING--Matters to Be Considered at
the Annual Meeting."
VOTING AT THE ANNUAL MEETING; RECORD DATE
Only holders of record of Triton Common Stock at the close of business on
the Record Date, March 13, 1997, will be entitled to vote at the Annual Meeting.
As of the close of business on the Record Date, there were 21,553,502 shares of
Triton Common Stock outstanding (without giving effect to the Reverse Stock
Split) and entitled to vote, held of record by approximately 1,500 stockholders.
See "THE ANNUAL MEETING--Voting at the Annual Meeting; Record Date."
The holders of a majority of the shares of Triton Common Stock issued and
outstanding and entitled to vote at the Annual Meeting, present in person or by
proxy, will constitute a quorum at the Annual Meeting. Duly executed, unmarked
proxies will be included in determining whether a quorum is present.
VOTE REQUIRED
The consummation of the Merger is conditioned on, among other things, (i)
the adoption of the Merger Agreement and approval of the issuance of the Merger
Shares and (ii) the adoption and approval of the Restated Charter Proposals by
stockholders of Triton at the Annual Meeting. For a more detailed discussion of
the items upon which the consummation of the Merger is conditioned, see
"--Conditions of the Merger; Termination" and "THE MERGER AGREEMENT--Conditions;
Waivers." Triton stockholders must approve the issuance of the Merger Shares in
order to comply with requirements of the AMEX (on which the Triton Common Stock
is listed) because the issuance of the Merger Shares will result in an increase
in the shares of Triton Common Stock outstanding of more than 20%. Triton
stockholders must approve the 1997 Stock Incentive Plan in order to comply with
the requirements of AMEX because it will authorize the issuance of more than 5%
of the outstanding Triton Common Stock in any one year. The adoption of the
Merger Agreement and issuance of the Merger Shares and the Restated Charter
Proposals will be approved upon receipt of the affirmative vote of the holders
of at least a majority of the outstanding shares of Triton Common Stock entitled
to vote at the Annual Meeting. The affirmative vote of a majority of the votes
cast at the Annual Meeting, assuming a quorum is present, is required for the
approval of the 1997 Stock Incentive Plan, and the affirmative vote of a
plurality of the votes cast at the Annual Meeting is required for the election
of the nominees to the Triton Board. See "THE ANNUAL MEETING--Vote Required." As
of the close of business on March 13, 1997, directors and executive officers of
Triton, together with their affiliates, as a group owned 3.9% of the issued and
outstanding shares of Triton Common Stock. Triton has been informed that each of
its directors and officers currently intends to vote his shares of Triton Common
Stock in favor of the adoption of the Merger Agreement and issuance of the
Merger Shares, the Restated Charter Proposals, the election of the nominees to
the Triton Board and the 1997 Stock Incentive Plan. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TRITON COMMON STOCK."
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PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES
TERMS OF THE MERGER
Pursuant to the terms of the Merger Agreement, Merger Sub will be merged
with and into Alarmguard, with Alarmguard surviving as a wholly-owned subsidiary
of Triton. The Merger Agreement provides that, upon the terms and subject to the
conditions thereof, at the Effective Time (as defined below) the holders of
shares of Alarmguard's (i) Class A Voting Common Stock, $1.00 par value per
share (the "Alarmguard Voting Common Stock"); (ii) Class B Non-Voting Common
Stock, $1.00 par value per share (the "Alarmguard Non-Voting Common Stock" and,
together with the Alarmguard Voting Common Stock, the "Alarmguard Common
Stock"); (iii) Series A Preferred Stock, $100.00 par value per share (the
"Alarmguard Series A Preferred Stock"); and (iv) Series B Preferred Stock,
$120.00 par value per share (the "Alarmguard Series B Preferred Stock" and,
together with the Alarmguard Series A Preferred Stock, the "Alarmguard Preferred
Stock"), issued and outstanding immediately prior to the Effective Time (other
than shares owned by Triton, Merger Sub or any other direct or indirect
wholly-owned subsidiary of Alarmguard or Triton, shares held in treasury by
Alarmguard and shares held by holders who have properly perfected their
appraisal rights under Delaware law), will receive an aggregate of approximately
2,877,368 shares of Triton Common Stock (which excludes approximately 46,003
shares of Triton Common Stock issuable to the holders of the Assumed Options (as
defined below) upon the exercise thereof) which will represent, in the
aggregate, approximately 57% of the shares of Triton Common Stock that will be
outstanding upon the consummation of the Merger (giving effect to the Reverse
Stock Split).
The Merger Shares will be allocated among the Alarmguard stockholders as
follows: (i) the shares of Alarmguard Common Stock will be converted into
approximately 874,683 shares of Triton Common Stock at a conversion ratio of
3.68023 per share (the "Common Stock Conversion Ratio"); (ii) the shares of
Alarmguard Series A Preferred Stock, together with all dividends thereon that
have accrued and remain unpaid through January 31, 1997, will be converted into
approximately 752,649 shares of Triton Common Stock at a conversion ratio of
15.05297 per share (the "Series A Preferred Stock Conversion Ratio"); and (iii)
the shares of Alarmguard Series B Preferred Stock, together with all dividends
thereon that have accrued and remain unpaid through January 31, 1997, will be
converted into approximately 1,250,036 shares of Triton Common Stock at a
conversion ratio of 17.24188 per share (the "Series B Preferred Stock Conversion
Ratio").
The Merger Agreement provides that dividends on the Alarmguard Preferred
Stock that have accrued and remain unpaid from February 1, 1997 through the
Effective Time will be paid at the consummation of the Merger in cash by Triton
to the holders of the Alarmguard Preferred Stock as of such time. Any such
payment will have no effect on the conversion of the Alarmguard Preferred Stock.
The Merger Agreement provides that Triton will not be obligated to pay any
amount in excess of $140,000 of such accrued and unpaid dividends. It is not
expected that the aggregate of such payment will exceed $140,000 on or before
the date of the Merger. If the Merger is consummated, any accrued and unpaid
dividends on the Alarmguard Preferred Stock in excess of $140,000 would become
the obligation of Holdings. If the Merger is not consummated, any such dividends
would remain the obligation of Alarmguard.
No fractional shares of Triton Common Stock will be issued in the Merger. In
lieu of any such fractional securities, each holder of Alarmguard Common Stock
or Alarmguard Preferred Stock who would otherwise have been entitled to a
fraction of a share of Triton Common Stock will be paid an amount in cash,
rounded to the nearest cent, determined by multiplying (x) the average closing
price per share of Triton Common Stock on the AMEX for the ten trading days
immediately preceding the second business day prior to the Effective Time by (y)
the fractional interest to which such holder otherwise would be entitled. In
addition, the Merger Agreement provides that, at the Effective Time, each share
of common stock, $.01 par value per share, of Merger Sub (the "Merger Sub Common
Stock") will be converted into and exchanged for one share of common stock, $.01
par value per share (the "Surviving Corporation Common Stock"), of the surviving
corporation in the Merger (the "Surviving Corporation"). Upon consummation of
the Merger, the Surviving Corporation will be a wholly-owned subsidiary of
Holdings.
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The "Effective Time" means the date and time of the filing of a certificate of
merger as contemplated by the DGCL relating to the Merger, with the Secretary of
the State of Delaware, in such form as required by, and executed in accordance
with, the relevant provisions of the DGCL. See "PROPOSAL 1: THE MERGER AND THE
ISSUANCE OF THE MERGER SHARES--Conversion of Shares."
For a discussion of the items upon which the consummation of the Merger is
conditioned, see "-- Conditions of the Merger; Termination" and "THE MERGER
AGREEMENT--Conditions; Waivers."
A copy of the Merger Agreement is set forth as Appendix A hereto and is
incorporated herein by reference. See "THE MERGER AGREEMENT."
As of March 13, 1997, Alarmguard had outstanding stock options to purchase
up to 12,500 shares of Alarmguard Common Stock under certain stock option
agreements. Under the Merger Agreement, Triton has agreed to assume such options
(the "Assumed Options"), on the terms set forth therein, whether or not such
options are vested or exercisable. Upon the consummation of the Merger, the
Assumed Options will constitute options to acquire, on the same terms and
conditions as were applicable to such options to purchase Alarmguard Common
Stock (subject to certain adjustments), approximately 46,003 shares of Triton
Common Stock based on the Common Stock Conversion Ratio. The exercise price for
each Assumed Option will be the exercise price per share of the Alarmguard
Common Stock divided by the Common Stock Conversion Ratio. Under the Merger
Agreement, Holdings has agreed to file with the Commission as soon as
practicable following the Effective Time a registration statement on Form S-8
with respect to the shares of Triton Common Stock that will be subject to the
Assumed Options. See "THE MERGER AGREEMENT--General--Conversion of Alarmguard
Common Stock and Alarmguard Preferred Stock in the Merger."
MANAGEMENT AND OPERATION OF HOLDINGS AFTER THE MERGER
Upon the consummation of the Merger, the Surviving Corporation will become a
wholly-owned subsidiary of Holdings and the business of Alarmguard prior to the
Merger will become the principal business of Holdings. In addition, upon
consummation of the Merger, persons designated by Alarmguard will hold five of
the seven seats on the Holdings Board and the current management of Alarmguard
will become the management of Holdings.
RECOMMENDATION OF THE TRITON AND ALARMGUARD BOARDS; REASONS FOR THE MERGER
On December 21, 1996, the Triton Board unanimously approved the Merger
Agreement, the Merger and the issuance of the Merger Shares, determined that the
Merger is in the best interests of Triton and its stockholders and recommended
that the stockholders of Triton vote FOR the approval of the Merger Agreement
and the issuance of the Merger Shares. Prior to making this recommendation, the
Triton Board carefully analyzed, with the assistance of its financial advisor,
Patricof & Co. Capital Corp. ("Patricof"), the value of Alarmguard's business
and the consideration proposed to be paid by Triton. Patricof, which has served
as financial advisor to Triton since October 1993, delivered an oral opinion to
the Triton Board on December 21, 1996 relating to the fairness of the Merger
from a financial point of view. On such date, the Triton Board also unanimously
approved (i) the Restated Charter Proposals and (ii) the 1997 Stock Incentive
Plan and recommended that the stockholders of Triton vote FOR the approval of
each such proposal. See "--Opinion of Financial Advisor to Triton," "PROPOSAL 1:
THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--Recommendation of the Triton
Board; Reasons for the Merger" and "--Opinion of Financial Advisor to Triton."
On December 23, 1996, the Board of Directors of Alarmguard (the "Alarmguard
Board"), with all members present in person or by proxy, unanimously approved
the Merger Agreement, determined that the Merger is in the best interests of
Alarmguard and its stockholders and recommended that the stockholders of
Alarmguard vote FOR the approval of the Merger at the special meeting of
Alarmguard stockholders to be held for the purpose of approving the Merger. See
"PROPOSAL 1: THE MERGER
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AND THE ISSUANCE OF THE MERGER SHARES--Background of the Merger." Upon careful
review, the Alarmguard Board has determined that the Merger would contribute to
its objective of maximizing stockholder value by giving Alarmguard the
opportunity to utilize the cash reserves of Triton, and to expand its financing
under a new credit facility available upon consummation of the Merger, which
would enable Alarmguard to continue the growth of its business through
acquisitions and the Direct Marketing Program. Additionally, the listing of the
Holdings Common Stock on the AMEX would provide Alarmguard with an alternative
to consummating future acquisitions with cash and would provide Alarmguard's
stockholders with liquidity and a public market for their holdings. See
"PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--Recommendation of
the Alarmguard Board; Reasons for the Merger." Pursuant to a lock-up agreement,
dated December 23, 1996 (the "Lock-up Agreement"), the holders of approximately
88.4% of the Alarmguard Voting Common Stock and approximately 81.4% of the
Alarmguard Preferred Stock (collectively, the "Lock-up Stockholders") have
agreed to vote such shares in favor of the Merger. See "--The Lock-up Agreement"
and "PROPOSAL 1: THE MERGER AGREEMENT AND THE ISSUANCE OF THE MERGER SHARES--The
Lock-up Agreement."
OPINION OF FINANCIAL ADVISOR TO TRITON
At the request of Triton, on December 21, 1996, Patricof delivered an oral
opinion to the Triton Board to the effect that, at that date, the Merger was
fair, from a financial point of view, to the holders of Triton Common Stock.
Patricof has confirmed this opinion in a written opinion dated as of the date of
this Proxy Statement/Prospectus. The full text of the written opinion of
Patricof is set forth as Appendix B to this Proxy Statement/Prospectus and
describes the assumptions made, matters considered and limits on the review
undertaken. Triton stockholders are urged to read such opinion in its entirety.
See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--Opinion of
Financial Advisor to Triton."
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions to the Merger, the Merger will be consummated by the filing of a
certificate of merger as contemplated by the DGCL, together with any required
related certificates, with the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL.
ALARMGUARD FINANCING
Pursuant to a commitment letter, dated October 31, 1996 (the "Commitment
Letter"), from Bank of Boston Connecticut ("Bank of Boston") to Alarmguard,
Inc., a wholly-owned subsidiary of Alarmguard (the "Borrower"), Bank of Boston
has committed to provide to the Borrower, upon consummation of the Merger, up to
$60 million under a two-year senior secured revolving credit facility that will
convert to a five-year term loan at the end of such two-year period (the "New
Credit Facility"), subject to the terms and conditions of the Commitment Letter.
There can be no assurance as to whether, or the definitive terms on which, the
New Credit Facility actually will be available to Alarmguard. Bank of Boston
will act as syndiciation, administrative and documentation agent (the "Agent")
for the New Credit Facility. See "PROPOSAL 1: THE MERGER AGREEMENT AND THE
ISSUANCE OF THE MERGER SHARES--Alarmguard Financing." On February 10, 1997, SSH
executed a bridge note payable to Triton (the "Bridge Note") establishing a line
of credit in the amount of up to $1.5 million, and on that date borrowed
$500,000 thereunder. The Bridge Note is available to Alarmguard for borrowings
through April 30, 1997 absent an event of default thereunder. All amounts
outstanding under the Bridge Note bear interest at a rate of 11% per annum, are
to be prepaid in full upon consummation of the Merger and are otherwise due on
June 30, 1997 (the "Maturity Date"). See "PROPOSAL 1: THE MERGER AND THE
ISSUANCE OF THE MERGER SHARES--Alarmguard Financing."
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THE REGISTRATION RIGHTS AGREEMENT
The Merger Agreement provides that as a condition to and simultaneously with
the closing of the Merger, Triton is required to enter into an agreement (the
"Registration Rights Agreement"), which will provide (i) demand and piggyback
registration rights to Canaan Venture Limited Partnership, Canaan Venture
Offshore Limited Partnership, CV (collectively, the "Canaan Entities") and
Triumph-Connecticut Limited Partnership ("Triumph" and, together with the Canaan
Entities, the "Demand Holders"); (ii) piggyback registration rights to Alis &
Co. ("Alis") and Thorne-Barnes Donnelley 1994 Trust (the "1994 Trust" and,
together with Alis, the "Alis Entities"); and (iii) piggyback registration
rights to Michael M. Earley, Mark G. Foletta, Richard R. Tartre, Michael E.
Cahr, Patricof and certain other non-affiliated Triton stockholders
(collectively, the "Triton Holders" and, together with the Demand Holders and
the Alis Entities and each of their respective affiliates or other permitted
transferees, the "Holders") with respect to shares of Holdings Common Stock to
be owned by them (the "Registrable Securities"). The Registration Rights
Agreement will provide the Demand Holders with two "demand" registration rights
with respect to all or a portion of the Registrable Securities that will be
owned by them after consummation of the Merger. Collectively, the Holders will
own (assuming the exercise of the Patricof Warrants (as defined below))
approximately 2,100,622 shares of Holdings Common Stock. Each of the Canaan
Entities, Triumph and the Alis Entities are affiliates of Alarmguard. Messrs.
Earley, Foletta, Tartre and Cahr are directors of Triton. Patricof has delivered
to the Triton Board a fairness opinion with respect to the Merger. See "OTHER
AGREEMENTS--The Registration Rights Agreement."
THE LOCK-UP AGREEMENT
Pursuant to the Lock-up Agreement, the Lock-up Stockholders have agreed that
prior to the earlier of the Effective Time or the termination of the Merger
Agreement, but in no event later than April 30, 1997, they will not (i) dispose
of any Alarmguard Common Stock or Alarmguard Preferred Stock owned by them; (ii)
enter into any voting agreement with respect to shares of Alarmguard Common
Stock or Alarmguard Preferred Stock owned by them; (iii) engage in certain
activities relating to business combinations involving Alarmguard other than the
Merger; or (iv) otherwise take any action inconsistent with the Merger Agreement
or that would prevent any condition precedent to the Merger from being satisfied
at or prior to the Effective Time. In addition, the Lock-up Stockholders have
agreed to vote their shares of Alarmguard Common Stock and Alarmguard Preferred
Stock in favor of the Merger. The Lock-up Stockholders include the Canaan
Entities, Triumph, the Alis Entities, The Northern Trust Company, as Trustee for
the trust designated by the name of Thorne Barnes Donnelley under the will of
Thorne Donnelley, deceased, account #01-31219 (the "Trust"), Wiley T. Buchanan
III, Davis Capital, LLC ("Davis Capital"), Stuart L. Bell in his individual
capacity and as custodian for the benefit of his children, Russell R.
MacDonnell, David Heidecorn and Gregory J. Westhoff. Messrs. Buchanan and Bell
and Ronald V. Davis (who controls Davis Capital) are currently directors of
Alarmguard; the Trust is a holder of Alarmguard Common Stock and Alarmguard
Preferred Stock; Messrs. MacDonnell and Heidecorn are currently directors and
executive officers of Alarmguard; and Mr. Westhoff is currently an executive
officer of Alarmguard. As a group, the Lock-up Stockholders have voting power
with respect to approximately 88.4% of the Alarmguard Voting Common Stock and
approximately 81.4% of the Alarmguard Preferred Stock. The Lock-up Agreement was
executed on December 23, 1996. See "THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--The Lock-up Agreement."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain stockholders, members of management and directors of Alarmguard and
Triton have certain interests in the Merger that are different from, or in
addition to, the general interests of stockholders of Alarmguard or Triton,
respectively.
Certain affiliates and executive officers and directors of Alarmguard
(including the Alis Entities, BF Partners (of which Stuart L. Bell is a
partner), Russell R. MacDonnell and David Heidecorn) and other
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persons and entities who are currently holders of Alarmguard debt (collectively,
the "New Subordinated Noteholders") have agreed in principle (the "Agreement in
Principle") to purchase immediately upon consummation of the Merger
approximately $4.6 million in aggregate principal amount of newly-issued
subordinated notes of SSH (the "New Notes") in connection with a refinancing of
SSH's existing subordinated indebtedness. The New Notes will pay interest at a
fixed rate of 15% per annum, and will mature two years from the date of issuance
(the "Fund Date"). The Agreement in Principle obligates Alarmguard to issue
warrants for the purchase of 215,939 shares of Holdings Common Stock, which
warrants will be exercisable at an exercise price per share of $11.11 (the "New
Noteholders Warrants") and will be issued pro rata to the New Noteholders on the
Fund Date. The issuance of the New Notes is conditioned upon the consummation of
the Merger. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--Interests of Certain Persons in the Merger--Refinancing of SSH's
Existing Subordinated Debt."
As a condition to Alarmguard's obligation to effect the Merger, Triton is
required to enter into severance agreements (the "Severance Agreements") with
the following senior management executives of Alarmguard: Russell R. MacDonnell,
who is expected to become Chairman, President and Chief Executive Officer of
Holdings; David Heidecorn, who is expected to become Chief Financial Officer and
Executive Vice President of Holdings; and Gregory J. Westhoff, who is expected
to become Vice President of Holdings (collectively, the "Executives"). The
Severance Agreements will provide benefits to the Executives in the event of
their resignation for "good reason," termination without "cause," or their
termination or resignation for any reason after a "change in control" (as such
terms are defined in the Severance Agreements). See "PROPOSAL 1: THE MERGER AND
THE ISSUANCE OF THE MERGER SHARES--Interests of Certain Persons in the
Merger--Severance, Management Agreements."
As a condition to Alarmguard's obligation to effect the Merger, Triton is
required to adopt (subject to stockholder approval) the 1997 Stock Incentive
Plan, participants in which will include Russell R. MacDonnell, David Heidecorn,
Gregory J. Westhoff and other persons who will be key management executives of
Holdings; and Michael M. Earley, Michael E. Cahr and Stuart L. Bell, who are
expected to become directors of Holdings. See "MANAGEMENT OF HOLDINGS AFTER THE
MERGER-- Executive Compensation" and "PROPOSAL 4: ADOPTION OF THE 1997 STOCK
INCENTIVE PLAN."
In connection with the Merger, Triton will, prior to the Effective Time,
enter into a one-year Management Agreement (the "TGM Management Agreement") with
Triton Group Management, Inc. ("TGM"), an entity to be formed by Michael M.
Earley and Mark G. Foletta. Pursuant to the TGM Management Agreement, Triton
will engage TGM to assume the costs and maintain Triton's San Diego office and
to provide management and consulting services to Holdings and will pay TGM, as
compensation, an aggregate of $540,000, $300,000 of which is payable by Triton
upon consummation of the Merger, with the remaining $240,000 payable by Holdings
in equal monthly installments of $20,000 for the one-year term of the contract.
See "MANAGEMENT OF HOLDINGS AFTER THE MERGER--Executive Compensation."
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The Merger Agreement provides that, as a condition to and simultaneously
with the closing of the Merger, Holdings is required to enter into the
Registration Rights Agreement, which will provide the Holders with certain
"demand" and/or "piggyback" rights to require Holdings to register all or a
portion of the Registrable Securities. The Holders include certain investors in,
and executive officers and directors of, Alarmguard and Triton. See "--The
Registration Rights Agreement" and "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF
THE MERGER SHARES--The Registration Rights Agreement."
Pursuant to an engagement letter, Triton has agreed, among other things, to
pay Patricof a cash success fee of $300,000 due at closing of a transaction with
any potential acquiror, acquisition candidate or merger partner of Triton. Such
fee will become payable upon the consummation of the Merger. Tiger Lilly, L.P.,
a Delaware limited partnership and an affiliate of Patricof ("Tiger Lilly"),
owns, without giving effect to the Reverse Stock Split, 150,000 shares of Triton
Common Stock and 500,000 warrants (the "Patricof Warrants") entitling Tiger
Lilly to purchase an aggregate of 500,000 shares of Triton Common Stock at an
initial exercise price of $0.50 per share prior to December 30, 2000. The
Patricof Warrants are currently exercisable. Triton has agreed to pay Patricof
$75,000 in connection with Patricof's rendering of the fairness opinion
described in "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--Opinion of Financial Advisor to Triton."
Pursuant to the Merger Agreement, Holdings will be required to indemnify
Triton's existing officers and directors against any claims arising prior to the
Effective Time to the fullest extent permitted under Delaware law and to
maintain directors' and officers' liability insurance covering such persons for
five years following the Effective Time. See "PROPOSAL 1: THE MERGER AND THE
ISSUANCE OF THE MERGER SHARES--Interests of Certain Persons in the
Merger--Indemnification."
Future transactions with affiliates of Holdings, if any, will be on terms
believed by Holdings to be no less favorable than are available from
unaffiliated third parties. Such interested party transactions will be approved
in light of the circumstances of the particular transaction and in accordance
with the provisions of the DGCL applicable to interested party transactions.
LISTING OF THE MERGER SHARES ON THE AMEX
Triton has agreed to cause the Merger Shares to be listed for trading on the
AMEX. Such authorization for listing is a condition to the obligations of
Triton, Merger Sub and Alarmguard to consummate the Merger. Triton has received
a favorable preliminary listing eligibility opinion from the AMEX. See "PROPOSAL
1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES-- Listing of the Merger
Shares on the AMEX."
BUSINESS OF ALARMGUARD AND TRITON PENDING THE MERGER
Each of Alarmguard and Triton has agreed that, prior to the Effective Time
or earlier termination of the Merger Agreement, except as contemplated by the
Merger Agreement, it and its subsidiaries will conduct its business according to
its ordinary course of business consistent with past practice with certain
exceptions permitted pursuant to the Merger Agreement. In addition, unless the
other party agrees in writing or except as otherwise permitted pursuant to the
Merger Agreement or as previously disclosed to the other party, prior to the
Effective Time neither Alarmguard, Triton nor any of their respective
subsidiaries is permitted to engage in any of a number of actions specified in
the Merger Agreement. See "THE MERGER AGREEMENT--Business of Alarmguard Pending
the Merger" and "--Business of Triton Pending the Merger."
CONDITIONS OF THE MERGER; TERMINATION
The respective obligations of Alarmguard, Triton and Merger Sub to effect
the Merger are subject to the satisfaction at or prior to the Effective Time of
the following material conditions: (i) the Registration Statement of which this
Proxy Statement/Prospectus forms a part shall have been declared effective by
the
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Commission; (ii) the Merger Agreement and the Merger shall have been approved
and adopted by the requisite vote of Alarmguard stockholders and the issuance of
the Merger Shares shall have been approved by the requisite vote of Triton
stockholders; (iii) the Merger Shares shall have been authorized for listing on
the AMEX upon official notice of issuance; (iv) there shall have been
established bank lines of credit for Alarmguard totaling at least $55 million;
(v) no order issued by any court of competent jurisdiction preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any governmental authority seeking the foregoing be pending, and there shall
not be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal; and (vi) there shall not have been
instituted any proceeding (or any investigation that might result in such a
proceeding) by, or any final judgment of, any governmental authority seeking to
prohibit or limit Triton from exercising all material rights and privileges
pertaining to its ownership of the Surviving Corporation or the ownership or
operation by Triton or any of its subsidiaries of all or a material portion of
the business or assets of Alarmguard.
The respective obligations of Triton and Merger Sub to effect the Merger are
also subject to the satisfaction of the following additional material
conditions: (i) the representations and warranties of Alarmguard contained in
the Merger Agreement shall be true and correct in all respects on and as of the
Effective Time (subject to certain exceptions); (ii) Alarmguard shall have
performed or complied in all material respect with all agreements and covenants
required by the Merger Agreement to be performed or complied with by it on or
prior to the Effective Time; (iii) all material consents required to be
obtained, and all filings required to be made, by Alarmguard for the
authorization, execution and delivery of the Merger Agreement and the
consummation by it of the transactions contemplated thereby shall have been
obtained and made by Alarmguard, except where the failure to receive such
consents, etc. could not reasonably be expected to have a material adverse
effect on Alarmguard or Triton; (iv) Triton shall have received from Alarmguard
an opinion of counsel to Alarmguard; (v) there shall not be any change in facts
or circumstances that would prevent Triton from receiving an update to
Patricof's fairness opinion, dated the date this Proxy Statement/Prospectus is
mailed to the Triton stockholders or the Effective Time, to the effect that the
Merger is fair, from a financial point of view, to the Triton stockholders; (vi)
Alarmguard shall have entered into letters of intent or other agreements
providing for acquisitions for cash or stock by Alarmguard of assets or stock of
corporations having an aggregate MRR of $500,000; (vii) Alarmguard shall have
achieved MRR of an average of at least $1.37 million for the two months prior to
closing; (viii) Alarmguard shall have restructured its existing subordinated
indebtedness on the terms set forth in the Agreement in Principle or on terms
more favorable to Alarmguard; (ix) since the date of the Merger Agreement, there
shall not have been any material adverse change with respect to the business,
financial condition or results of operations of Alarmguard; (x) the Lock-up
Agreement shall be in full force and effect in accordance with its terms; and
(xi) holders of not more than 5.0% of the outstanding shares of Alarmguard
Voting Common Stock shall have demanded appraisal rights for their shares in
accordance with Delaware law.
The obligations of Alarmguard to effect the Merger are also subject to the
satisfaction of the following additional material conditions: (i) the
representations and warranties of Triton and Merger Sub contained in the Merger
Agreement shall be true and correct in all respects on and as of the Effective
Time (subject to certain exceptions); (ii) Triton and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by the Merger Agreement to be performed or complied with by them on or
prior to the Effective Time; (iii) all material consents required to be
obtained, and all filings required to be made, by Triton and Merger Sub for the
authorization, execution and delivery of the Merger Agreement and the
consummation by them of the transactions contemplated thereby shall have been
obtained and made by Triton and Merger Sub, except where the failure to receive
such consents, etc. could not reasonably be expected to have a material adverse
effect on Alarmguard or Triton; (iv) Alarmguard shall have received from Triton
an opinion of counsel to Triton; (v) Alarmguard shall have received from Ernst &
Young LLP, Alarmguard's certified public accountants and tax advisors ("Ernst &
Young"), an opinion with respect to certain tax matters; (vi) Triton shall have
established a cash balance of at least $16
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million net of all accrued income taxes for the fiscal year ending March 31,
1997; (vii) since the date of the Merger Agreement, there shall not have been
any material adverse change with respect to the business, financial condition or
results of operations of Triton; (viii) Triton shall have entered into the
Severance Agreements effective as of the Effective Time with each of the
Executives; (ix) Triton shall have entered into a stock option and assumption
agreement with each of the holders of the Assumed Options substantially in the
form of an exhibit to the Merger Agreement; (x) Holdings shall have entered into
the Registration Rights Agreement; (xi) Triton shall have terminated its oral
consulting agreements with Michael M. Earley and Mark G. Foletta; and (xii)
Triton shall have terminated Patricof's registration rights provided under the
Patricof Warrants and under that certain warrant, dated October 13, 1993, issued
by Triton to Patricof for the purchase of an aggregate of 150,000 shares of
Triton Common Stock. See "THE MERGER AGREEMENT--Conditions; Waivers."
The Merger Agreement may be terminated (i) by mutual consent of Triton and
Alarmguard; (ii) by either Triton or Alarmguard if the Merger has not been
consummated by April 30, 1997; (iii) by Triton or Alarmguard if any of the other
party's representations, warranties, agreements or covenants are untrue in any
material respect; (iv) by either Triton or Alarmguard if there is a
non-appealable final order, ruling or any other action having the effect of
permanently prohibiting the Merger; or (v) if the Alarmguard Board or Triton
Board changes its recommendation with respect to the Merger in a manner adverse
to the other party, recommends to its stockholders an Acquisition Proposal (as
defined below) or enters into an agreement providing for the implementation of
an Acquisition Proposal. See "THE MERGER AGREEMENT--Amendment; Termination."
"Acquisition Proposal" means any inquiries or proposals regarding any merger,
financing (with certain exceptions), consolidation, sale of substantial assets,
sale of shares of capital stock (including without limitation by way of a tender
offer) or similar transaction involving Triton or any of its subsidiaries or
Alarmguard or any of its subsidiaries, as the case may be. See "THE MERGER
AGREEMENT--Expenses, Termination Fee."
At any time prior to the Effective Time, to the extent legally allowed,
Triton or Alarmguard, without approval of the stockholders of Triton or
Alarmguard, may waive compliance with any of the agreements or conditions
contained in the Merger Agreement to be performed by the other party.
EXPENSES; TERMINATION FEE
Each of Triton and Alarmguard will bear its own expenses incurred in
connection with the transactions contemplated by the Merger Agreement, except
that Triton and Alarmguard will share equally all fees and expenses, other than
attorneys' fees, incurred in connection with the printing and filing of this
Proxy Statement/Prospectus. The Merger Agreement requires Alarmguard or Triton,
as the case may be, to pay the other party a fee of $1 million if (i)(A) the
Triton or Alarmguard Board, as the case may be, withdraws, modifies or changes
its approval or recommendation of the Merger Agreement or the Merger in a manner
adverse to Alarmguard or Triton, as the case may be, (B) the Triton or
Alarmguard Board, as the case may be, recommends an Acquisition Proposal to
their respective stockholders or (C) Triton or Alarmguard, as the case may be,
enters into an agreement providing for the implementation of an Acquisition
Proposal; (ii) Triton or Alarmguard, as the case may be, terminates the Merger
Agreement on the grounds that any of Alarmguard's or Triton's representations,
warranties, agreements or covenants, as the case may be, are untrue or
unsatisfied; or (iii) any Acquisition Proposal with respect to Alarmguard or
Triton, as the case may be, is commenced, proposed or disclosed after the date
of the Merger Agreement and (A) the Alarmguard or Triton Board, as the case may
be, takes any Permitted Action (as defined herein under "THE MERGER
AGREEMENT--No Solicitation"), (B) the Merger Agreement is terminated by Triton
or Alarmguard, as the case may be, because the Merger has not been consummated
by April 30, 1997, and (C) on or prior to June 30, 1997, such Acquisition
Proposal is consummated or Alarmguard or Triton, as the case may be, enters into
an agreement with respect thereto. See "THE MERGER AGREEMENT-- Expenses;
Termination Fee."
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APPRAISAL RIGHTS
Under Delaware law, holders of Alarmguard Common Stock and Alarmguard
Preferred Stock who comply with the requirements of Section 262 will be entitled
to appraisal rights in connection with the Merger. A copy of Section 262 is
attached to this Proxy Statement/Prospectus as Appendix C. Holders of Triton
Common Stock will not be entitled to appraisal rights in connection with the
Merger. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--Appraisal Rights."
ACCOUNTING TREATMENT
The Merger will be accounted for as a "reverse acquisition" such that Triton
will be designated the accounting acquiree and Alarmguard the accounting
acquiror. As such, the net assets of Triton (principally cash) will be recorded
at net book value and the pre-Merger financial statements of Alarmguard will
become the historical financial statements of Holdings. In addition,
Alarmguard's pre-Merger stockholders' deficiency and loss per common share will
be retroactively restated for the equivalent number of Merger Shares received by
the stockholders of Alarmguard in the Merger, with differences between the par
values of Triton's stock and Alarmguard's stock recorded as an adjustment to
paid-in capital of Holdings. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE
MERGER SHARES-- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The consummation of the Merger is conditioned upon the receipt by Alarmguard
of an opinion (the "Tax Opinion") of Ernst & Young to the effect that the Merger
should be treated for federal income tax purposes as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Tax Opinion, subject to certain assumptions and limitations set
forth therein, is based upon the Code and authorities interpreting the Code as
of the date of the issuance of such opinion, the receipt of certain customary
representations to be made by executives of each of Alarmguard and Triton and
certain other information, data, documentation and materials as deemed
necessary. No ruling will be sought from the Internal Revenue Service (the
"IRS") regarding the Merger, and consequently, there is no assurance that the
IRS or a court will agree with the conclusions expressed in such opinion.
The Tax Opinion is limited to certain material United States federal income
tax consequences, which are as follows: (i) no gain or loss will be recognized
by existing holders of Alarmguard Common Stock and Alarmguard Preferred Stock
upon the conversion of their shares of Alarmguard Common Stock and Alarmguard
Preferred Stock into the Merger Shares except to the extent that cash is
received in lieu of fractional shares or cash is received by the holders of
Alarmguard Preferred Stock for dividends that have accrued (and remained unpaid)
from February 1, 1997 through the Effective Time; (ii) the tax basis of the
shares of Holdings Common Stock received by existing holders of Alarmguard
Common Stock or Alarmguard Preferred Stock will be the same as such holder's tax
basis in the shares of Alarmguard Common Stock or Alarmguard Preferred Stock
being converted pursuant to the Merger, reduced by the ratable portion allocable
to any cash received in lieu of fractional shares, and a holder of Alarmguard
Preferred Stock who receives cash in exchange for the right to receive dividends
will recognize ordinary income to the extent of Alarmguard's and Triton's
current and accumulated earnings and profits; (iii) the holding period of the
shares of Holdings Common Stock received by a former holder of Alarmguard Common
Stock or Alarmguard Preferred Stock pursuant to the Merger will include the
holding period of such holder's shares of Alarmguard Common Stock or Alarmguard
Preferred Stock being converted pursuant to the Merger; and (iv) neither
Holdings nor the existing stockholders of Triton will recognize any gain or loss
as a result of the Merger. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE
MERGER SHARES--Certain Federal Income Tax Consequences."
12
<PAGE>
PROPOSALS 2(A)-(G): THE RESTATED CHARTER PROPOSALS
Pursuant to the provisions of the Merger Agreement, Triton has agreed to
take all action necessary to approve and submit to the Triton stockholders an
amendment and restatement of Triton's Amended and Restated Certificate of
Incorporation (the "Triton Charter") in the form of the Restated Charter, which
is set forth as Appendix D-1 hereto. The proposals to amend the Triton Charter
are as follows: (a) to change the name of Triton to "Alarmguard Holdings, Inc.";
(b) to authorize the Triton Board to provide for the issuance of preferred stock
(the "Triton Preferred Stock") in one or more classes or series, having such
rights, privileges, designations and preferences as may be determined by the
Triton Board; (c) to change the authorized capital stock of Triton to 25 million
shares of Triton Common Stock and 5 million shares of Triton Preferred Stock;
(d) to effect the Reverse Stock Split; (e) to classify the directors of Triton
into three classes, with staggered three-year terms; (f) to eliminate the
ability of Triton stockholders to act by written consent; and (g) to eliminate
Triton stockholders' ability to call a special meeting of the stockholders.
Certain of the amendments to the Triton Charter to be made by the Restated
Charter (including those identified in clauses (b), (e), (f) and (g) above) may
in certain circumstances have the effect of discouraging or delaying attempts to
acquire control of Triton which may be favored by some or a majority of Triton's
stockholders. See "PROPOSALS 2(a)-(g): THE RESTATED CHARTER PROPOSALS." The
Triton Board unanimously recommends a vote FOR approval of the Restated Charter
Proposals. The approval and adoption of each Restated Charter Proposal is
conditioned on the approval and adoption of each of the other Restated Charter
Proposals, and the approval and adoption of the Restated Charter Proposals is a
condition precedent to Alarmguard's obligation to consummate the Merger. In the
event that Proposal 1 is approved by the requisite vote of Triton stockholders,
an amendment and restatement of Triton's Amended and Restated By-Laws (the
"Triton By-Laws") in the form of the Restated By-Laws, which are set forth as
Appendix D-2 hereto, will be effected upon the consummation of the Merger.
PROPOSAL 3: ELECTION OF THE TRITON BOARD
The Triton Board currently consists of four members. All of the directors
are elected annually and hold office until the next succeeding annual meeting of
Triton stockholders or until their respective successors are duly elected and
qualified. The following persons are nominees for election as directors to serve
until the earlier of (a) the next annual meeting of Triton stockholders and the
election and qualification of their respective successors or (b) the
consummation of the Merger: Michael E. Cahr, Richard R. Tartre, Michael M.
Earley and Mark G. Foletta. The Triton Board unanimously recommends a vote FOR
such nominees. Each of the foregoing persons currently serves as a director of
Triton and was most recently elected as such at the annual meeting of Triton
stockholders held on September 27, 1994 (other than Mr. Foletta, who was
appointed to the Triton Board effective as of February 1, 1996). See "PROPOSAL
3: ELECTION OF THE TRITON BOARD." Notwithstanding the foregoing, pursuant to the
Merger Agreement, the Holdings Board upon consummation of the Merger will
consist of seven persons, five of whom will be designated by Alarmguard and two
of whom will be designated by Triton. See "MANAGEMENT OF HOLDINGS AFTER THE
MERGER."
PROPOSAL 4: ADOPTION OF THE 1997 STOCK INCENTIVE PLAN
The Triton Board has unanimously adopted (subject to stockholder approval)
the 1997 Stock Incentive Plan, a copy of which is set forth as Appendix E to
this Proxy Statement/Prospectus, in order to provide an incentive to key
employees, and to consultants, advisors and certain directors who are not
employees, of Holdings. The Triton Board unanimously recommends a vote FOR
approval of the 1997 Stock Incentive Plan. The maximum number of shares of
Holdings Common Stock for which options may be granted is 770,000. A more
detailed description of the 1997 Stock Incentive Plan is set forth below in this
Proxy Statement/Prospectus. See "PROPOSAL 4: ADOPTION OF THE 1997 STOCK
INCENTIVE PLAN."
13
<PAGE>
TRITON SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth certain historical summary selected
consolidated financial data of Triton. The summary selected consolidated
financial data are derived from the consolidated financial statements of Triton
and should be read in conjunction with Triton's consolidated financial
statements and related notes incorporated herein by reference and with the
"TRITON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" included elsewhere in this Proxy Statement/Prospectus. The
summary selected consolidated financial data as of and for the nine months ended
March 31, 1994 and as of and for the years ended March 31, 1995 and 1996 have
been derived from the audited consolidated financial statements of Triton
incorporated herein by reference. The summary selected consolidated financial
data for the nine months ended December 31, 1995 and 1996 and as of December 31,
1996 have been derived from the unaudited interim consolidated financial
statements of Triton incorporated herein by reference, which include, in the
opinion of the management of Triton, all adjustments (consisting only of normal
recurring adjustments) necessary for the fair statement of the results of the
unaudited interim periods. Results for the nine months ended December 31, 1996
are not necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NINE MONTHS YEARS ENDED MARCH 31, DECEMBER 31,
ENDED MARCH 31, ---------------------- ----------------------
1994 1995 1996 1995 1996
---------------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Revenues(a)..................................... $ 6,633
Income (loss) from continuing operations........ (14,199) $ (10,663) $ 25,072 $ 24,490 $ 2,237
Income (loss) from discontinued operations...... (961) (13,604) 2,514 2,514
Net income (loss)............................... (15,160) (24,267) 27,586 27,004 2,237
Per Share Data(b):
Income (loss) from continuing operations...... (0.71) (0.53) 1.22 1.21 0.10
Income (loss) from discontinued operations.... (0.05) (0.68) 0.12 0.12
Net income (loss)............................. (0.76) (1.21) 1.34 1.33 0.10
Shares outstanding at end of period(b).......... 19,978 19,978 21,451 19,978 21,553
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------- AT DECEMBER 31,
1994 1995 1996 1996
---------- --------- --------- ----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Total assets(c)............................................... $ 182,181 $ 55,430 $ 14,883 $ 15,568
Long-term debt(c)............................................. 89,478 25,837 915
Minority interest in subsidiaries............................. 13,209
Stockholders' equity.......................................... 41,895 17,806 9,935 12,172
</TABLE>
- ------------------------
(a) Effective April 1, 1994, Triton no longer had any consolidated operating
subsidiaries. As a result there are no consolidated revenues following that
date.
(b) Does not reflect the Reverse Stock Split to be effected prior to the Merger.
(c) Triton generally does not restate its consolidated balance sheet to remove
the assets, liabilities, and minority interests of discontinued operations.
Consequently, balance sheet data include the assets and liabilities of
National Airmotive Corporation ("National Airmotive"), Ridgewood and Western
Metal Lath ("Western Metal"), prior to their respective dispositions.
However, the consolidated balance sheet as of March 31, 1995 reflects the
net assets and liabilities of National Airmotive as a single amount, despite
the disposition date of June 2, 1995, because Triton entered into a contract
to sell National Airmotive in March 1995.
14
<PAGE>
ALARMGUARD SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain summary historical selected
consolidated financial and other operating data of Alarmguard. The summary
selected consolidated balance sheet data as of December 31, 1995 and 1996 and
the summary selected consolidated statements of operations data for the years
ended December 31, 1994, 1995 and 1996 have been derived from the audited
consolidated financial statements of SSH (referred to herein as "Alarmguard")
included elsewhere in this Proxy Statement/Prospectus. The summary selected
consolidated balance sheet data as of December 31, 1992, 1993 and 1994 and the
summary selected consolidated statement of operations data for the period ended
December 31, 1992 and the year ended December 31, 1993 have been derived from
the audited consolidated financial statements of SSH. The summary selected
consolidated financial data should be read in conjunction with Alarmguard's
consolidated financial statements and related notes and with the "ALARMGUARD
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," each of which is included elsewhere in this Proxy
Statement/Prospectus.
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED OR AS OF
DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992(1) 1993 1994 1995 1996
--------- ---------- ---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF
SUBSCRIBERS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue........................................ $ 2,995 $ 10,718 $ 17,075 $ 20,200 $ 24,152
Total cost of revenue................................ 1,273 4,179 7,365 8,274 9,780
--------- ---------- ---------- ---------- ----------
Gross profit......................................... 1,722 6,539 9,710 11,926 14,372
Sales, marketing, general and administrative
expenses....................................... 1,255 4,502 7,200 9,487 12,167
Depreciation and amortization expenses........... 786 3,255 4,617 6,786 8,142
--------- ---------- ---------- ---------- ----------
Total operating expenses............................. 2,041 7,757 11,817 16,273 20,309
--------- ---------- ---------- ---------- ----------
Operating loss....................................... (319) (1,218) (2,107) (4,347) (5,937)
Other expenses, net (principally interest)........... (406) (1,068) (1,510) (2,300) (3,051)
--------- ---------- ---------- ---------- ----------
Loss before income taxes and extraordinary items..... $ (725) $ (2,286) $ (3,617) $ (6,647) $ (8,988)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Pro forma loss per common share (unaudited)(2)....... $ (3.12)
----------
----------
Shares used in computing pro forma loss per common
share.............................................. 2,877
----------
----------
CASH FLOW DATA:
Net cash provided by (used in) operating
activities..................................... $ 188 $ (77) $ (1,997) $ (5,001) $ (7,261)
Net cash used in investing activities............ $ (4,224) $ (5,665) $ (3,147) $ (2,879) $ (1,623)
Net cash provided by financing activities........ $ 4,903 $ 8,282 $ 2,538 $ 8,640 $ 7,553
OTHER DATA:
Certain Subscriber Data:
MRR at end of period(3).......................... $ 348 $ 822 $ 956 $ 1,129 $ 1,392
Number of subscribers at end of period........... 10,978 24,646 29,343 36,212 49,088
Adjusted EBITDA:
EBITDA(4)........................................ $ 467 $ 2,037 $ 2,510 $ 2,439 $ 2,205
Less Direct Marketing Program revenue(5)......... (279) (1,249) (2,166)
Plus Direct Marketing Program expenses(5)........ 656 2,084 4,351
--------- ---------- ---------- ---------- ----------
Adjusted EBITDA(6)................................... $ 467 $ 2,037 $ 2,887 $ 3,274 $ 4,390
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Intangible assets, net(7)........................ $ 12,669 $ 22,499 $ 23,517 $ 23,223 $ 21,430
Total assets..................................... $ 15,092 $ 32,369 $ 33,484 $ 38,113 $ 39,131
Total obligations(8)............................. $ 7,344 $ 16,162 $ 20,735 $ 30,776 $ 39,775
Redeemable preferred stock....................... $ 5,010 $ 14,218 $ 14,903 $ 15,588 $ 16,273
Total stockholders' deficiency................... $ (790) $ (3,473) $ (7,992) $ (15,264) $ (24,898)
</TABLE>
16
<PAGE>
- ------------------------
(1) The operating results for the period ended December 31, 1992 include the
results of operations from the date of Alarmguard's inception (December 4,
1991) through December 31, 1992. The operating results for the period ended
December 31, 1991 were not significant.
(2) Pro forma loss per common share gives effect to the conversion of all
Alarmguard Preferred Stock (including accrued and unpaid dividends through
January 31, 1997) and Alarmguard Common Stock into the Merger Shares in
connection with the Merger.
(3) MRR means monthly recurring revenue that Alarmguard is entitled to receive
under contracts in effect at the end of such period. MRR is a term commonly
used in the security alarm industry as a measure of size of a company. It
does not measure profitability or performance, and does not include any
allowance for future subscriber attrition or for uncollectible accounts
receivable.
(4) "EBITDA" means earnings before interest, taxes, depreciation and
amortization. EBITDA is derived by adding to the loss before income taxes
and extraordinary items the sum of (i) amortization of debt issuance costs,
acquired customer accounts, covenants not to compete and goodwill; (ii)
other expense (principally interest), net; and (iii) depreciation expense.
EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles. EBITDA should not be construed as an
alternative to net income and is not indicative of Alarmguard's operating
performance or of cash flows available to fund Alarmguard's cash needs.
Items excluded from EBITDA are significant components in understanding and
assessing Alarmguard's financial performance. Alarmguard's management
believes presentation of EBITDA enhances an understanding of Alarmguard's
financial condition, results of operations and cash flows because EBITDA is
used by Alarmguard to measure its ability to meet its debt service
obligations and its capital expenditure and other operational needs as well
as to provide funds for growth. In addition, EBITDA has been used by
Alarmguard's lenders and the investment community to determine current
borrowing capacity and to estimate the long-term value of companies with
recurring revenues.
(5) Such amounts are not reportable for 1992 and 1993 as the Direct Marketing
Program did not commence until 1994.
(6) "Adjusted EBITDA" is derived by adding to EBITDA Direct Marketing Program
expenses incurred, net of Direct Marketing Program revenue earned, during
the period. Adjusted EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles, should not be construed
as an alternative to net income, and is not indicative of Alarmguard's
operating performance or of cash flows available to fund Alarmguard's cash
needs. Alarmguard's management believes presentation of Adjusted EBITDA
enhances an understanding of Alarmguard's operating results, particularly in
comparison to other security alarm companies that grow substantially through
acquisitions of subscriber accounts. Additionally, an amount similar to
Adjusted EBITDA is used by lenders in extending credit to Alarmguard.
(7) Includes acquired customer contracts, covenants not to compete and goodwill.
(8) Total obligations includes the current and non-current portion of: term
loan, subordinated debt, capital leases (included in other liabilities) and
notes payable.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following summary unaudited pro forma balance sheet data as of December
31, 1996 and the summary unaudited pro forma statement of operations data for
the year then ended give effect to the Merger. The Merger will be accounted for
as a reverse acquisition and Triton will therefore be designated the accounting
acquiree and Alarmguard the accounting acquiror. As such, the net assets of
Triton (principally cash) will be recorded at net book value and Alarmguard's
pre-Merger stockholders' deficiency and loss per common share will be
retroactively restated for the equivalent number of Merger Shares received by
holders of Alarmguard Common Stock and Alarmguard Preferred Stock in the Merger,
with differences between the par value of Triton's and Alarmguard's stock
recorded as an adjustment to paid-in capital of Holdings.
In addition, the summary unaudited pro forma balance sheet data as of
December 31, 1996 and the summary unaudited pro forma statement of operations
data for the year then ended give effect to the Proposed Acquisition which will
be accounted for under the purchase method of accounting. Accordingly, the
initial purchase price (approximately $17.1 million, including $0.1 million in
estimated expenses) will be allocated to the assets acquired and liabilities
assumed based on their relative fair values at the date of acquisition. Up to
$1.6 million in additional consideration will be paid to the sellers of
Protective Alarms upon the installation of national account contracts pending on
the closing date, during the year following the closing of the Proposed
Acquisition.
The summary unaudited pro forma balance sheet data as of December 31, 1996
reflect the Merger and the Proposed Acquisition as if such transactions had
occurred on December 31, 1996. The summary unaudited pro forma statement of
operations data for the year ended December 31, 1996 reflect the Merger and
Proposed Acquisition as if the transactions had occurred on January 1, 1996.
In the opinion of Triton's and Alarmguard's management, all adjustments
necessary to present fairly such summary unaudited pro forma financial
information have been made. This summary unaudited pro forma financial
information is not necessarily indicative of the actual results of operations
that would have occurred had the Merger and the Proposed Acquisition been
consummated as of the date indicated above or of operating results that may be
obtained in the future. This summary unaudited pro forma financial information
should be read in conjunction with the unaudited pro forma condensed combined
financial statements and notes thereto included elsewhere herein, the historical
consolidated financial statements and notes thereto of Triton incorporated
herein by reference and the historical consolidated financial statements of
Alarmguard included elsewhere herein.
18
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET DATA
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ALARMGUARD & ALARMGUARD, TRITON
TRITON AND PROTECTIVE ALARMS
--------------- ----------------------
<S> <C> <C>
Cash and cash equivalents............................................................. $ 13,174 $ 4,558
Intangible assets, net................................................................ $ 21,430 $ 37,866
Total assets.......................................................................... $ 55,786 $ 66,039
Total obligations(1).................................................................. $ 38,944 $ 47,070
Total stockholders' equity............................................................ $ 5,463 $ 5,463
</TABLE>
- ------------------------
(1) Total obligations includes the current and non-current portion of: term
loan, subordinated debt, capital leases (included in other liabilities) and
notes payable.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------
PRO FORMA
ALARMGUARD,
TRITON AND
PROTECTIVE ALARMS
------------------
<S> <C>
Total revenue.................................................................................. $ 31,651
Total cost of revenue.......................................................................... 13,625
----------
Gross profit................................................................................... 18,026
Sales, marketing, general and administrative expenses........................................ 16,868
Depreciation and amortization expense........................................................ 10,823
----------
Total operating expenses....................................................................... 27,691
----------
Operating loss................................................................................. (9,665)
Other expense.................................................................................. (618)
----------
Loss before income taxes....................................................................... (10,283)
----------
Pro forma loss per common share................................................................ $ (1.95)
----------
----------
Number of shares used in calculating pro forma loss per common share........................... 5,033
</TABLE>
19
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING ALARMGUARD,
TRITON AND THEIR RESPECTIVE BUSINESSES BEFORE MAKING ANY DECISIONS WITH RESPECT
TO THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROXY STATEMENT/
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO ALARMGUARD,
TRITON AND HOLDINGS, INCLUDING WITHOUT LIMITATION STATEMENTS WITH RESPECT TO
MRR, WHICH INVOLVE RISK AND UNCERTAINTIES. THE ACTUAL RESULTS OF ALARMGUARD,
TRITON AND HOLDINGS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. AS USED IN THIS SECTION, THE TERM "ALARMGUARD" REFERS TO
(I) SSH AND ITS SUBSIDIARIES PRIOR TO THE MERGER AND (II) WHERE THE CONTEXT
REQUIRES, HOLDINGS AND ITS SUBSIDIARIES AFTER THE MERGER.
DEPENDENCE UPON DIRECT MARKETING PROGRAM AND ACQUISITIONS FOR GROWTH
Alarmguard commenced operations in December 1991 and has grown from
approximately 5,000 monitored subscriber accounts in May 1992 (when it made its
first acquisition) to approximately 49,000 monitored subscriber accounts at
December 31, 1996, primarily through the Direct Marketing Program and its
acquisition program. See "DESCRIPTION OF ALARMGUARD--The Direct Marketing
Program" and "--The Acquisition Program." Alarmguard's business strategy depends
on achieving economies of scale and improving results of operations by
increasing the number and density of subscribers for whom it provides services,
thereby increasing utilization of Alarmguard's central monitoring station and
improving efficiency of its service operations. See "DESCRIPTION OF
ALARMGUARD--Business Strategy." There can be no assurance that Alarmguard's
business strategy will be successful on a long-term basis. The failure of
Alarmguard to implement successfully the Direct Marketing Program or its
acquisition program may have a material adverse effect on Alarmguard's ability
to sustain account growth and its long-term results of operations. See "--Risks
Related to Dependence Upon the Direct Marketing Program for Growth" and "--Risks
Related to Dependence Upon Acquisitions for Growth."
RISKS RELATED TO DEPENDENCE UPON THE DIRECT MARKETING PROGRAM FOR GROWTH
A principal element of Alarmguard's business strategy is to grow by
internally generating subscriber accounts through the Direct Marketing Program.
Since January 1, 1995, the Direct Marketing Program has accounted for a
significant portion of Alarmguard's growth. From January 1, 1995 to December 31,
1996, Alarmguard added approximately 15,600 monitored subscriber accounts
(exclusive of attrition) through the Direct Marketing Program, including
approximately 10,300 new monitored subscriber accounts during the year ended
December 31, 1996. The total number of new accounts added during the same
periods was 30,100 and 18,700, respectively. Alarmguard believes that continued
account generation through the Direct Marketing Program will be an integral part
of its revenue growth. In implementing the Direct Marketing Program, Alarmguard
faces competition for new subscriber accounts from other alarm monitoring
companies, including national companies not solely in the security alarm
monitoring industry which have greater resources than Alarmguard, such as ADT
Ltd. ("ADT"), Ameritech Corporation, Wells Fargo, Honeywell Inc., The Pittston
Brinks Group and Westinghouse Electric Corporation, as well as other strong
regional providers. See "--Competition." Competitive pressures may require
Alarmguard to reduce its prices in order to maintain growth through the Direct
Marketing Program. Additionally, Alarmguard faces competition in the hiring of
qualified sales personnel from other businesses with telemarketing activities.
Alarmguard's ability to maintain or increase growth through the Direct Marketing
Program in the future will depend in part upon the number and quality of sales
personnel that Alarmguard can hire and retain. There can be no assurance that
Alarmguard will be able to retain a sufficient number of qualified sales
personnel or to sustain account growth through the Direct Marketing Program.
In connection with the Direct Marketing Program, Alarmguard incurs on
average net out-of-pocket costs of approximately $650 (after taking into account
any revenues generated from the sale of equipment)
20
<PAGE>
in order to secure the MRR generated by a noncancellable monitoring/equipment
lease contract which generally has a term of 60 months. Such costs result from
Alarmguard's expenditures that exceed the initial payments received from
subscribers. However, total revenues under such noncancellable contracts exceed
the total costs incurred by Alarmguard in connection with the Direct Marketing
Program. Each new subscriber is subject to credit approval prior to entering
into a monitoring/equipment lease contract under the Direct Marketing Program.
See "DESCRIPTION OF ALARMGUARD--Business" and "--The Direct Marketing Program."
Because of such net out-of-pocket costs in connection with the Direct
Marketing Program installations, Alarmguard utilizes its current credit facility
(the "Credit Facility"), and expects in the future to utilize the New Credit
Facility, in addition to utilizing its own capital, to fund the Direct Marketing
Program. If the costs of the Direct Marketing Program increase due to
competitive pressures or higher costs, Alarmguard's need for additional capital
will increase. The exhaustion of Alarmguard's borrowing capacity under the
Credit Facility or the New Credit Facility, as the case may be, may limit
Alarmguard's ability to generate accounts through the Direct Marketing Program,
which in turn may have a material adverse effect upon Alarmguard's ability to
sustain account growth and its results of operations. See "-- Need for
Additional Capital." Additionally, the ability of Alarmguard to generate
accounts through the Direct Marketing Program may be limited from time to time
by restrictive covenants with respect to Alarmguard's performance in the Credit
Facility or the New Credit Facility, as the case may be. Any such limitation on
Alarmguard's ability to internally generate new subscriber accounts may
adversely affect Alarmguard's ability to sustain account growth and its future
results of operations. See "--Need for Additional Capital," "--Restrictions
Under the New Credit Facility; Consequences of Failure to Comply" and "--Risks
Related to High Leverage and Debt Service."
RISKS RELATED TO DEPENDENCE UPON ACQUISITIONS FOR GROWTH
Between May 15, 1992 and December 31, 1996, Alarmguard completed 26
acquisitions of the portfolios of subscriber accounts of other companies in the
security alarm installation and monitoring business. Such acquisitions were an
important source of Alarmguard's growth during such period. Alarmguard faces
competition for the acquisition of portfolios of subscriber accounts, and may be
required to offer prices for acquired accounts that are higher than the prices
Alarmguard has paid in the past. See "--Competition." In addition, due to the
continuing consolidation of the security alarm industry and the acquisition by
Alarmguard and other security alarm companies of a number of large portfolios of
subscriber accounts, there may in the future be fewer quality, large portfolios
of subscriber accounts available for acquisition. There can be no assurance that
Alarmguard will be able to find acceptable acquisition candidates or, if such
candidates are identified, that acquisitions can be consummated on terms
acceptable to Alarmguard. To date, Alarmguard has funded acquisitions with its
own capital and borrowings under the Credit Facility, and it expects to continue
to fund future acquisitions in this manner. If Alarmguard exhausts its borrowing
capacity under the Credit Facility or the New Credit Facility, as the case may
be, or its ability to raise new capital, then Alarmguard's ability to continue
its acquisition program may be impaired, which in turn may have a material
adverse effect upon Alarmguard's ability to sustain account growth and its
long-term results of operations. See "--Need for Additional Capital," "--
Restrictions Under the New Credit Facility; Consequences of Failure to Comply"
and "--Risks Related to High Leverage and Debt Service."
On December 20, 1996, Alarmguard entered into the Stock Purchase Agreement
with respect to the Proposed Acquisition. There can be no assurance that the
Proposed Acquisition will be consummated or that it will be consummated on the
terms set forth in the Stock Purchase Agreement. If the Proposed Acquisition is
consummated, Alarmguard expects to be able to develop its business with respect
to Chain Account Sales. See "DESCRIPTION OF ALARMGUARD--Recent Developments."
There can be no assurance, however, that even if the Proposed Transaction is
consummated, Alarmguard will be able to develop such business with respect to
Chain Account Sales or that any such business will contribute to the
21
<PAGE>
growth of Alarmguard. In the event that Chain Account Sales do not reach
acceptable levels of return on investment, Alarmguard may be forced to
discontinue the Chain Account Sales. Such a discontinuance may have an adverse
effect on Alarmguard's ability to sustain growth.
Acquisition of portfolios of subscriber accounts involve a number of special
risks, including the possibility of unanticipated problems not discovered prior
to the acquisition, such as poor customer service, increased field service costs
due to obsolete equipment in the field, account attrition and the diversion of
the attention of Alarmguard's management from other business activities in order
to focus on the integration of accounts into Alarmguard's operations.
Historically, Alarmguard has structured most of its acquisitions as asset
purchases. For acquisitions that are structured as the purchase of the stock
rather than the assets of other alarm companies, Alarmguard may assume
unexpected tax or legal liabilities or may have to dispose of unnecessary assets
of the acquired companies, which may adversely affect Alarmguard's results of
operations if Alarmguard has been unable to obtain adequate representations and
warranties and seller holdback payments or enforce the same. The Proposed
Acquisition is structured as a stock acquisition. See "DESCRIPTION OF
ALARMGUARD--Recent Developments."
Because Alarmguard's primary consideration in acquiring a portfolio of
subscriber accounts is the amount of cash flow that can be derived from the MRR
associated with such subscriber accounts, the price paid by Alarmguard is
customarily directly tied to such MRR. The price paid varies based on the number
and quality of accounts being purchased from the seller, the service record and
historical alarm activity of such accounts, the historical payment records of
the customers, the ease with which subscribers' field equipment can be
integrated into Alarmguard's central station and other factors. Thus, in making
acquisitions Alarmguard generally has relied on the knowledge of the industry
possessed by Alarmguard's management, due diligence procedures and
representations and warranties of the sellers. In addition, Alarmguard generally
retains significant purchase price recourse against the sellers for any
post-closing adjustments to the purchase price relating to various
contingencies, including, among others, excess subscriber attrition as measured
in MRR. Such excess subscriber attrition represents a percentage of lost MRR in
excess of a negotiated threshold of attrition (which generally averages 7.0%),
the amount of which varies per transaction. There can be no assurance that the
seller's representations and warranties are true and complete or, if such
representations and warranties are inaccurate, that Alarmguard will be able to
recover damages from the seller in an amount sufficient to fully compensate
Alarmguard for any resulting losses. Alarmguard expects that future acquisitions
will present at least the same risks to Alarmguard as its prior acquisitions.
An important aspect of Alarmguard's acquisition program is the integration
of acquired subscriber accounts into Alarmguard's existing operations. The age,
quality of installations, manufacturer and transmission format of subscriber
field equipment all must be taken into consideration for an appropriate central
station integration. Failure to take all of these factors, as well as others
reviewed in due diligence, into account may result in higher attrition due to
potential lower levels of service.
NEED FOR ADDITIONAL CAPITAL
During 1994, 1995 and 1996, Alarmguard incurred costs of approximately $1.0
million, $4.3 million and $8.0 million, respectively, in generating subscriber
accounts through the Direct Marketing Program which included capitalized costs
of $0.7 million, $3.4 million and $5.8 million, respectively. Alarmguard
invested approximately $2.8 million, $2.2 million and $1.2 million in 1994, 1995
and 1996, respectively, in acquiring subscriber accounts from other security
alarm companies. Net cash used in operating activities, as determined in
accordance with generally accepted accounting principles, during 1994, 1995 and
1996, was approximately $2.0 million, $5.0 million and $7.3 million,
respectively. Alarmguard used borrowings under the Credit Facility and proceeds
from the sale of equity securities and subordinated debentures to fund the
Direct Marketing Program, acquisitions, capital expenditures and operations
during these periods. As Alarmguard continues to implement its growth program,
Alarmguard's financial requirements are likely to be in excess of the New Credit
Facility. Alarmguard expects that the New Credit Facility will
22
<PAGE>
have available debt capacity of approximately 33% of the $60 million in
commitments (or approximately $20 million). Although no assurance can be given,
Alarmguard believes that such debt capacity will meet its Direct Marketing
Program and working capital needs for two years, assuming no significant cash
acquisitions are made (other than the Proposed Acquisition). If Alarmguard
continues to make acquisitions and/or expand the Direct Marketing Program,
Alarmguard will likely be required to obtain additional debt financing or sell
additional equity securities in the future, which may result in higher leverage
or the dilution of the holder's investments in the Holdings Common Stock. There
can be no assurance that external funding will be available to Alarmguard on
terms favorable to Alarmguard or at all. Any inability of Alarmguard to obtain
additional capital will likely adversely affect Alarmguard's ability to continue
to generate subscriber accounts through the Direct Marketing Program or to make
acquisitions of subscriber accounts, and may have an adverse impact on
Alarmguard's financial position and future results of operation. See
"--Dependence Upon Internally Generated Subscriber Accounts for Growth" and
"--Risks Related to Acquisitions."
HISTORY OF NET LOSSES; ANTICIPATED FUTURE LOSSES
Alarmguard incurred net losses applicable to common shares of $4.5 million,
$7.3 million and $9.7 million for each of the years in the three-year period
ended December 31, 1996, respectively. Such losses reflect, among other factors,
the expenses associated with internally generated subscriber accounts, the
charges incurred by Alarmguard for amortization of purchased subscriber accounts
and the interest incurred on its indebtedness. Such expenses, charges and
interest will increase as Alarmguard continues to internally generate new
subscriber accounts and to purchase subscriber accounts, if Alarmguard's
indebtedness increases or if interest rates increase. Alarmguard expects to
continue to incur net losses for the foreseeable future. With respect to the
Direct Marketing Program, Alarmguard defers all direct costs (principally
equipment, labor and direct sales commissions) incurred in connection with
installing and activating new subscriber accounts. New subscribers are generally
required to enter into noncancellable monitoring/equipment lease contracts which
have terms of 60 months. Such direct costs in connection with the Direct
Marketing Program are amortized over a period of 48 months, which reflects an
adjustment for estimated subscriber attrition. It is Alarmguard's policy to
review actual account attrition on a quarterly basis and, when an installation
is identified for disconnection, to fully write off and charge to amortization
expense the remaining net book value of the installation costs. Substantially
all other costs associated with the Direct Marketing Program (principally
telemarketing and overhead) are expensed as incurred. At December 31, 1995 and
1996, the cost of subscriber accounts and intangible assets, net of accumulated
amortization, was $23.2 and $21.4 million, respectively, which constituted
approximately 61% and 55%, respectively, of the book value of Alarmguard's total
assets for such periods. There could be a material adverse effect on
Alarmguard's results of operations and financial condition if actual account
attrition significantly exceeds assumed attrition and Alarmguard has to make
adjustments with respect to the amortization of purchased subscriber accounts.
See "ALARMGUARD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--General--Accounting Policies for Direct Marketing Program
Installations and Subscriber Account Purchases" and "--Future Net Losses."
IMPACT OF GROWTH STRATEGY ON QUARTERLY RESULTS OF OPERATIONS
In connection with the implementation of its growth strategy, Alarmguard has
historically incurred losses from operations and expects to continue to do so in
the future, based on, among other factors, the opening of new Direct Marketing
Program sales offices, the volume and timing of internally generated subscriber
accounts, and the timing of the acquisition of subscriber accounts. Since 1994,
Alarmguard has opened the following Direct Marketing Program sales offices:
Dover, Delaware and Parsippany, New Jersey. Such offices generally require a
one-time cost of approximately $20,000 to establish. In addition, the costs of
integrating acquired subscriber accounts add competitive pricing pressures,
while local and national crime activity and general economic conditions may all
cause adverse impacts in quarterly operating results. Alarmguard's expense
levels are based, to some extent, on its expectations of future
23
<PAGE>
subscriber and revenue levels, which are dependent on estimates of internally
generated additions of subscriber accounts and of subscriber account portfolio
acquisitions. Alarmguard may be unable, therefore, to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall due to less
than anticipated levels of internally generated accounts or a delay in the
timing of acquisitions. Given the possibility of quarterly fluctuations,
Alarmguard believes that comparisons of the results of its operations for
preceding quarters are not necessarily meaningful and that the results for any
one quarter should not be relied upon as an indication of future performance. In
the event that Alarmguard's revenues or operating results for any quarter are
less than the level expected by securities analysts or the market in general,
such shortfall could have an immediate and significant adverse impact on the
market price of the Holdings Common Stock, which in turn may inhibit
Alarmguard's access to new capital and thus adversely impact Alarmguard's
ability to sustain its growth strategy.
RISKS RELATED TO HIGH LEVERAGE AND DEBT SERVICE
At December 31, 1996, Alarmguard's consolidated indebtedness, including debt
classified as current, was approximately $39.8 million and, pro forma, after
giving effect to the Merger and the Proposed Acquisition, will be approximately
$47.1 million. Alarmguard's indebtedness requires that a significant amount of
its cash flow from operations be applied to the payment of interest, and there
can be no assurance that Alarmguard's operations will generate sufficient cash
flow to service such indebtedness. Failure to meet its debt service may have a
material adverse effect on Alarmguard's ability to sustain account growth, its
financial condition and its results of operations, and may result in lenders
under the New Credit Facility or the New Notes accelerating the maturity of the
respective obligations thereunder. Borrowings under the New Credit Facility are
expected to be at variable rates of interest, which subjects Alarmguard to
fluctuations in interest rates. However, the New Credit Facility will require
Alarmguard to hedge, within one year, its exposure to interest rate fluctuations
for a fixed percentage of the debt incurred thereunder.
RISKS RELATED TO HOLDING COMPANY STRUCTURE
After the consummation of the Merger, Holdings will be a holding company
with no operations of its own and few assets other than the stock of its
subsidiaries and other permitted investments. As a result, the ability to pay
dividends on the Holdings Common Stock will be dependent on the ability of
Holdings' subsidiaries to pay cash dividends or make other distributions. It is
expected that the New Credit Facility will restrict the ability of the Borrower
to pay cash dividends or to make other distributions to Holdings and,
accordingly, may limit the payment of cash dividends or other distributions to
the holders of Holdings Common Stock. The borrowings under the New Credit
Facility will be guaranteed by Holdings and by any other intermediate
subsidiaries of Holdings. It is expected that the New Notes to be issued in
connection with the refinancing of SSH's existing subordinated debt will not
contain any covenants restricting the payment of dividends or other
distributions by SSH to Holdings. However, the New Noteholders will be senior in
right of payment to the holders of Holdings Common Stock in the event of a
liquidation, bankruptcy or similar proceeding with respect to Holdings. See
"PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--Alarmguard
Financing," "--Interests of Certain Persons in the Merger--Refinancing of SSH's
Existing Subordinated Debt" and "ALARMGUARD MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources."
RESTRICTIONS UNDER NEW CREDIT FACILITY; CONSEQUENCES OF FAILURE TO COMPLY
The New Credit Facility is expected to include customary covenants that
restrict the operations and financial flexibility of Alarmguard. Such covenants
will impose limitations on the Borrower and its subsidiaries with respect to (i)
the nature of their respective businesses; (ii) the incurrence of indebtedness;
(iii) the incurrence, creation and maintenance of liens; (iv) investments; (v)
dividends; (vi) the sale or disposition of assets; (vii) capital expenditures
and lease obligations; (viii) stock issuances; (ix) material
24
<PAGE>
changes in management; and (x) transactions with affiliates. In addition, the
New Credit Facility will require, among other things, that, as of certain dates
and for certain periods, the Borrower maintain the following ratios: (i) a ratio
of consolidated senior debt to MRR not to exceed 22.5 to 1.0; and (ii) a ratio
of consolidated total debt to MRR not to exceed 30.0 to 1.0. The New Credit
Facility will permit the Borrower to create additional MRR through the Direct
Marketing Program provided that all costs and expenses related thereto are
properly identified and segregated for accounting purposes in a manner
satisfactory to the Agent. In addition, the New Credit Facility is expected to
include provisions that require Alarmguard to obtain the consent of its majority
lenders in order to undertake acquisitions (other than the Proposed Acquisition)
in excess of $2.5 million. Failure to comply with the covenants in the New
Credit Facility would, in some instances, permit the lenders under the New
Credit Facility to accelerate the maturity of the obligations thereunder. Any
such acceleration may have a material adverse effect on Alarmguard's financial
position and results of operations. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE
OF THE MERGER SHARES--Alarmguard Financing," "ALARMGUARD MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources" and "DESCRIPTION OF ALARMGUARD--Recent Developments."
MANAGEMENT OF GROWTH
An important component of Alarmguard's business strategy is to grow through
the addition of subscriber accounts. This expansion has placed and will continue
to place substantial demands on Alarmguard's management, operational resources
and system of operating and financial controls. Alarmguard's future operating
results will depend in part on Alarmguard's ability to continue to implement and
improve its operating and financial controls and to expand, train and manage its
employee base. In addition, management of growth may limit the time available to
Alarmguard's management to attend to other operational, financial and strategic
issues, which may result in unanticipated adverse developments in the ongoing
operations of Alarmguard.
ATTRITION OF SUBSCRIBER ACCOUNTS
Alarmguard experiences attrition of subscriber accounts as a result of,
among other factors, relocation of subscribers, adverse financial and economic
conditions and competition from other alarm service companies. In addition,
Alarmguard loses certain accounts, particularly acquired accounts, in the event
it is unable to service them adequately or to assimilate them properly into
Alarmguard's operations. Attrition can be measured in terms of decreased MRR
resulting from cancelled subscriber accounts. Gross MRR attrition is defined by
Alarmguard for a particular period as a quotient, the numerator of which is
equal to gross MRR lost as the result of cancelled subscriber accounts,
including the MRR of subscribers who have moved from homes or businesses in
which an existing alarm system was installed ("transfers"), during such period
and the denominator of which is the average month-end MRR during such period.
For the years ended December 31, 1994, 1995 and 1996, Alarmguard's gross MRR
attrition was 11.8%, 12.3% and 11.9%, respectively. An increase in Alarmguard's
MRR gross attrition rate will have an adverse effect on Alarmguard's financial
position and results of operations.
When acquiring accounts, Alarmguard has generally withheld a portion of the
purchase price as a partial reserve for purchase price adjustments, covering
various contingencies including, among others, excess subscriber attrition. It
is Alarmguard's policy to obtain purchase price holdbacks in its acquisitions.
There can be no assurance, however, that Alarmguard will be able to obtain such
terms in the future. If the actual attrition rate for the acquired accounts is
greater than the rate assumed by Alarmguard at the time of the acquisition, and
if Alarmguard is unable to recoup its damages from the portion of the purchase
price held back from the seller, such attrition could have a material adverse
effect on Alarmguard's financial condition or results of operations. Alarmguard
is not aware of any reliable historical data relating to account attrition rates
prepared by companies from whom Alarmguard has acquired accounts, and Alarmguard
has no assurance that actual account attrition for acquired accounts will not
exceed the
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<PAGE>
attrition rate assumed or historically incurred by Alarmguard. In addition,
because some acquired accounts are billed on an annual, semi-annual or quarterly
basis, attrition may not become evident for some time after an acquisition is
consummated, including after the end of the period Alarmguard is entitled to
make purchase price holdbacks. See "ALARMGUARD MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--General--Subscriber
Attrition."
POSSIBLE ADVERSE EFFECT OF "FALSE ALARM" ORDINANCES
According to the January 1995 issue of SECURITY SALES magazine,
approximately 90.0% (98.0% in the New York area) of alarm activations that
result in the dispatch of police personnel are not emergencies, and thus are
"false alarms." Significant concern has arisen in certain municipalities about
this high incidence of false alarms. This concern could cause a decrease in the
likelihood or timeliness of police response to alarm activations and thereby
decrease the propensity of consumers to purchase or maintain alarm monitoring
services. Alarmguard believes the rate of the alarm incidents processed by its
central monitoring station operators as "false alarms" approximates the national
average of 90.0%. In the interest of public safety, Alarmguard verifies all
alarm signals unless specifically requested by the subscriber not to do so or if
such action is prohibited by law. Recently, a trend has emerged on the part of
local governmental authorities to consider or adopt various measures aimed at
reducing the number of false alarms. Such measures include (i) subjecting alarm
monitoring companies to fines or penalties for transmitting false alarms; (ii)
licensing individual alarm systems and the revocation of such licenses following
a specified number of false alarms; (iii) imposing fines on alarm subscribers
for false alarms; (iv) imposing limitations on the number of times the police
will respond to alarms at a particular location after a specified number of
false alarms; and (v) requiring further verification of an alarm signal before
the police will respond. Enactment of such measures may have a material adverse
effect on Alarmguard's financial position and results of operations.
GOVERNMENT REGULATIONS; RISKS OF LIABILITY OF OPERATIONS
Alarmguard's operations are subject to a variety of laws, regulations and
licensing requirements of federal, state and local authorities. In certain
jurisdictions, Alarmguard is required to obtain licenses or permits, to comply
with standards governing employee selection and training and to meet certain
standards in the conduct of Alarmguard's business. The loss of such licenses, or
the imposition of conditions to the granting or retention of such licenses, may
have a material adverse effect on Alarmguard's business and revenues.
Alarmguard's advertising and sales practices are regulated by both the Federal
Trade Commission ("FTC") and state consumer protection laws. Such regulations
include restrictions on the manner in which Alarmguard promotes the sale of
security alarm systems and the obligation of Alarmguard to provide purchasers of
alarm systems with certain rescission rights. While Alarmguard believes that it
has complied with these regulations in all material respects, there can be no
assurance that none of these regulations were violated in connection with the
solicitation of Alarmguard's existing subscriber accounts, particularly with
respect to accounts acquired from third parties, or that no such violation will
occur in the future. Any such violations may have a material adverse effect on
Alarmguard's financial position and results of operations.
Alarmguard markets some of its products and services through telemarketing
by use of a predictive dialer. Such telemarketing activities are regulated on
the state and federal level. Alarmguard believes that telemarketing will
increasingly be subject to such regulation. Such regulation may limit
Alarmguard's ability to solicit new subscribers or to offer additional products
and services to existing subscribers and may have a material adverse effect on
Alarmguard's business and revenues.
The nature of the services provided by Alarmguard potentially exposes it to
greater risks of liability for employee acts or omissions or system failure than
may be inherent in other businesses. Most of Alarmguard's monitoring/equipment
lease contracts and other agreements pursuant to which it sells its products and
services contain provisions limiting Alarmguard's liability to subscribers in an
attempt to reduce this risk. However, in the event of litigation with respect to
such matters, there can be no assurance
26
<PAGE>
that such limitations will be enforced, and the costs of such litigation may
have a material adverse effect on Alarmguard's financial position and results of
operations.
Alarmguard carries insurance of various types, including general liability
and errors and omissions insurance. The loss experience of Alarmguard and other
security service companies, however, may affect the availability and cost of
such insurance. Certain of Alarmguard's insurance policies and the laws of some
states may limit or prohibit insurance coverage for punitive or certain other
types of damages, or for liability of Alarmguard arising from negligence or
wanton behavior. The unavailability or increased cost of such insurance may have
a material adverse effect on Alarmguard's financial position and results of
operations.
GEOGRAPHIC CONCENTRATION
Alarmguard's existing subscriber base is geographically concentrated in
certain metropolitan areas and surrounding suburbs in the nine Northeastern and
Mid-Atlantic states in which Alarmguard operates. Accordingly, the performance
of Alarmguard in these areas may be adversely affected by regional or local
economic conditions.
As a result of acquisitions, the opening of branch offices or strategic
alliances, Alarmguard may from time to time expand its operations into
geographic markets outside of its current operating areas. The acquisition of
subscriber accounts in other regions, or in metropolitan areas in which
Alarmguard does not currently have subscribers, requires an investment by
Alarmguard in local branches and personnel necessary to service such accounts.
In order for Alarmguard to expand successfully into a new area, Alarmguard must
obtain a sufficient number and density of subscriber accounts in such area to
support the additional investment. There can be no assurance that an expansion
into new geographic areas would generate operating profits. Failure to generate
operating profits in connection with such expansion may have a material adverse
effect on Alarmguard's financial position and results of operations.
COMPETITION
The security alarm monitoring industry is highly competitive and highly
fragmented. Alarmguard competes with larger national companies, as well as
smaller regional and local companies in all of its operations. Furthermore, new
competitors are continuing to enter the industry and Alarmguard may encounter
additional competition from such future industry entrants. Certain of
Alarmguard's current competitors have, and new competitors may have, greater
financial resources than Alarmguard. Alarmguard competes for new subscriber
accounts with larger national companies who are better capitalized, who conduct
media advertising (which Alarmguard currently does not utilize) or who may offer
lower rates for the installation of alarm systems and alarm monitoring services.
In addition, Alarmguard competes with other alarm service companies who pursue
the aggressive purchase of alarm monitoring accounts through acquisitions
programs and who may be willing to offer higher prices than Alarmguard is
prepared to offer for the purchase of subscriber accounts. The effect of such
competition may be to reduce the new subscriber or acquisition opportunities
available to Alarmguard, thus reducing its rate of growth, or to increase the
price Alarmguard is required to pay for subscriber accounts, which would
adversely affect its return on investment on such accounts and may have a
material adverse effect on Alarmguard's financial position and results of
operations.
DEPENDENCE ON THE CENTRAL MONITORING STATION
Alarmguard is dependent on a single alarm monitoring station located in
Orange, Connecticut to monitor substantially all of its subscriber accounts.
Although the central monitoring station is located in a building which has been
approved by Underwriters Laboratories, Inc. ("UL") and which includes fire
detectors, redundant off-site computer storage and record-keeping, and meets or
exceeds all applicable building codes, a catastrophic event such as a bombing,
tornado, hurricane, earthquake, fire or other disaster could render the central
monitoring station inoperable, which may have a material adverse effect on
Alarmguard's financial position and results of operations.
27
<PAGE>
Alarmguard has experienced no interruption in its monitoring capabilities,
primarily as a result of various redundant systems in place in the central
monitoring station. These systems include a fault-tolerant processing computer
which is itself backed up by another processing computer, standby power in the
form of a large battery and filtering unit in combination with two large diesel
generators, local phone lines for alarm signal traffic backing up the long
distance carrier's circuitry, as well as other measures required to meet the
various approval standards (e.g. UL, Factory Mutual and the Fire Department of
New York) earned by the central monitoring station.
DEPENDENCE ON SENIOR MANAGEMENT
The success of Alarmguard's business is largely dependent upon the active
participation of its executive officers. Alarmguard has entered into certain
employment, severance and non-competition agreements, and as a condition to the
consummation of the Merger, Triton will enter into severance agreements, with
Russell R. MacDonnell, the Chairman, President and Chief Executive Officer of
Alarmguard, David Heidecorn, the Executive Vice President and Chief Financial
Officer of Alarmguard, and Gregory J. Westhoff, the Vice President of
Alarmguard. In addition, Alarmguard maintains a key-man life insurance policy
with respect to Mr. MacDonnell. The loss of the services for any reason of one
or more of such officers may have a material adverse effect on Alarmguard's
financial position and results of operations.
LOW TRADING VOLUME
For the past several years, there has not been an active market for the
purchase and sale of the Triton Common Stock. There can be no assurance that in
the future the market for the purchase and sale of the Holdings Common Stock
will become more active or that shares of Holdings Common Stock will trade at
any particular price.
SHARES AVAILABLE FOR FUTURE SALE
Sales of Holdings Common Stock in the public market after the Merger could
adversely affect the market price of Holdings Common Stock. Upon completion of
the Merger, Holdings will have 5,032,718 shares of Holdings Common Stock
outstanding, all of which will be fully transferable other than shares received
in the Merger by persons who are deemed to be "affiliates" of Alarmguard prior
to the Merger which generally may be resold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act and
shares previously issued upon the exercise of certain Triton stock options which
will become eligible for sale under Rule 144 under the Securities Act at various
dates during the two years following consummation of the Merger. In addition,
following the Merger, certain stockholders of Holdings whose shares are subject
to the restrictions described above are entitled to certain registration rights
with respect to registration of their shares for offer or sale to the public.
See "PROPOSAL 1: THE MERGER AND ISSUANCE OF THE MERGER SHARES--Resale of Triton
Common Stock" and "--The Registration Rights Agreement."
ABSENCE OF MARKET PRICES OF ALARMGUARD COMMON STOCK
The Alarmguard Common Stock has never been publicly traded. There can
therefore be no assurance as to what the market price of the Holdings Common
Stock might be upon consummation of the Merger.
DILUTION
The net book value per share of Triton Common Stock as of December 31, 1996
was $0.56 per share, or $5.65 per share after giving effect to the Reverse Stock
Split. The net book value per share of Alarmguard Common Stock as of December
31, 1996 was $(3.00) per share (after giving effect to the exchange of the
Alarmguard Common Stock and the Alarmguard Preferred Stock for the Merger Shares
upon the consummation of the Merger). Assuming no changes in Triton's net book
value since December 31, 1996, or in Alarmguard's net book value since December
31, 1996, and that the Merger Shares are
28
<PAGE>
issued to Alarmguard's stockholders upon the consummation of the Merger, the net
book value per share of Holdings Common Stock would (after giving effect to
certain pro forma adjustments related to the Merger (see "UNAUDITED PRO FORMA
CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION")) be approximately $1.09 per
share, resulting in an immediate decrease in net book value per share for
Triton's stockholders of $4.56 per share and an immediate increase in net book
value per share of $4.09 for Alarmguard's stockholders.
ANTITAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS, DELAWARE LAW
It is currently possible to change a majority of the directors of Triton or
Alarmguard at a single stockholders' meeting. If the Merger is consummated, the
Restated Charter will provide that the Holdings Board will be a "classified
board" with only one-third of its directors coming up for election each year. As
a result of having a classified board, two annual meetings will be necessary to
change a majority of the directors. In addition, the Restated Charter and the
Restated By-Laws will contain provisions prohibiting stockholder action by
written consent and eliminating stockholders' ability to call special meetings.
The existence of a classified board and such provisions in the Restated Charter
and Restated By-Laws may in certain circumstances deter or delay mergers, tender
offers, other possible takeover attempts or changes in management or the
Holdings Board which may be favored by some or a majority of Holdings'
stockholders. In addition, Holdings will be subject to the provisions of Section
203 ("Section 203") of the DGCL, which will prohibit Holdings from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 could also have the effect of delaying or
preventing a change of control of Holdings.
ABSENCE OF FAIRNESS OPINION
Prior to the Merger, there was no public market for the Alarmguard Common
Stock or the Alarmguard Preferred Stock. The relative split of the Holdings
Common Stock among the Triton stockholders and the Alarmguard stockholders has
been determined by negotiations between Alarmguard and Triton and may not be
indicative of the value of the Alarmguard Common Stock or the Alarmguard
Preferred Stock. Alarmguard has not sought or obtained an opinion from an
investment banker regarding the fairness of the Merger to its stockholders. In
determining not to seek such an opinion, Alarmguard considered that its
executive officers and directors possess sufficient business experience and
acumen to negotiate the terms and conditions of the Merger and assess the
fairness of the Merger to Alarmguard's stockholders from a financial perspective
without the assistance of an investment banking firm, as well as the cost of
hiring and paying for an investment banking firm.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents Triton's and Alarmguard's per share data, the
pro forma combined per share data adjusted for the Merger, and the combined pro
forma per share data adjusted for the Proposed Acquisition. The unaudited pro
forma combined per share data are not necessarily indicative of actual or future
operating results or the financial position that would have occurred or will
occur upon consummation of the Merger or the Proposed Acquisition. The data set
forth below should be read in conjunction with Triton's consolidated financial
statements and notes thereto which are incorporated herein by reference and the
consolidated financial statements of Alarmguard and notes thereto which are
included elsewhere herein. The data should also be read in conjunction with the
information set forth in the "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION" included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
TRITON(1) ALARMGUARD(2)
------------------------------------ -----------------
YEAR NINE MONTHS YEAR
ENDED OR AS OF ENDED OR AS OF ENDED OR AS OF
MARCH 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
--------------- ------------------- -----------------
<S> <C> <C> <C>
Book value per share...................................... $ 4.63 $ 5.65 $ (3.00)
Income (loss) from continuing operations.................. $ 12.16 $ 1.04 $ (3.12)
Net income (loss)......................................... $ 13.38 $ 1.04 $ (3.12)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ALARMGUARD AND PRO FORMA ALARMGUARD, TRITON AND
TRITON(3) PROTECTIVE ALARMS(3)
--------------------------------- ---------------------------------
YEAR ENDED OR AS OF YEAR ENDED OR AS OF
DECEMBER 31, 1996 DECEMBER 31, 1996
--------------------------------- ---------------------------------
<S> <C> <C>
Book value per share.......................... $ 1.09 $ 1.09
Loss from continuing operations............... $ (1.34) $ (1.95)
</TABLE>
- ------------------------
(1) In order to provide a meaningful presentation, the Triton historical
financial data set forth in this table have been adjusted to give effect to
the Reverse Stock Split.
(2) The Alarmguard per share data are based on the equivalent number of shares
of Triton Common Stock to be received by holders of the Alarmguard Common
Stock and Alarmguard Preferred Stock in connection with the Merger. In
addition, stockholder's deficiency was adjusted to include the book value of
the Alarmguard Preferred Stock to be converted to Holdings Common Stock
pursuant to the Merger Agreement. In addition, net loss applicable to
current stockholders has been excluded since the net loss per share is based
on the equivalent Trition Common Stock which includes the shares to be
issued in exchange for the Alarmguard Preferred Stock.
(3) The per share data for Triton and Protective Alarms have been adjusted for
purposes of calculating the pro forma per share data, to conform with
Alarmguard's December 31 year end.
(4) Triton and Alarmguard have not paid regular cash dividends on their
respective common stock. However, during fiscal 1996, Triton distributed a
special dividend to its common stockholders consisting of a cash dividend
equal to $1.57 per share and shares of Metromedia International Group, Inc.
("Metromedia") equal to $0.97 per outstanding share of Triton Common Stock.
30
<PAGE>
DIVIDENDS AND MARKET PRICES OF TRITON COMMON STOCK
AND TRITON PUBLIC WARRANTS
The Triton Common Stock and Triton's public warrants (the "Triton Public
Warrants") are listed on the AMEX using the trading symbols of "TGL" and "TGLW,"
respectively. The table below sets forth, for the periods indicated, the high
and low closing market prices as reported by the AMEX for the Triton Common
Stock and the Triton Public Warrants (without giving effect to the Reverse Stock
Split to be effected pursuant to the Restated Charter).
MARKET PRICE OF TRITON COMMON STOCK
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- ---------------------
QUARTERS ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------------------------ --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
March 31.............................................. $ 7/8(1) $ 3/4(1) $ 9/16 $ 3/8 $ 2 1/8 $ 1 5/16
June 30............................................... -- -- 9/16 3/8 2 1/4 1 13/16
September 30.......................................... -- -- 3/4 5/8 3 1/8 2
December 31........................................... -- -- 1 1/16 11/16 3 3/16 5/16(2)
</TABLE>
MARKET PRICE OF TRITON PUBLIC WARRANTS
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ---------------------- ---------------------
QUARTERS ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------------------------------ --------- --------- ----- --- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
March 31.................................................... $ 1/8(1) $ 1/8(1) $ 1/4 $ 1/8 $ 1/2 $ 3/16
June 30..................................................... -- -- 1/4 1/8 1/4 1/16
September 30................................................ -- -- 3/16 1/16 1/2 1/8
December 31................................................. -- -- 1/4 1/8 9/16 1/8
</TABLE>
- ------------------------
(1) Through March 13, 1997.
(2) Triton and Alarmguard have not paid regular cash dividends on their
respective common stock. However, on December 8, 1995, Triton completed a
substantial distribution to its stockholders which was valued at that time
at approximately $2.54 per share of Triton Common Stock.
On September 20, 1996, the last full trading day prior to the public
announcement of the execution of a letter of intent with respect to the Merger,
the closing price of one share of Triton Common Stock and one Triton Public
Warrant as reported by the AMEX was $0.75 and $0.125, respectively. On December
23, 1996, the last full trading day prior to the public announcement of the
execution of the Merger Agreement, the closing price of one share of Triton
Common Stock and one Triton Public Warrant as reported by the AMEX was $ 13/16
and $ 1/8 , respectively.
On March 13, 1997, the most recent practicable date prior to the printing of
this Proxy Statement/ Prospectus for which sales price information was
obtainable, the closing price of one share of Triton Common Stock and one Triton
Public Warrant as reported by the AMEX was $ 7/8 and $ 1/8, respectively.
At March 13, 1997, there were approximately 1,500 holders of record of
Triton Common Stock.
After consummation of the Merger, it is expected that Holdings will not pay
dividends in the foreseeable future.
31
<PAGE>
CAPITALIZATION
TRITON
The following table sets forth the capitalization of Triton as of December
31, 1996. This information should be read in conjunction with the consolidated
financial statements of Triton and the notes thereto which are incorporated
herein by reference.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
(IN THOUSANDS)
-----------------
<S> <C>
Stockholders' equity:
Triton Common Stock, $.0001 par value.................................... $ 2
Additional paid in capital............................................... 21,774
Accumulated deficit...................................................... (9,604)
--------
Total stockholders' equity/capitalization.................................. $ 12,172
--------
--------
</TABLE>
ALARMGUARD
The following table sets forth, as of December 31, 1996, (i) the
capitalization of Alarmguard; (ii) the pro forma capitalization of Alarmguard
giving effect to the Merger, the New Credit Facility and the refinancing of
Alarmguard's existing subordinated debt; and (iii) the pro forma capitalization
of Alarmguard and Triton as further adjusted to reflect the Proposed
Acquisition. This information should be read in conjunction with "PROPOSAL 1:
THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--Alarmguard Financing,"
"--Interests of Certain Persons in the Merger--Refinancing of SSH's Existing
Subordinated Debt," the "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION," and notes thereto, the consolidated financial statements of Triton
and notes thereto which are incorporated herein by reference and the
consolidated financial statements of Alarmguard and notes thereto which are
included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
PRO FORMA
ALARMGUARD,
PRO FORMA TRITON AND
ALARMGUARD PROTECTIVE
ACTUAL AND TRITON ALARMS
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt.......................................... $ 4,169 -- --
Current portion of capital leases (1)...................................... 576 $ 576 $ 576
Current portion of notes payable........................................... 696 696 2,322
Long-term debt:
Term loan, less current portion.......................................... 26,467 30,636 37,136
Subordinated debt........................................................ 4,951 4,122 4,122
Capital leases, less current portion (1)................................. 351 351 351
Notes payable, less current portion...................................... 2,563 2,563 2,563
---------- ----------- -----------
Total long-term debt....................................................... 34,332 37,672 44,172
Series A Preferred Stock, $100 par value; 5% cumulative dividends, 50,000
shares authorized, issued, and outstanding............................... 5,994 -- --
Series B Preferred Stock, $120 par value; 5% cumulative dividends, 72,500
shares authorized, issued, and outstanding............................... 10,279 -- --
Stockholder's equity (deficiency):
Common Stock, $1.00 par value; 256,500 authorized, 236,671 shares
(including 33,748 shares of Alarmguard Class B Non-Voting Common Stock)
issued and outstanding................................................. 237 -- --
Common Stock, $.0001 par value........................................... -- 1 1
Additional paid in capital............................................... 35 30,632 30,632
Accumulated deficit...................................................... (25,135) (25,170) (25,170)
Notes receivable from officers........................................... (35) -- --
---------- ----------- -----------
Total stockholders' equity (deficiency).................................. (24,898) 5,463 5,463
---------- ----------- -----------
Total capitalization..................................................... $ 31,148 $ 44,407 $ 52,533
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------------
(1) Included in other liabilities.
32
<PAGE>
THE ANNUAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to Triton's stockholders
in connection with the solicitation on behalf of the Triton Board of proxies for
use at the Annual Meeting to be held at Club 101 at 101 Park Avenue, New York,
NY, 10178, on April 14, 1997, at 10:00 a.m. local time. This Proxy
Statement/Prospectus and the accompanying form of proxy were first mailed to
stockholders of Triton on or about March 17, 1997.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, the Triton stockholders will be asked to (i) consider
and vote upon a proposal to adopt the Merger Agreement and to approve the
issuance of the Merger Shares; (ii) consider and vote upon the Restated Charter
Proposals; (iii) elect four persons to the Triton Board to serve until the
earlier of (a) the next annual meeting of Triton stockholders and the election
and qualification of their respective successors or (b) the consummation of the
Merger; (iv) consider and vote upon a proposal to approve the 1997 Stock
Incentive Plan; and (v) transact such other matters as may arise relating to the
conduct of the Annual Meeting. A condition precedent to the obligation of
Alarmguard to consummate the Merger is the approval and adoption of the Restated
Charter Proposals.
VOTING AT THE ANNUAL MEETING; RECORD DATE
Only holders of record of shares of Triton Common Stock at the close of
business on the Record Date will be entitled to vote at the Annual Meeting. As
of the close of business on the Record Date, there were 21,553,502 shares of
Triton Common Stock outstanding (without giving effect to the Reverse Stock
Split) and entitled to vote, held of record by approximately 1,500 stockholders.
Each share of Triton Common Stock entitles the holder to one vote. The holders
of the Triton Public Warrants are not entitled to vote.
The holders of a majority of the shares of Triton Common Stock issued and
outstanding and entitled to vote at the Annual Meeting, present in person or by
proxy, will constitute a quorum at the Annual Meeting. Duly executed, unmarked
proxies will be included in determining whether a quorum is present.
Votes cast in person or by proxy at the Annual Meeting will be tabulated by
the inspectors of election appointed for the Annual Meeting, who will determine
whether or not a quorum is present. With respect to approval of the Merger and
the issuance of the Merger Shares, the Restated Charter Proposals and the 1997
Stock Incentive Plan, votes may be cast for, against or as abstentions.
Abstentions will be counted for purposes of determining the total votes cast on
the matter for which such abstention is noted. Broker/ dealers who hold their
customers' shares in street name, may, under the applicable rules of the
exchange and other self-regulatory organizations of which the broker/dealers are
members, sign and submit proxies for such shares and may vote such shares on
routine matters, which, under such rules, typically include the election of
directors, but broker/dealers may not vote such shares on other matters, which
typically include transactions related to mergers, including the issuance of
shares in connection therewith, without specific instructions from the customer
who owns such shares. Proxies signed and submitted by broker/dealers which have
not been voted on certain matters as described in the previous sentence are
referred to as "broker non-votes." Broker non-votes on a particular matter are
not deemed to be shares present and entitled to vote on such matter. Abstentions
and broker non-votes will have the effect of a negative vote on the Merger and
the Restated Charter Proposals, because such proposals require the affirmative
vote of a majority of the outstanding shares of Triton Common Stock. Abstentions
and broker non-votes will have no effect on the election of the nominees to the
Triton Board and the 1997 Stock Incentive Plan, because such proposals require
the affirmative vote of a majority and a plurality, respectively, of the votes
cast at the Annual Meeting. See "--Vote Required."
Each Triton stockholder who signs and returns a proxy in the form enclosed
with this Proxy Statement/ Prospectus may revoke the same at any time prior to
its use by giving notice of such revocation in writing to the Secretary of
Triton, by signing and returning a later dated proxy, or by voting in person at
the Annual Meeting. Unless so revoked, the shares of Triton Common Stock
represented by each such proxy will be
33
<PAGE>
voted at the Annual Meeting. Presence at the meeting of a stockholder who has
signed a proxy does not alone revoke that proxy.
Triton will bear the cost of soliciting proxies for the Annual Meeting.
Triton will also reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding the soliciting material
to beneficial owners of stock. Proxies are being solicited primarily by mail,
but officers and regular employees of Triton may also solicit proxies
personally, by telephone or by special letter.
If the accompanying proxy card is properly signed and returned to Triton
prior to the Annual Meeting and not revoked, it will be voted in accordance with
the instructions contained therein. IF NO INSTRUCTIONS ARE GIVEN, THE PERSONS
DESIGNATED AS PROXIES IN THE ACCOMPANYING PROXY CARD WILL VOTE FOR (I) THE
ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE ISSUANCE OF THE MERGER
SHARES; (II) THE RESTATED CHARTER PROPOSALS; (III) THE ELECTION OF THE NOMINEES
TO THE TRITON BOARD; AND (IV) THE APPROVAL OF THE 1997 STOCK INCENTIVE PLAN.
The Triton Board is not currently aware of any matters other than those
referred to herein which will come before the Annual Meeting. If any other
matter arising from the conduct of the meeting should be properly presented at
the Annual Meeting for action, the persons named in the accompanying proxy card
will vote the proxy in their own discretion unless such authorization is
withheld.
VOTE REQUIRED
The consummation of the Merger is conditioned on, among other things, (i)
the adoption of the Merger Agreement and approval of the issuance of the Merger
Shares and (ii) the adoption and approval of the Restated Charter Proposals by
stockholders of Triton at the Annual Meeting. Although Delaware law and the
Triton Charter do not require Triton to obtain stockholder approval of the
Merger or the issuance of the Merger Shares, Triton stockholders must approve
such issuance in order to comply with requirements of the AMEX (on which the
Triton Common Stock is listed) because the issuance of the Merger Shares will
result in an increase in the shares of Triton Common Stock outstanding of more
than 20%. Triton stockholders must approve the 1997 Stock Incentive Plan in
order to comply with the requirements of AMEX because it will authorize the
issuance of more than 5% of the outstanding Triton Common Stock in any one year.
Assuming a quorum consisting of at least a majority of all outstanding shares of
Triton Common Stock is present at the Annual Meeting, the adoption of the Merger
Agreement and issuance of the Merger Shares, and the Restated Charter Proposals
will be approved upon receipt of the affirmative vote of at least a majority of
the outstanding shares of Triton Common Stock, and the adoption of the 1997
Stock Incentive Plan will be approved upon the receipt of the affirmative vote
of at least a majority of the votes cast at the Annual Meeting. The affirmative
vote of a plurality of the votes cast at the Annual Meeting is required for the
election of the nominees to the Triton Board. As of the close of business on
March 13, 1997, directors and executive officers of Triton, together with their
affiliates, as a group owned 3.9% of the issued and outstanding shares of Triton
Common Stock. Triton has been informed that each of its directors and officers
currently intends to vote his shares of Triton Common Stock in favor of the
adoption of the Merger Agreement and issuance of the Merger Shares, the Restated
Charter Proposals, the election of the nominees to the Triton Board and the 1997
Stock Incentive Plan. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF TRITON COMMON STOCK."
THE TRITON BOARD HAS APPROVED AND ADOPTED, AND RECOMMENDS A VOTE FOR, THE
FOLLOWING PROPOSALS: (I) THE ADOPTION OF THE MERGER AGREEMENT AND THE ISSUANCE
OF THE MERGER SHARES; (II) THE ADOPTION OF THE RESTATED CHARTER PROPOSALS; (III)
THE ELECTION OF THE NOMINEES TO THE TRITON BOARD; AND (IV) THE ADOPTION OF THE
1997 STOCK INCENTIVE PLAN.
34
<PAGE>
PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES
GENERAL
The discussion in this Proxy Statement/Prospectus of the Merger and the
Merger Agreement's principal terms is qualified in its entirety by reference to
the Merger Agreement, which is attached to this Proxy Statement/Prospectus as
Appendix A.
EFFECTIVE TIME
As promptly as practicable after the satisfaction or waiver of the
conditions to the Merger, the Merger will be consummated by the filing of a
certificate of merger as contemplated by the DGCL, together with any required
related certificates, with the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL.
CONVERSION OF SHARES
At the Effective Time, the holders of shares of Alarmguard Common Stock and
Alarmguard Preferred Stock (other than shares owned by Triton, Merger Sub or any
other direct or indirect wholly-owned subsidiary of Alarmguard or Triton, shares
held in treasury by Alarmguard and shares held by holders who have properly
perfected their appraisal rights under Delaware law) will receive an aggregate
of approximately 2,877,368 shares of Triton Common Stock (which excludes
approximately 46,003 shares of Triton Common Stock that will be issuable to the
holders of the Assumed Options upon the exercise thereof). The Merger Shares
will be allocated among the Alarmguard stockholders as follows: (i) the shares
of Alarmguard Common Stock will be converted into approximately 874,683 shares
of Triton Common Stock at the Common Stock Conversion Ratio; (ii) the shares of
Alarmguard Series A Preferred Stock, together with all dividends thereon that
have accrued and remain unpaid through January 31, 1997, will be converted into
approximately 752,649 shares of Triton Common Stock at the Series A Preferred
Stock Conversion Ratio; and (iii) the shares of Series B Preferred Stock ,
together with all dividends thereon that have accrued and remain unpaid through
January 31, 1997, will be converted into approximately 1,250,036 shares of
Triton Common Stock at the Series B Conversion Ratio.
The Merger Agreement provides that dividends on the Alarmguard Preferred
Stock that have accrued and remain unpaid from February 1, 1997 through the
Effective Time will be paid at the consummation of the Merger in cash by Triton
to the holders of the Alarmguard Preferred Stock as of such time. Any such
payment will have no effect on the conversion of the Alarmguard Preferred Stock.
The Merger Agreement provides that Triton will not be obligated to pay any
amount in excess of $140,000 of such accrued and unpaid dividends. It is not
expected that the aggregate of such payments will exceed $140,000 on or before
the date of the Merger. If the Merger is consummated, any accrued and unpaid
dividends on the Alarmguard Preferred Stock in excess of $140,000 would become
the obligation of Holdings. If the Merger is not consummated, any such dividends
would remain the obligation of Alarmguard. No fractional shares of Triton Common
Stock will be issued in the Merger. In lieu of any such fractional securities,
each holder of Alarmguard Common Stock or Alarmguard Preferred Stock who would
otherwise have been entitled to a fraction of a share of Triton Common Stock
will be paid an amount in cash, rounded to the nearest cent, determined by
multiplying (x) the average closing price per share of Triton Common Stock on
the AMEX for the ten trading days immediately preceding the second business day
prior to the Effective Time by (y) the fractional interest to which such holder
otherwise would be entitled.
BACKGROUND OF THE MERGER
EVENTS FOLLOWING TRITON'S EMERGENCE FROM BANKRUPTCY. Triton is a holding
company which historically conducted business through a number of operating
subsidiaries in various industries. Triton emerged from bankruptcy proceedings
under Chapter 11 in June 1993 with operating control of six subsidiaries and a
significant equity interest in a seventh company. Triton announced in August
1993 a plan to realize value for its stockholders over a relatively short period
of time in the form of either cash or securities which, in
35
<PAGE>
the opinion of Triton's management, would be liquid and fairly valued given the
underlying assets. A number of transactions have occurred since 1993 consistent
with this strategy. See "DESCRIPTION OF TRITON."
In December 1995, Triton completed a significant special distribution to its
stockholders consisting of $32 million in cash ($1.57 per outstanding share of
Triton Common Stock) and 1.3 million shares of common stock of Metromedia, the
successor company to The Actava Group Inc. ("Actava"), following a four-party
merger completed in November 1995. The value of the shares of Metromedia common
stock at the time of the distribution amounted to $19.6 million ($0.97 per
outstanding share of Triton Common Stock). See "DESCRIPTION OF TRITON."
TRITON AFTER THE DECEMBER 1995 DISTRIBUTION. Following the December 1995
distribution, Triton had no consolidated operations but owned 49% of the common
stock of Mission West, a publicly-traded real estate company, 450,000 shares
(with a face value of $3.6 million) of Series A Convertible Preferred Stock of
Ridgewood, a diversified real estate company, and 100% of the outstanding stock
of La Jolla Insurance Co., Limited ("La Jolla"), a non-operating Bermuda captive
insurance company. See "TRITON MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Background and Recent Developments."
During late 1995, the Triton Board held extensive discussions to determine
and evaluate various strategic alternatives by which to maximize the value of
Triton and its assets. Based upon these discussions, Triton began to search in
early 1996 for a prospective merger partner which would be able to benefit both
from becoming a "public company" (i.e., a corporation with a class of securities
registered under the Exchange Act) by merging with Triton and from having access
to Triton's existing capital resources. The Triton Board determined that the
desired merger partner should have a compelling business strategy, a successful
operating history, a capable management team and excellent prospects for growth.
In view of the wide variety of factors, the Triton Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the foregoing factors or determine that any factor was of particular
importance.
In December 1995, Triton retained Patricof to assist with identifying and
evaluating merger candidates. Patricof was selected by Triton based on
Patricof's qualifications, expertise and reputation as well as Patricof's
investment banking relationship and familiarity with Triton. Patricof, as part
of its investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
private placements and valuations for estate, corporate and other purposes.
As an alternative to a merger, Triton also considered, and reviewed with its
financial advisor, pursuing a plan of liquidation under which one or more
additional distributions would be made to Triton stockholders. However, due to
the costs of liquidation relative to the amount of liquidating distributions
that could be made to Triton's stockholders, the amount of time that a portion
of the liquidation proceeds would have to be held in reserve in order to satisfy
both known and unknown claims that might be made against Triton, and the
potentially greater value that could be achieved in a merger, the liquidation
alternative was not attractive to Triton.
From January 1996 through August 1996, Triton's management and legal and
financial advisors reviewed several potential business combination opportunities
for Triton, all involving privately-held companies. All of the opportunities
that were seriously considered were to be structured as stock-for-stock
transactions whereby Triton would issue a specified number of new shares of
Triton Common Stock, the number of such shares depending on the assessment of
the relative values of the merger candidate and Triton, to the private
stockholders of the merger candidate. The Triton Board met and discussed the
various opportunities eight times during this time period, with all members
present at each meeting, and the material opportunities and issues considered by
the Triton Board are summarized below.
On January 17, 1996, the Triton Board, with all members present including
Michael E. Cahr, Richard R. Tartre, Michael M. Earley and John C. Stiska, held a
regularly scheduled meeting via a telephone
36
<PAGE>
conference with its legal and financial advisors in attendance. Triton's
management, including Mr. Earley and Mark G. Foletta, and financial advisors
reviewed and discussed two initial merger candidates, including a consumer
electronics technology company and a financial services company. At this
meeting, Triton's management and legal and financial advisors indicated that
they would continue to investigate the particular attributes of each of these
companies. On February 22, 1996, the Triton Board, with all members present
including Messrs. Cahr, Tartre, Earley and Foletta (who was appointed to the
Triton Board effective as of February 1, 1996), held a regularly scheduled
meeting via a telephone conference with its legal and financial advisors in
attendance. At this meeting, Triton's management, including Messrs. Earley and
Foletta, and financial advisors recommended that Triton terminate its review of
the consumer electronics technology company primarily because of valuation
issues combined with that company's limited operating history, but indicated
that a review of the financial services company was ongoing. Triton's management
and financial advisors also reviewed certain additional potential merger
candidates with the Triton Board, including a life insurance company. On March
20, 1996, the Triton Board, with all members present, held a regularly scheduled
meeting with its legal and financial advisors in attendance. Triton's
management, including Messrs. Earley and Foletta, and financial advisors
indicated that Triton was continuing to review several opportunities, but the
focus was on the financial services company and the life insurance company.
On April 25, 1996, the Triton Board, with all members present, held a
regularly scheduled meeting via a telephone conference with its legal and
financial advisors in attendance. At this meeting, Triton's management,
including Messrs. Earley and Foletta, and financial advisors recommended that
Triton terminate its discussions with the financial services company due
primarily to issues regarding the management needs of that company and
unresolved accounting and auditing issues. Triton's management and financial
advisors indicated that the review of the life insurance company was continuing,
including a detailed review of the company's business plan and a valuation of
the business. On May 23, 1996, the Triton Board, with all members present, held
a regularly scheduled meeting via a telephone conference with its legal and
financial advisors in attendance. Triton's management, including Messrs. Earley
and Foletta, and financial and legal advisors indicated that they had completed
a significant amount of due diligence on the insurance company, including the
engagement of an insurance consultant to review certain attributes of the
company and the insurance industry, and that Triton had also requested
additional information from the insurance company to further support its
business plan.
On June 27, 1996 and July 25, 1996, the Triton Board, with all members
present, held meetings via telephone conferences with its legal and financial
advisors in attendance. Triton's management, including Messrs. Earley and
Foletta, reported at these meetings that, while discussions had not yet
terminated with the life insurance company, Triton's financial advisors were
beginning to revisit the market for other potential prospects to consider for a
business combination with Triton.
On August 27, 1996, the Triton Board, with all members present, held a
regularly scheduled meeting via a telephone conference with its legal and
financial advisors in attendance. Triton's management, including Messrs. Earley
and Foletta, reported that discussions with the life insurance company had
terminated primarily as a result of Triton's concerns over valuation issues and
uncertainty regarding the company's ability to execute its business plan. At
this meeting, Triton's management and financial advisors reported the
development of an opportunity with Alarmguard (which was brought to Triton's
attention by Patricof, as discussed below), including a review of the alarm
monitoring industry in general and the business strategy of Alarmguard in
particular.
NEGOTIATIONS BETWEEN TRITON AND ALARMGUARD. Triton was initially introduced
to Alarmguard in March 1996 by Patricof. While there was interest in a merger
transaction, it was mutually determined in April 1996 that the consummation of
such a transaction at such time would be premature in light of Alarmguard's then
ongoing evaluation of its alternatives to financing its growth plan. Triton and
Alarmguard began discussions concerning a possible merger in early August 1996,
after Alarmguard's management and Board had concluded that such a transaction
was an attractive financing strategy. These
37
<PAGE>
discussions concerned the form in which a merger would be accomplished and the
principal terms thereof. On August 16, 1996 and August 27, 1996, Russell R.
MacDonnell and David Heidecorn met with Mr. Earley and thereafter each party
began to conduct preliminary due diligence into the businesses, assets,
liabilities, prospects and personnel of the other.
On September 12, 1996, the Alarmguard Board, with all members present,
including Messrs. MacDonnell and Heidecorn, Stuart L. Bell, Wiley T. Buchanan
III, Ronald V. Davis, Stephen L. Green, Patrick J. Herbert and Thomas W. Janes,
held a regularly scheduled meeting via a telephone conference. At the meeting,
Messrs. MacDonnell and Heidecorn reviewed the terms of the proposed business
combination with Triton as contained in the draft of the letter of intent then
still under negotiation, as well as the Proposed Acquisition of Protective
Alarms. After a discussion of the terms of the proposed business combination
with Triton, the Alarmguard Board authorized Alarmguard's management to proceed
with negotiations with respect to the proposed business combination with Triton
and the letter of intent, with final approval thereof to be delegated to a
subcommittee of the Alarmguard Board composed of Messrs. Green, Bell and Janes.
Messrs. Green and Janes were appointed because of their status as
representatives of Alarmguard's largest stockholders and Mr. Bell was chosen for
his business expertise.
On September 19, 1996, the Triton Board, with all members present, held a
regularly scheduled meeting at the offices of Alarmguard in Orange, Connecticut.
The Triton Board reviewed Triton's normal operations and then spent the majority
of the meeting discussing the proposed merger with Alarmguard, including the
terms of a proposed letter of intent. Representatives of Patricof presented an
extensive analysis of the proposed transaction, including: characteristics of
the alarm monitoring business, such as its size, growth rate, fragmentation, low
penetration, capital requirements and competition; Alarmguard's strategy of
acquisition and internal growth; and valuation analyses to assist the Triton
Board in determining whether to proceed with further negotiations with
Alarmguard. In addition, Messrs. MacDonnell and Heidecorn, Gregory J. Westhoff,
Joseph J. Monachino and Peter M. Rogers were invited for a portion of the
meeting to make a presentation. In this presentation, the Alarmguard executives
discussed their business background and experience, and Mr. MacDonnell led a
discussion regarding the alarm monitoring business in general and Alarmguard's
business strategies and prospects in particular. At the conclusion
of the meeting, the Triton Board authorized Triton management to execute the
letter of intent upon successful negotiation of certain remaining open issues
with Alarmguard, including issues raised by certain preferred stockholders of
Alarmguard with regard to carryover preferred status (which was unacceptable to
Triton) and the terms of the refinancing of Alarmguard's existing subordinated
indebtedness.
On September 20, 1996, the Alarmguard Board, with all members present, held
a special meeting via a telephone conference to consider the proposed merger
with Triton as well as an unsolicited offer from another corporation. After
discussion of the various weaknesses of such unsolicited offer, in particular
with respect to price and ability to finance the transaction, the Alarmguard
Board discussed the terms of the letter of intent with respect to the proposed
Merger and reviewed the course of the negotiations with Triton. The Alarmguard
Board also considered an alternative suggestion that the terms of the proposed
business combination with Triton include provisions for a class of preferred
stock into which the Alarmguard Preferred Stock would be converted upon
consummation of the Merger. After noting that such a suggestion had already been
discussed with and rejected by Triton, the Alarmguard Board voted, with Mr.
Janes dissenting, to authorize Alarmguard management to execute the letter of
intent in the form presented to it.
On September 23, 1996, a letter of intent (the "Letter of Intent") was
executed whereby it was agreed that Alarmguard would be merged with and into
Triton or with a wholly-owned subsidiary of Triton, such that Triton would be
the surviving corporation of such merger, thereby allowing both Triton and
Alarmguard to benefit from Triton's status as a public corporation and the
listing of the Triton Common Stock on the AMEX. The Letter of Intent provided
that Triton's stockholders would own 40% and Alarmguard's stockholders would own
60% of Triton after the business combination, and that the transaction would be
subject to the negotiation of a definitive agreement, completion of
documentation,
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due diligence and other customary conditions, and would be subject to the
affirmative vote of the stockholders of both Triton and Alarmguard.
On October 1, 2 and 3, 1996, Mr. Foletta, along with a representative of
Triton's financial advisor, met with Messrs. MacDonnell, Heidecorn, Monachino
and Rogers in Orange, Connecticut, and conducted due diligence with respect to
Alarmguard. In early October 1996, representatives of Triton's legal counsel
also visited Alarmguard's Orange, Connecticut offices and conducted due
diligence with respect to Alarmguard. On October 15, 1996, Mr. Heidecorn met
with Messrs. Earley and Foletta in San Diego to discuss the terms of the Merger.
On October 16, 1996 and on October 23, 1996, representatives of Alarmguard's
legal counsel conducted preliminary due diligence at Triton's San Diego
headquarters. In the course of due diligence, the parties exchanged business and
legal materials, including (with respect to Triton) public filings with the
Commission and (with respect to both parties) non-public financial, tax and
legal information contained in material generated by the parties in the ordinary
course of business. Such non-public material included (i) organizational
documents of Alarmguard, including its certificate of incorporation and by-laws;
(ii) descriptions of the respective businesses of Triton and Alarmguard,
including corporate data sheets listing the respective subsidiaries, officers,
directors and ownership structure of Triton and Alarmguard and overviews of
their respective businesses; (iii) various purchase, sale and merger agreements,
including those entered into by Alarmguard in connection with its acquisition of
portfolios of subscriber accounts from other alarm companies (see "DESCRIPTION
OF ALARMGUARD -- The Acquisition Program"); (iv) tax returns, including those of
Triton and Alarmguard for 1995, 1994 and 1993; (v) audited and internal
financial statements, including those of Alarmguard for the years ended December
31, 1995, 1994 and 1993; and (vi) operating cash forecasts, including those
prepared by Triton management and Alarmguard management through fiscal 1997 and
fiscal 2001, respectively.
In mid-October 1996, Messrs. Heidecorn and Earley, along with a
representative of Triton's financial advisor, attended a security industry trade
show and a security industry conference sponsored by certain financial
institutions.
On October 24, 1996, the Triton Board, with all members present, held a
regularly scheduled meeting via a telephone conference. Triton's management,
including Messrs. Earley and Foletta, and financial and legal advisors reviewed
the status of the Alarmguard transaction including discussion of ongoing legal,
accounting and business diligence and the draft Merger Agreement prepared by
Triton's legal counsel.
On November 6 and 7, 1996, Mr. Foletta, along with Triton's legal
representatives, met with Messrs. MacDonnell and Heidecorn along with
Alarmguard's financial and legal representatives in New York to discuss various
terms of the proposed business combination between Triton and Alarmguard
relating to appraisal rights, registration rights, severance benefits, the terms
of the New Notes as contained in the Agreement in Principle, and the New Credit
Facility.
On November 12 and 13, 1996, members of Alarmguard's legal representatives
met with Messrs. Earley and Foletta and Triton's legal representatives in San
Diego to discuss due diligence issues and perform further due diligence at
Triton's San Diego office. On November 22, 1996, Messrs. MacDonnell and
Heidecorn along with Alarmguard's legal representatives met via a telephone
conference call with Messrs. Earley and Foletta and Triton's legal
representatives to review the status of the due diligence then being conducted
and to discuss a preliminary time table for finalizing the Merger Agreement and
the related agreements. Due diligence continued through the end of November and
early December 1996. During this time, Triton and Alarmguard, and their
respective financial and legal advisors, continued to exchange business and
legal materials in accordance with their respective due diligence requirements.
On December 9, 1996, the Alarmguard Board, with all members present, met via
a telephone conference in a special meeting. At this meeting, Messrs. MacDonnell
and Heidecorn, together with Alarmguard's legal advisors, reviewed with the
Alarmguard Board the status of Alarmguard's licensing arrangement with Southern
New England Telecommunications Corporation ("SNET"), before turning to a
consideration of the Merger Agreement and related agreements, various financial
and legal aspects of the
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transaction including results of material due diligence relating to the proposed
Merger, and other matters described below under "--Recommendation of the
Alarmguard Board; Reasons for the Merger." After discussion and consideration,
the Alarmguard Board approved (i) the Merger Agreement in its then present form
subject only to resolution of certain issues relating to registration rights,
and the forms of the exhibits thereto and (ii) the terms of the Agreement in
Principle with respect to the New Notes. The approval of the Merger Agreement
and forms of the exhibits thereto on behalf of Alarmguard was of no consequence
to approval of such agreements on behalf of Triton by the Triton Board.
In mid-December 1996, Triton and its financial advisors initiated
discussions with Alarmguard concerning adjustment of the proposed equity split
between Triton and Alarmguard's stockholders, based upon favorable developments
relating to values of certain Triton assets, including the receipt by Triton of
a $3.1 million cash dividend from La Jolla and an increase in the quoted market
value of Triton's investment in Mission West from $5.2 million at September 19,
1996 to $7.3 million at December 12, 1996. On December 12, 1996, the Triton
Board, with all members present, met via a telephone conference. The majority of
the meeting was devoted to the Alarmguard transaction, particularly the equity
allocation between the Triton and Alarmguard stockholders based upon those
recent developments. Representatives of Patricof discussed material previously
provided to the directors which contained an analysis indicating potential
allocation of ownership between Triton and Alarmguard stockholders pro forma for
the Merger based on a comparison of (i) the equity value of Triton, as indicated
by Triton management's estimate of the fair market value of Triton's assets at
December 31, 1996 less the estimated fair market value of liabilities at
December 31, 1996, and (ii) the equity value of Alarmguard implied by the
application of a market multiple to Alarmguard's estimated MRR at December 31,
1996. Following discussions, the Triton directors concluded that management's
recommendations to secure 43% of the combined company's equity for Triton
stockholders was appropriate. On December 13, 1996, Triton's and Alarmguard's
representatives agreed that Triton's stockholders would own 43% of the combined
company's equity with Alarmguard's stockholders owning 57% of the combined
company's equity, based on the increase in Triton's relative value. Discussions
continued regarding certain remaining matters.
On December 17, 1996, the Triton Board met in New York, with all members
present in person other than Mr. Tartre who participated via telephone. At the
meeting, the Triton Board and Triton's legal and financial advisors reviewed the
status of the Alarmguard transaction, including the remaining issues on the
transaction documents.
On December 21, 1996, the Triton Board met in New York with its legal and
financial advisors, with all members present in person other than Mr. Tartre who
participated via telephone. At this meeting, the Triton Board unanimously
approved the Merger Agreement, the Merger and the issuance of the Merger Shares
and determined that the Merger is in the best interests of Triton and its
stockholders and recommended that the Triton stockholders vote for approval of
the Merger. The Triton Board also approved the forms of the other documents and
agreements relating to the Merger, including the (i) Restated Charter and
Restated By-Laws, (ii) 1997 Stock Incentive Plan and (iii) Registration Rights
Agreement, Severance Agreements and TGM Management Agreement, and recommended
that the Triton stockholders vote for the matters set forth in clauses (i) and
(ii). At the meeting, Patricof delivered its fairness opinion described below
under "--Opinion of Financial Advisor to Triton."
Messrs. Earley and Foletta did not participate in the discussions or vote on
the TGM Management Agreement because of their respective interests in such
agreement. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--Interests of Certain Persons in the Merger." The TGM Management
Agreement was initially presented to the Triton Board in September 1996 in
connection with preliminary discussions regarding the Merger. In the course of
negotiating the Merger, Alarmguard and Triton determined that the services of
Triton management would be necessary in connection with the completion of the
Merger and to assist Alarmguard in the ongoing management of Triton's remaining
assets and liabilities and the transition of Alarmguard into a public company
due to Triton management's experience with Triton's assets and historical
operations. The parties subsequently negotiated the agreement's terms
concurrently with their negotiations of the broader terms of the Merger.
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Triton believes that the TGM Management Agreement is on terms no less favorable
than could be received from disinterested third parties.
On December 23, 1996, the Alarmguard Board met in a special meeting via a
telephone conference. At this meeting, the Alarmguard Board, with all members
present in person or, in the case of Mr. Davis, by proxy, unanimously approved
the (i) Merger Agreement, together with the exhibits thereto, (ii) Lock-up
Agreement, (iii) Restated Charter and Restated By-Laws, (iv) 1997 Stock
Incentive Plan, and (v) Registration Rights Agreement, Severance Agreements and
TGM Management Agreement and authorized Alarmguard management to execute the
Merger Agreement, the Lock-up Agreement and certain other documents and
agreements to which Alarmguard will be a party relating to the Merger.
On December 23, 1996, the Merger Agreement was executed by Triton, Merger
Sub and Alarmguard.
RECOMMENDATION OF THE TRITON BOARD; REASONS FOR THE MERGER
On December 21, 1996, the Triton Board unanimously approved the Merger
Agreement, the Merger and the issuance of the Merger Shares, determined that the
Merger is in the best interests of Triton and its stockholders and recommended
that the stockholders of Triton vote FOR the approval of the Merger.
Upon careful consideration, the Triton Board concluded that the best way to
maximize the prospects of enhancing stockholder value over the long-term would
be to merge Triton with another entity that is well-managed, has significant
prospects for future growth, and would benefit from Triton's existing capital
resources, its standing as a public company and the existing trading market on
the AMEX for the Triton Common Stock. In the opinion of the Triton Board, the
Merger fits within these parameters.
Based on the foregoing, the Triton Board has, subject to the requisite
stockholder approval, approved the Merger in order to realize what the Triton
Board believes to be the greatest possible stockholder value currently
obtainable by Triton and to provide Triton's stockholders with an attractive
long-term investment. In determining that the Merger is fair to and in the best
interests of Triton and its stockholders, the Triton Board considered and
analyzed a number of factors, including the following:
1. The long-term potential of Alarmguard's business, including its
prospects of expansion, management expertise, facility capacity, and the
dynamics of the alarm monitoring industry. In analyzing Alarmguard's
potential, the Triton Board also considered the benefits to Alarmguard's
growth prospects of Triton's existing capital resources, its status as a
public company and the existing trading market on the AMEX for the Triton
Common Stock.
2. The terms and conditions of the Merger Agreement, including the fact
that Triton's stockholders would, upon the consummation of the Merger, own
approximately 43% of Holdings Common Stock, while Alarmguard's stockholders
would own approximately 57% of such stock.
3. The value of Triton in the event that the Merger is not consummated.
In analyzing this factor, the Triton Board considered the alternative merger
partners reviewed by Triton and its advisors (as discussed under
"--Background of the Merger--Triton After the 1995 Distribution"), the
possibility of identifying another attractive prospective merger partner and
negotiating terms as beneficial to Triton and its stockholders as those set
forth in the Merger Agreement, and, in the event that the aforesaid could
not be accomplished, the liquidation value of Triton (estimated to be
approximately $15.1 million, as discussed under "--Opinion of Financial
Advisor to Triton--Liquidation Analysis of Triton").
4. The fact that the Triton Common Stock will remain outstanding and
traded on the AMEX upon the consummation of the Merger, and that the
issuance of shares to Alarmguard's stockholders as part of the Merger should
eventually increase the public float and the trading market for the Triton
Common Stock, thereby increasing the liquidity of the Triton Common Stock
and enhancing stockholder value.
5. The financial presentations of Patricof, and Patricof's oral opinion
that the Merger is fair, from a financial point of view, to the holders of
Triton Common Stock. Also, the condition to Triton's
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obligation to consummate the Merger that Patricof reaffirm its fairness
opinion as of the Effective Time.
6. The fact that, by approving the Merger, Triton's stockholders would
in effect be making an investment in Alarmguard, and that such an investment
poses various risks related to the security alarm monitoring business and to
Alarmguard's financial condition and results of operations (including those
set forth under "RISK FACTORS") that are not currently inherent in an
investment in Triton.
The foregoing discussion addresses all of the material factors considered by
the Triton Board in connection with its evaluation of the Merger. In view of the
wide variety of factors, the Triton Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the Triton Board viewed its position and recommendation as being based
on the totality of the information presented to and considered by it.
RECOMMENDATION OF THE ALARMGUARD BOARD; REASONS FOR THE MERGER
On December 23, 1996, the Alarmguard Board, with all members present in
person or by proxy, unanimously approved the Merger Agreement, determined that
the Merger is in the best interests of Alarmguard and its stockholders and
recommended that the stockholders of Alarmguard vote FOR the approval of the
Merger at the special meeting of Alarmguard stockholders to be held for the
purpose of approving the Merger. Upon careful review, the Alarmguard Board
determined that the Merger would contribute to its objective of maximizing
stockholder value by giving Alarmguard the opportunity to utilize the cash
resources of Triton and to expand its financing under the New Credit Facility,
available upon consummation of the Merger, which would enable Alarmguard to
continue the growth of its business through acquisitions and the Direct
Marketing Program. Additionally, the listing of the Holdings Common Stock on the
AMEX would provide Alarmguard with an alternative to consummating future
acquisitions with cash and will provide Alarmguard's stockholders with a public
market for their holdings. The foregoing discussion addresses all of the
material factors considered by the Alarmguard Board in connection with its
evaluation of the Merger. In making its recommendation, the Alarmguard Board
based its position on the totality of the information presented to and
considered by it and did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the foregoing factors or
determine that any factor was of particular importance.
OPINION OF FINANCIAL ADVISOR TO TRITON
On December 21, 1996, Patricof delivered its oral opinion to the Triton
Board, which it subsequently confirmed in writing as of the date of this Proxy
Statement/Prospectus (the "Patricof Fairness Opinion"), to the effect that, as
of the date of such opinion, the Merger is fair, from a financial point of view,
to the holders of Triton Common Stock. The summary description of the Patricof
Fairness Opinion set forth herein is qualified in its entirety by reference to
the full text of such opinion, a copy of which is attached as Appendix B to this
Proxy Statement/Prospectus. Holders of Triton Common Stock are urged to read the
Patricof Fairness Opinion in its entirety for further information as to the
assumptions made, matters considered and other aspects of the review by
Patricof.
Patricof's opinion does not constitute a recommendation to any Triton
stockholder as to how such stockholder should vote with respect to the Merger.
Patricof was not requested to opine as to, and its opinion does not address,
Triton's underlying business decision to proceed with or effect the Merger.
BASIS OF FAIRNESS OPINION; SCOPE OF REVIEW
In arriving at its opinion, Patricof reviewed public information regarding
Triton, including: Triton's Form 10-K for the fiscal year ended March 31, 1996;
Triton's Form 10-Q for the quarter ended September 30, 1996; and this Proxy
Statement/Prospectus. Patricof reviewed non-public information regarding Triton,
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including Triton management's estimate of the value and timing of realizations
from the disposal of its assets and the liquidation of its liabilities. Patricof
reviewed non-public information regarding Alarmguard, including: Alarmguard's
audited financial statements for the fiscal years ended December 31, 1994 and
1995, and the management letters accompanying these audits; unaudited interim
financial statements for the three- and nine-month periods ended September 30,
1996; debt agreements; acquisition files related to historical acquisitions; and
projected financial statements prepared by Alarmguard. Patricof also reviewed
publicly available information regarding the security alarm monitoring industry
and Alarmguard's competition. Patricof relied on the information described above
as well as information obtained in conversations with Triton and Alarmguard
management.
Patricof relied upon and assumed without independent verification the
accuracy and completeness of all information about Triton and Alarmguard that
Patricof reviewed. With respect to the pro forma financial statements and
projections, Patricof assumed that such pro forma financial statements and
projections had been prepared on bases reflecting the best currently available
estimates and judgments of the management of Triton and Alarmguard as to
expected future performance, including potential future acquisitions of alarm
monitoring customers. Patricof did not assume any responsibility for the
information or forecasts provided to it. Patricof relied upon assurances of
Triton and Alarmguard management that they are unaware of any facts that would
make the information or forecasts provided to Patricof incomplete or misleading.
Patricof did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Triton and Alarmguard. Patricof's
opinion was necessarily based upon financial market, economic and other
conditions as they existed on, and could be evaluated as of, the date of its
investigation.
In addition, Patricof compared certain financial data of Alarmguard with
various other companies whose securities are publicly traded, reviewed the
historical prices and trading volumes of the Triton Common Stock and, as further
discussed below, conducted such other financial studies, analyses and
investigations as it deemed appropriate for purposes of its opinion, including
consideration of the value of Triton and Alarmguard based on comparative
company, comparative transaction, liquidation and discounted cash flow valuation
methods.
In rendering its opinion, Patricof performed valuation analyses which
compared the value contributed by Triton and Alarmguard in the Merger with the
percentage ownership ascribed to the stockholders of each entity. In addition,
Patricof performed analyses which compared the value of Triton with the value of
Triton's share of the combined entity, pro forma for the Merger ("Newco").
Patricof expressed no opinion as to the prices at which Triton Common Stock
may trade following the consummation of the Merger.
METHODOLOGY
The following is a summary of the analyses undertaken by Patricof in
rendering the Patricof Fairness Opinion. This summary does not purport, however,
to be a complete description of the analyses underlying the Patricof Fairness
Opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances at hand. Accordingly, a fairness opinion is not readily
susceptible to summary description.
In valuing the equity of Alarmguard, Patricof considered (i) Alarmguard's
market focus, growth opportunities, and competition; (ii) Alarmguard's earnings
capacity and predictability of earnings; (iii) the value of comparative private
market transactions ("Comparative Transaction Analysis of Alarmguard"); and (iv)
the value of comparative public companies ("Comparative Company Analysis of
Alarmguard").
In valuing the equity of Triton, Patricof considered (i) the value of
Triton's tangible and intangible assets and liabilities ("Liquidation Analysis
of Triton"); and (ii) the market value of the Triton Common Stock ("Market Value
of Triton").
In valuing the equity of Newco, Patricof considered the discounted cash flow
projected for Newco ("Discounted Cash Flow Analysis of Newco").
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MARKET FOCUS, GROWTH OPPORTUNITIES, AND OPERATING RESULTS OF ALARMGUARD
Alarmguard has focused on providing residential security alarm monitoring
services to customers in the eastern United States. Its strategy is to grow
through the consolidation of smaller security alarm monitoring companies and
through internal generation of new subscribers.
Patricof observed that Alarmguard experienced compound annual revenue growth
of 37% for the period 1993 to 1995. Revenue was $10.7 million in 1993 and $20.2
million in 1995. Adjusted earnings before interest, taxes, depreciation and
amortization ("EBITDA") increased from $2.0 million in 1993 to $3.3 million in
1995. Alarmguard had revenue and Adjusted EBITDA (as defined below) of $22.9
million and $4.1 million, respectively, for the twelve months ended September
30, 1996.
COMPARATIVE COMPANY ANALYSIS OF ALARMGUARD
Patricof selected companies comparative to Alarmguard based on the following
criteria: (i) companies primarily engaged in providing security alarm monitoring
services; (ii) companies that were not the subject of an ancillary transaction
(e.g., going private transactions); (iii) companies with significant trading
volume; and (iv) companies doing business primarily in the United States. The
application of these criteria resulted in three comparative companies: ADT,
Holmes Protection Group, Inc. ("Holmes"), and Protection One, Inc. ("Protection
One").
Patricof compared the characteristics and operating results of Alarmguard
with those of the comparative companies across a number of criteria to determine
Alarmguard's position relative to the comparative companies. These criteria
included: (i) number of subscribers; (ii) aggregate MRR and MRR growth; (iii)
profitability, as represented by Adjusted EBITDA (as defined below) divided by
total revenues; (iv) leverage, as represented by total net debt divided by
Adjusted EBITDA and total net debt divided by MRR; (v) liquidity, as represented
by the current ratio and other analytical ratios; (vi) recurring revenue per
subscriber; and (vii) the cost of generating new subscribers. Alarmguard incurs
significantly greater expenses for accounting purposes than Protection One, as
Protection One generally obtains new subscribers through acquisitions under its
dealer program and is therefore able to capitalize the cost of acquiring new
customer accounts, while Alarmguard expenses a portion of the cost of obtaining
new subscriber accounts as it generates a significant number of new accounts
through its Direct Marketing Program. For this reason, the results of Alarmguard
have been adjusted to present EBITDA adjusted to remove Direct Marketing Program
revenues and add back Direct Marketing Program expenses during the period
("Adjusted EBITDA"). Investor appraisal ratios used herein have been calculated
based on Adjusted EBITDA.
Based on this comparison, Patricof applied a range of investor appraisal
ratios of 45 to 55 times MRR to the operating statistics of Alarmguard. Patricof
relied primarily on values based upon MRR due to Alarmguard's stage of growth.
Alarmguard has not yet achieved sufficient recurring revenue to fully benefit
from the economies of scale available in the security alarm monitoring business,
but Alarmguard management projects that it will do so over the next several
years. As a result, MRR is the most appropriate measure of value at this stage
of Alarmguard's growth. The range of equity value based on this analysis was
discounted to reflect the lack of marketability of Alarmguard Common Stock,
resulting in a range of equity value of $17.9 million to $28.2 million
attributable to Alarmguard stockholders.
COMPARATIVE TRANSACTION ANALYSIS OF ALARMGUARD
Based on an analysis of the ten pending or completed private market
transactions in the security alarm monitoring industry for which data was
available (of a total of 26 private market transactions reviewed), Patricof
observed that alarm monitoring companies have recently been sold at multiples
ranging from 33.6 to 61.4 times MRR, with an average multiple of 47.3 times MRR.
Of the eight completed transactions, data was publicly available for three, as
follows: the purchase of Metrol Security Services, Inc. by Protection One for
$30.7 million (61.4x MRR); the purchase of Alert Centre Inc. (West) by
Protection One
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for $18.5 million (33.6x MRR); and the purchase of Alert Centre Inc. by ADT for
$121.9 million (34.8x MRR). The two pending transactions reviewed were the $3.6
billion bid by Western Resources, Inc. for the stock of ADT (49.0x MRR) and the
announced purchase of Westinghouse Security Systems by Western Resources Inc.
for $425 million (53.1x MRR). In addition, Patricof reviewed five completed
transactions for which data was not publicly available, but was obtained through
private sources. These transactions included the purchase of Automated Security
Holdings by ADT; the purchase of Security Communications by Centennial Power;
the purchase of Intercap and National Guardian by Ameritech Corporation; and the
purchase of Kertz Security by Republic Industries Inc. With the exception of
Metrol Security Services, all five companies with less than $1.0 million of MRR
were purchased at MRR multiples between 33.6x and 41.0x. The three companies
with $2.8 million to $9.0 million of MRR were purchased at MRR multiples between
33.9x and 47.5x. The two pending acquisitions were at multiples of 49.0x and
53.1x, with MRR of $73.8 million and $8.0 million, respectively. Based on
Alarmguard's relatively large size (in comparison to the five companies with
under $1.0 million of MRR) and its concentrated subscriber base, Patricof
assumed a range of transaction multiples of 40 to 45 times MRR and calculated a
range of Alarmguard equity value of $13.0 million to $18.3 million after
removing an estimate of the premium for control implicit in private market sale
transactions.
LIQUIDATION ANALYSIS OF TRITON
Triton management projected the timing and net amount of cash realized in an
orderly liquidation of its assets and satisfaction of its liabilities, including
costs related to dissolving Triton as a corporate entity, over the period
November 30, 1996 through September 30, 1997. Patricof calculated the present
value of projected cash dividends to stockholders using a discount rate of
17.7%, equal to the Ibbotsen mean small company stock return, 1926 to 1995. (The
mean small company stock return 1926-1995, as published in the STOCKS, BONDS,
BILLS AND INFLATION 1996 YEARBOOK by Ibbotsen Associates, is a generally
accepted statistical reference source in the investment banking industry and was
considered a more appropriate discount rate than a cost of equity calculated
using the capital asset pricing model because of the low volume of trading in
Triton Common Stock.) This liquidation analysis resulted in an equity value of
Triton of $15.1 million. In its liquidation analysis, Paticof relied on Triton
management's estimates of the value and timing of realizations from the disposal
of Triton's assets and the liquidation of its liabilities. Patricof reviewed
Triton management's estimates, and, on the basis of Patricof's experience and
familiarity with Triton and its assets, found no reason to depart from Triton's
estimates.
Triton has net operating and capital loss carryforwards ("NOLs") which
totaled $47 million and $120 million, respectively, at September 30, 1996. The
NOLs expire between 2001 and 2010 and, due to a previous ownership change, have
a combined annual limitation of $2.4 million. In a liquidation, Triton is not
projected to use these NOLs as the tax basis of its assets exceeds the projected
liquidation values. If Triton were to sell its assets at liquidation value to a
tax-paying buyer, such a buyer would be limited in the annual utilization of the
NOL. It is unlikely that a buyer would pay full value for Triton's assets and
full value for potential tax savings. In addition, Alarmguard is not expected to
be able to use the tax carryforwards. As a result of all these factors, no
incremental value was assigned to Triton's NOL position in this analysis.
MARKET VALUE ANALYSIS OF TRITON
Patricof considered the trading history of Triton Common Stock. The recent
trading history of Triton Common Stock has been influenced by the announcement
of the Merger. For the 20 trading days prior to the announcement of the Merger,
Triton Common Stock had an average closing price of $0.671 per share, which
implied an aggregate fully diluted value of $14.8 million for the holders of
Triton Common Stock. Because Triton's share price prior to the announcement of
the Merger does not reflect material subsequent positive developments at Triton,
Patricof relied upon the liquidation value approach in its analysis of the
Merger.
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DISCOUNTED CASH FLOW ANALYSIS OF NEWCO
Patricof based its discounted cash flow analysis on base case projections
prepared by Alarmguard management. Alarmguard management also provided
assumptions used in the upside and downside case projections. The upside case
projections assumed compound annual revenue growth of 39% from 1996 to 2001, as
compared to 26% in the base case. This resulted in adjusted EBITDA in 2001 of
$53.5 million in the upside case, as compared to $30.5 million in the base case.
The downside case projections assumed compound annual revenue growth of 15% from
1996 to 2001, resulting in adjusted EBITDA in 2001 of $16.9 million.
Alarmguard's free cash flow to equity from 1997 through 2001 was discounted to
the present assuming the infusion of $14.5 million of equity capital at December
31, 1996. A terminal value was calculated based on a terminal multiple of nine
times projected EBITDA in the year 2001, and then reduced by the projected
amount of net debt at December 31, 2001, to reach a terminal equity value. The
terminal equity value as used in this analysis is the projected value available
to common stockholders in the year 2001. The value of the discounted free cash
flow to equity was added to the discounted terminal equity value to obtain an
equity value for Alarmguard. This analysis was performed on a base case, a
downside case and an upside case at a range of discount rates reflecting a range
of estimated Alarmguard cost of equity of 20% to 30%.
In the base case, the free cash flow to equity for the years 1997 to 2001
was as follows: ($14.3) million in 1997, ($1.5) million in 1998, no measurable
cash flow in 1999 or 2000 and ($2.6) million in 2001. The terminal equity value
in 2001 was $167.1 million, calculated as nine times projected 2001 adjusted
EBITDA of $30.5 million less net debt of $107.8 million at 2001 year end. At a
20% discount rate, the equity value of Newco was calculated by adding the
discounted value of free cash flow of ($15.3) million to the discounted terminal
equity value of $67.1 million to reach an equity value of $51.9 million. The
equity values of Newco at 25% and 30% discount rates were $40.0 million and
$30.7 million, respectively.
In the upside case, the free cash flow to equity from 1997 to 2001 was as
follows: ($14.1) million in 1997; ($1.7) million in 1998; $0.1 million in 1999;
($0.1) million in 2000; and ($2.3) million in 2001. The terminal equity value in
2001 was $296.5 million, calculated as nine times projected 2001 adjusted EBITDA
of $53.5 million less net debt of $184.8 million at 2001 year end. At a 20%
discount rate, the equity value of Newco was calculated by adding the discounted
value of free cash flow of ($15.2) million to the discounted terminal equity
value of $119.2 million to reach an equity value of $104.0 million. The equity
values of Newco at 25% and 30% discount rates were $82.5 million and $65.6
million, respectively.
In the downside case, the free cash flow to equity from 1997 to 2001 was as
follows: ($14.5) million in 1997; no measurable cash flow 1998; ($9.0) million
in 1999; ($0.3) million in 2000; and $0.3 million in 2001. The terminal equity
value in 2001 was $65.6 million, calculated as nine times projected 2001
adjusted EBITDA of $16.9 million less net debt of $86.7 million at 2001 year
end. At a 20% discount rate, the equity value of Newco was calculated by adding
the discounted value of free cash flow of ($19.0) million to the discounted
terminal equity value of $26.4 million to reach an equity value of $7.4 million.
The equity values of Newco at 25% and 30% discount rates were $3.3 million and
$0.2 million, respectively.
The equity value available to the initial stockholders of Newco (i.e., the
stockholders immediately following the assumed equity infusion at December 31,
1996 of $14.5 million) was obtained by adjusting for the impact of dilution
caused by financings during the projected period. An expected value analysis of
the three cases resulted in a range of equity value of $26.2 million to $43.3
million after removing an estimate of the premium for control implicit in
discounted cash flow analysis.
CONCLUSION
The range of equity value attributable to Alarmguard stockholders is
estimated at $15.5 million to $23.3 million, and the value attributable to
Triton stockholders is estimated at $15.1 million. Based on these values, the
contribution of Alarmguard to the Merger is between 51% and 61% of the combined
value of Triton and Alarmguard, and the contribution of Triton is between 49%
and 39% of this value. The
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ownership of Triton security holders pro forma for the Merger is approximately
equal to 43%, which is within the contribution percentage range presented above.
In addition, the estimated $15.1 million of Triton represents between 35% and
58% of the discounted cash flow value for Newco. The 43% ownership of Triton's
security holders is within that range. As a result of the analyses described
above, it is Patricof's opinion, as of the date of this Proxy
Statement/Prospectus, that the Merger is fair, from a financial point of view,
to the holders of Triton Common Stock.
The summary of these analyses does not purport to be a complete description
of Patricof's analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances,
and therefore such an opinion and the related analyses are not readily
susceptible to summary description. In its analyses, Patricof made numerous
assumptions with respect to industry performance, general business, regulatory
and economic conditions and other matters, many of which are beyond the control
of Triton, Alarmguard and Patricof. Any estimates contained therein are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than such estimates, because such estimates
are inherently subject to uncertainty. Furthermore, in arriving at its fairness
opinion, Patricof did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Patricof
believes that its analyses must be considered as a whole and that considering
any portions of such analyses and of the factors considered, without considering
all analyses and factors, could create a misleading or incomplete view of the
process underlying the opinion.
Patricof is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses in connection with
restructurings, mergers and acquisitions, private placements, leveraged buyouts,
fairness opinions and valuations for estate, corporate and other purposes.
Patricof has served as financial advisor to Triton since October 19, 1993.
Tiger Lilly, which includes certain officers, directors and employees of
Patricof, owns, without giving effect to the Reverse Stock Split, 150,000 shares
of Triton Common Stock and currently exercisable warrants to purchase 500,000
shares of Triton Common Stock at $0.50 per share. In December 1995, Triton
retained Patricof specifically to assist it in developing and evaluating
proposals from potential acquirors, acquisition candidates and merger partners.
Pursuant to that engagement, Triton has paid Patricof a retainer of $50,000 and
will pay to Patricof a success fee upon the completion of the Merger of
$300,000. In addition, on September 16, 1996, Triton engaged Patricof as
financial advisor to the Triton Board with respect to the fairness of the Merger
to holders of Triton Common Stock. Under that engagement, Triton will pay to
Patricof a fee of $75,000 upon delivery of Patricof's written opinion. A
substantial portion of Patricof's compensation for the services rendered by it
in connection with the Merger is contingent upon consummation of the Merger.
Consequently, Patricof may be deemed to have a conflict of interest in rendering
its fairness opinion with respect to the fairness of the Merger to holders of
Triton Common Stock. The Triton Board believes that the fees payable to Patricof
with respect to the Merger are typical of fees payable to financial advisors
generally in corporate merger and acquisition transactions and that any conflict
of interest that may be deemed to exist as a result of the contingent nature of
Patricof's compensation would not preclude Patricof from rendering independent
and objective advice.
ALARMGUARD FINANCING
NEW CREDIT FACILITY
Pursuant to the Commitment Letter, the Bank of Boston has committed to
provide the Borrower, upon consummation of the Merger, up to $60 million under
the New Credit Facility.
GENERAL. The Commitment Letter contemplates that the New Credit Facility
will be a senior secured revolving credit facility (the "Revolver") converting
to a five-year term loan two years after the closing of the New Credit Facility
(the "Conversion Date"). All or a portion of the loans outstanding under the New
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Credit Facility will bear interest based, at the option of the Borrower, at a
floating rate equal to either (i) the greater of (x) First National Bank of
Boston's base rate and (y) the Federal Funds effective rate plus 0.5% per annum,
plus, in either case, the applicable margin of 1.5% per annum; or (ii) the
Eurodollar rate, plus the applicable margin (which would have been 3% as of
March 13, 1997). As of March 13, 1997, the Eurodollar rate, plus the applicable
margin, would have been approximately 8.5625%. A commitment fee of 0.5% per
annum will be due on the daily average unused portion of the Revolver, payable
monthly in arrears. The availability of loans under the Revolver will be limited
to an amount equal to a 22.5x multiple of MRR.
REPAYMENT. The loans under the New Credit Facility will be required to be
repaid in equal quarterly installments equal to the following percentages (for
the applicable year) of the amount outstanding under the New Credit Facility on
the Conversion Date: year three: 15%; year four: 20%; year five: 20%; year six:
20%; and year seven: 25%.
PREPAYMENTS. Optional prepayments will be permitted to be made without the
payment of any premium or penalty. The following amounts will constitute
mandatory prepayments: (i) proceeds from the issuance of any additional
indebtedness; (ii) 50% of excess cash flow after the Conversion Date; and (iii)
proceeds from the sale of MRR outside of the ordinary course of business in
excess of $100,000 per year unless such proceeds are reinvested in MRR within
120 days of any such sale.
SECURITY AND GUARANTIES. The loans and other obligations under the New
Credit Facility will be secured by a first lien on all the tangible and
intangible personal property of the Borrower and its subsidiaries, and a pledge
of the capital stock of AG Holdings, Inc., the direct subsidiary of SSH, the
Borrower, the Borrower's existing or future subsidiaries and of a certain
promissory note evidencing all indebtedness due to the Borrower from SSH and all
security, if any, therefor, and will be guaranteed by Holdings, SSH and by any
other intermediate subsidiaries of Holdings or SSH.
COVENANTS. The New Credit Facility will contain covenants customary for
transactions of this type, including restrictions that, among other things,
impose limitations on the Borrower and its subsidiaries with respect to (i) the
nature of its business; (ii) the incurrence of indebtedness; (iii) the
incurrence, creation and maintenance of liens; (iv) investments; (v) dividends;
(vi) the sale or disposition of assets; and (vii) transactions with affiliates.
In addition, the New Credit Facility will require, among other things, that, as
of certain dates and for certain periods, the Borrower maintain the following
ratios: (a) a ratio of consolidated senior debt to MRR not to exceed 22.5 to
1.0; and (b) a ratio of consolidated total debt to MRR not to exceed 30.0 to
1.0; and certain other financial covenants.
The New Credit Facility will permit the Borrower to create additional MRR
through the Direct Marketing Program provided that all costs and expenses
related thereto are properly identified and segregated for accounting purposes
in a manner satisfactory to the Agent. The New Credit Facility will (i) without
the approval of the lenders, permit acquisitions subsequent to the Proposed
Acquisition with aggregate consideration of up to $2.5 million, provided that
the company being acquired is in the same line of business as the Borrower and
that prior to and after giving effect to any such acquisition, all covenants are
being complied with and there is no default or event of default; and (ii) with
the approval of 66 2/3% of the lenders, permit acquisitions subsequent to the
Proposed Acquisition with aggregate consideration of over $2.5 million. The
consummation of the Proposed Acquisition will not require the consent of the
lenders under the New Credit Facility.
EVENTS OF DEFAULT. The New Credit Facility will provide for events of
default customary in facilities of these types, including, among others: (i)
nonpayment of principal or interest; (ii) breach by the Borrower of any
affirmative or negative covenants; (iii) any misrepresentation by the Borrower;
(iv) cross default with respect to other agreements or obligations of the
Borrower; and (v) certain defaults relating to bankruptcy, insolvency, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
judgments, with customary limitations and time periods.
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CONDITIONS PRECEDENT. Consummation of the transactions contemplated by the
Commitment Letter is subject to the satisfaction or waiver of a number of
conditions precedent customary for facilities of these types, including but not
limited to: (i) a minimum capital contribution by Holdings to Borrower of $14
million at closing of the New Credit Facility; (ii) the conversion of the
Alarmguard Common Stock into Triton Common Stock in connection with the Merger
upon the terms previously disclosed to and approved by the Agent; (iii) the
completion of due diligence in scope and determination satisfactory to the
Agent; (iv) the negotiation, execution and delivery of definitive documentation
to evidence and secure the New Credit Facility; (v) the making of all necessary
filings and recordings and all other necessary and appropriate action to perfect
the lenders' security interest in the collateral; (vi) no occurrence of a
material adverse change in the financial condition, business or prospects of the
Borrower or its subsidiaries; (vii) the receipt and satisfactory review of a
collateral report, to be commissioned by the Agent, of the Borrower to update
the accuracy of existing MRR; (viii) a review satisfactory to the Agent of its
customary environmental due diligence relative to the Merger; (ix) the truth and
correctness of each of the representations and warranties of the Borrower; (x)
no occurrence and continuance of a default or event of default; and (xi) payment
in full of all fees required to be paid at closing.
In addition, pursuant to the Agreement in Principle, the New Subordinated
Noteholders have agreed, subject to the terms thereof, to purchase the New Notes
in an aggregate principal amount of approximately $4.6 million. The proceeds of
such sale will be used to refinance Alarmguard's existing subordinated debt. See
"--Interests of Certain Persons in the Merger--Refinancing of SSH's Existing
Subordinated Debt."
BRIDGE NOTE
As contemplated by the Merger Agreement, on February 10, 1997, SSH executed
the Bridge Note payable to Triton establishing a line of credit in the amount of
up to $1.5 million, and on that date borrowed $500,000 thereunder. The Bridge
Note is available to Alarmguard for borrowings through April 30, 1997 absent an
event of default thereunder. The Bridge Note is due on the Maturity Date and is
subordinate in right of payment to the Credit Facility but senior in right of
payment to the Debentures. In the event that the closing of the Merger occurs on
or prior to the Maturity Date, the entire principal amount of the Bridge Note
then outstanding, together with all accrued interest, will be repaid in full.
The Bridge Note is subject to an interest rate of 11% per annum payable in
arrears on the first business day of each month beginning April 1, 1997. In
conjunction with the issuance of the Bridge Note, Alarmguard and Triton entered
into a Letter Agreement dated February 10, 1997, confirming that (i) the Bridge
Note constituted the bridge financing of up to an aggregate of $1.5 million (the
"Bridge Financing") contemplated by Section 4.01 of the Merger Agreement and
(ii) amounts outstanding under the Bridge Note are to be included in any
calculation of the $16 million minimum cash balance of Triton required as a
condition to the Merger Agreement. The Bridge Note contains restrictions on
SSH's ability to (w) incur additional indebtedness or liens, (x) declare or pay
dividends, (y) engage in non-arms' length affiliate transactions or (z) effect a
sale of Alarmguard. Each of Triton and Alarmguard believes that the Bridge Note
is on terms no less favorable than are available from an unaffiliated third
party.
RESALE OF HOLDINGS COMMON STOCK
All Merger Shares received by Alarmguard stockholders in the Merger will be
freely transferable except that shares received by persons who are deemed to be
"affiliates" (as such term is used in Rules 144 and 145 promulgated under the
Securities Act) of Alarmguard prior to the Merger may be resold by them only in
transactions permitted by the resale provisions of Rule 145 (or Rule 144 in case
of such persons who become affiliates of Triton) or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of Triton or
Alarmguard generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party. The Merger Agreement requires Alarmguard to use its best efforts
to cause each person who may be deemed to be an affiliate of Alarmguard to
deliver to Triton on or prior to the Effective Time a written agreement to the
effect that such person will not offer
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or sell or otherwise dispose of any of the Merger Shares issued to such person
pursuant to the Merger except pursuant to an effective registration statement or
in compliance with Rule 145 or an exemption from registration under the
Securities Act.
THE REGISTRATION RIGHTS AGREEMENT
The Merger Agreement provides that, as a condition to the closing of the
Merger, Triton is required to enter into the Registration Rights Agreement,
which will provide for certain "demand" and "piggyback" rights to the Holders
with respect to the Registrable Securities. Collectively, the Holders will own
(assuming the exercise of the Patricof Warrants) approximately 2,100,622 shares
of Holdings Common Stock. Pursuant to the Registration Rights Agreement, any
Requesting Demand Holder (as defined below) may make a written demand of
Holdings to effect the registration of all or part of the Registrable Securities
owned by them (the "Demand Request"). Holdings will not be required to take any
action if, among other things, (i) the Demand Request is made within six months
after the closing of the Merger; (ii) two demand registrations have been
previously effected by Triton on behalf of such Requesting Demand Holder; (iii)
Holdings has completed a public offering of Holdings Common Stock for its own
account pursuant to a registration statement within the 120-day period next
preceding such Demand Request which permitted such Requesting Demand Holder to
register Registrable Securities; (iv) Holdings has completed a public offering
of Holdings Common Stock pursuant to a registration statement filed pursuant to
a request of any Holder other than a Requesting Demand Holder within the 120-day
period next preceding the Demand Request; (v) Holdings has completed a public
offering of Common Stock pursuant to a registration statement filed pursuant to
a prior request of the Requesting Demand Holder within the 180-day period next
preceding the current Demand Request; (vi) Holdings has effective a "shelf"
registration statement pursuant to which the Requesting Demand Holder can
dispose of its Registrable Securities in the manner requested; or (vii) the
Registrable Securities requested to be registered have a then current market
value of less than $3.0 million unless such Demand Request is for all the
remaining Registrable Securities held by the Requesting Demand Holder and the
then current market value of such remaining Registrable Securities is greater
than $700,000. "Requesting Demand Holder" means, at any time, each of the Canaan
Entities and Triumph and their respective successors and permitted assigns which
hold Registrable Securities representing at such time at least a majority (by
number of shares) of the Registrable Securities held by all Holders within each
such Demand Holder group. Holdings will be required to file the registration
statement within 60 business days of exercise of any demand right. Holdings will
not be required to effect a registration during certain "blackout periods," not
to exceed 60 days, during which the Holdings Board has determined in good faith
that such registration and distribution of Registrable Securities (i) could
materially impair or delay a pending transaction; or (ii) would require
disclosure of confidential information; provided that Holdings will not obtain a
blackout period more than twice in any 12 month period if the effect of a second
blackout period would be to twice defer any Requesting Demand Holder(s) in such
period, other than in each such case that a normal deferral is required prior to
the public release of quarterly financial results of Holdings.
If Holdings seeks to register, in a proposed public offering for its own
account or for the account of any holder of Holdings Common Stock (other than
pursuant to a registration statement on Form S-4 or Form S-8 or any successor
form under the Securities Act, or filed in connection with an exchange offer or
an offering of securities solely to existing stockholders or employees of
Holdings), any Holdings Common Stock while the Registration Rights Agreement is
in effect, the Holders will have the right to request that Holdings include any
or all of their Registrable Securities in the proposed offering. Holdings must
provide each Holder with at least 20 business days' notice prior to the filing
of the registration statement. Such notice must specify the approximate date on
which Holdings proposes to file such registration statement and advise the
Holder of its right to have any or all of its Registrable Securities included in
the registration. A Holder, in a written request given to Holdings within 15
days after such Holder's receipt of written notice from Holdings, may include
its Registrable Securities in such registration statement, subject to
constraints of marketability of the proposed offering, as determined in good
faith by the lead managing underwriter. In the event that marketing constraints
prevent the registration of all Registrable Securities requested to be
registered, such Registrable Securities will be registered, to the extent
marketable, on a pro rata basis.
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If requested in writing by the managing underwriters in an underwritten
registration (i) no Holder of Registrable Securities will effect any public sale
or distribution of such securities during the seven days prior to and the 120
days after the effective time of any underwritten registration by Holdings,
unless the managing underwriters of the registered public offering agree; and
(ii) Holdings (x) will not effect any public sale or distribution of Holdings
Common Stock during the seven days prior to and the 120 days after the effective
time of any underwritten registration with respect to Registrable Securities
pursuant to the Registration Rights Agreement in which any Holder is a selling
stockholder (except as part of such underwritten registration or pursuant to
registrations on Forms S-4 or S-8 or any successor form), unless the managing
underwriters of the registered public offering otherwise agree, and (y) will use
all reasonable efforts to cause each holder of at least 5% (on a fully-diluted
basis) of its equity securities, or any securities convertible, exchangeable or
exercisable for or into such securities, to agree not to effect any public sale
or distribution of any such securities during such period (except as part of
such underwritten registration, if otherwise permitted), unless the managing
underwriters of the registered public offering otherwise agree.
In registering Registrable Securities, Holdings will use its reasonable best
efforts to, among other things, make relevant filings with the Commission,
provide appropriate notices and necessary disclosures to requesting parties, and
customarily required warranties and representations to underwriters.
Each Holder will pay all underwriting discounts, commissions, transfer taxes
and documentary stamp taxes related to the Registrable Securities offered for
sale by such Holder as well as the fees and disbursements of its counsel (other
than counsel representing the Holders as a group). All other fees and expenses
in connection with the registration of Registrable Securities, including the
reasonable fees and expenses of counsel representing the Holders as a group,
will be borne by Holdings.
Holdings will agree to indemnify the Holders and the prospective
underwriters of registrations of Registrable Securities for liabilities for
material misstatements and omissions, other than any material misstatements or
omissions based on information provided by the Holders, included in the
registration statement. Likewise, each Holder will agree to indemnify Holdings,
all the Holders or any underwriter for liabilities for material misstatements
and omissions made in the registration statement in reliance on information
provided to Holdings by such Holders, subject to certain limitations. To the
extent that indemnification from an indemnifying party is unavailable,
contribution will also be available, with certain limitations, to any of the
above parties in relation to relative fault.
THE LOCK-UP AGREEMENT
Pursuant to the Lock-up Agreement, the Lock-up Stockholders have agreed
that, during the term of the Lock-up Agreement, they will not (i) sell,
transfer, pledge, assign or otherwise dispose of, or enter into any contract,
option or other agreement with respect to the transfer, pledge, assignment or
other disposition of any Alarmguard Common Stock or Alarmguard Preferred Stock
owned by such Lock-up Stockholder (the "Lock-up Shares"); (ii) enter into any
voting agreement with respect to any Lock-up Shares; (iii) engage in certain
activities relating to business combinations involving Alarmguard other than the
Merger; or (iv) otherwise take any action inconsistent with the Merger Agreement
or that would prevent any condition precedent to the Merger from being satisfied
at or prior to the Effective Time. The Lock-up Stockholders have also agreed
promptly to notify Alarmguard if any Acquisition Proposal is made to any Lock-up
Stockholder.
The Lock-up Stockholders have further agreed that, at all times prior to the
Effective Time, the Lock-up Stockholders will collectively continue to own and
exercise voting rights with respect to the Lock-up Shares. In addition, the
Lock-up Stockholders have agreed that at any meeting of the stockholders of
Alarmguard, and in any action by written consent of the stockholders of
Alarmguard, they will (i) vote the Lock-up Shares in favor of the Merger and the
Merger Agreement, and (ii) vote the Lock-up Shares against any action or
agreement which would result in a breach of any covenant, representation or
warranty of Alarmguard under the Merger Agreement. The Lock-up Stockholders have
also agreed to
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revoke any previous proxies or consents with respect to the Lock-up Shares or
any other voting securities of Alarmguard.
In accordance with the Lock-up Agreement, at the Effective Time, Triton and
certain of the Lock-up Stockholders will enter into the Registration Rights
Agreement. See "--The Registration Rights Agreement." In addition, at or prior
to the Effective Time, each Lock-up Stockholder has agreed to execute, at or
prior to the Effective Time, an affiliate agreement (the "Affiliate Agreement")
substantially in the form of an exhibit attached to the Merger Agreement.
The Lock-up Agreement was executed on December 23, 1996, and will terminate
at the earlier of the Effective Time or the termination of the Merger Agreement.
If neither of these events occur before April 15, 1997, the Lock-up Agreement
will terminate on April 15, 1997, unless the parties to the Merger Agreement
have not terminated the Merger Agreement, in which event the Lock-up Agreement
will expire no later than April 30, 1997.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
SEVERANCE, MANAGEMENT AGREEMENTS. As a condition to Alarmguard's obligation
to effect the Merger, Triton is required to enter into the Severance Agreements
as of the Effective Time with the following senior management executives of
Alarmguard: Russell R. MacDonnell, who is expected to become Chairman, President
and Chief Executive Officer of Holdings, David Heidecorn, who is expected to
become Chief Financial Officer and Executive Vice President of Holdings, and
Gregory J. Westhoff, who is expected to become Vice President of Holdings. The
Severance Agreements will provide benefits to the Executives in the event of
their resignation for "good reason," termination without "cause," or their
termination or resignation for any reason after a "change in control." These
agreements will replace certain employment, severance and non-compete agreements
currently in existence between each such person and Alarmguard. In addition, in
connection with the Merger, Triton will, prior to the Effective Time, enter into
the TGM Management Agreement with TGM, a management company to be formed by
Michael M. Earley who is currently a member of the Triton Board and upon
consummation of the Merger is expected to become a member of the Board of
Directors of Holdings, and Mark G. Foletta, who is currently a member of the
Triton Board. TGM will perform services in connection with ongoing management of
the assets and liabilities of Holdings following the consummation of the Merger.
Pursuant to the TGM Management Agreement, $300,000 will be paid to TGM by Triton
upon consummation of the Merger and $20,000 will be paid to TGM by Holdings
within five business days following the end of each month for the entire
one-year term of the contract. See "MANAGEMENT OF HOLDINGS AFTER THE
MERGER--Executive Compensation--TGM Management Agreement."
THE 1997 STOCK INCENTIVE PLAN. As a condition to Alarmguard's obligation to
effect the Merger, Triton is required to adopt (subject to stockholder approval)
the 1997 Stock Incentive Plan, participants in which will include Russell R.
MacDonnell, who is expected to become Chairman, President and Chief Executive
Officer of Holdings, David Heidecorn, who is expected to become Chief Financial
Officer and Executive Vice President of Holdings, Gregory J. Westhoff, who is
expected to become Vice President of Holdings; Michael M. Earley, Michael E.
Cahr and Stuart L. Bell, who are expected to become directors of Holdings; and
other key management executives of Holdings. See "PROPOSAL 4: ADOPTION OF THE
1997 STOCK INCENTIVE PLAN."
REGISTRATION RIGHTS. The Merger Agreement provides that as a condition to
the closing of the Merger, Triton is required to enter into the Registration
Rights Agreement, which provides that certain investors in, and executive
directors and officers of, Alarmguard and Triton will have certain "demand" and
"piggyback" rights to require Holdings to register all or a portion of the
Holdings Common Stock owned by them. See "--The Registration Rights Agreement."
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PATRICOF ENGAGEMENT LETTER, THE PATRICOF WARRANTS. Pursuant to an
engagement letter, Triton retained Patricof for a term of 12 months to be its
exclusive financial advisor for the purpose of assisting Triton in developing
and evaluating proposals from potential acquirors, acquisition candidates or
merger partners ("Candidates"). Triton also agreed to pay Patricof (i) a
non-refundable retainer of $50,000 per quarter, payable in cash on January 1,
1996 and every third month thereafter; (ii) a cash success fee of $300,000 due
at closing of a transaction with any Candidate; and (iii) reimbursement for
Patricof's reasonable travel expenses and other out-of-pocket expenses incurred
in performance of the services under such engagement letter, including the
reasonable fees and disbursements of counsel. Triton has agreed to pay Patricof
$75,000 in connection with Patricof's rendering of the opinion described in
"--Opinion of Financial Advisor to Triton."
In addition, Tiger Lilly owns, without giving effect to the Reverse Stock
Split, 150,000 shares of Triton Common Stock and the Patricof Warrants, which
entitle it to purchase from Triton, prior to December 30, 2000, an aggregate of
500,000 shares of Triton Common Stock (the "Patricof Warrant Shares") at an
initial exercise price of $0.50 per share. The exercise price and the number of
Patricof Warrant Shares issuable upon the exercise of the Patricof Warrants are
subject to certain anti-dilution adjustments for changes in Triton's capital
stock, for the distribution of certain rights, options or warrants to all
holders of Triton Common Stock, and for cash dividends and other distributions
to holders of Triton Common Stock.
REFINANCING OF SSH'S EXISTING SUBORDINATED DEBT. The New Subordinated
Noteholders have agreed, subject to the terms of the Agreement in Principle, to
purchase the New Notes in an aggregate principal amount of approximately $4.6
million. The proceeds of such sale will be used to refinance SSH's existing
subordinated debt. See "MANAGEMENT OF HOLDINGS AFTER THE MERGER--Certain
Transactions" for a discussion of SSH's existing subordinated debt. The
Agreement in Principle will expire on April 15, 1997, unless extended by mutual
agreement of Alarmguard and the New Subordinated Noteholders.
The Agreement in Principle provides that the New Notes will be issued on or
before April 15, 1997 (the "Fund Date"). The New Notes will pay interest at a
fixed rate of 15% per annum, payable quarterly in arrears, will mature two years
from the Fund Date and may be prepaid in full or in part at any time on a pro
rata basis at a price equal to par plus accrued interest, without premium or
penalty. The New Notes will be subordinated to the senior indebtedness of
Alarmguard on substantially the same terms and conditions applicable to SSH's
existing subordinated debt. The issuance of the New Notes will be subject to
various conditions precedent, including without limitation, (i) the consummation
of the Merger, (ii) the execution and delivery of a senior bank credit facility
upon terms and conditions satisfactory to the Alarmguard Board and (iii) the
satisfaction of such other conditions as may be required by the New Noteholders
and which are customary for similar transactions. The Agreement in Principle
obligates Alarmguard to issue the New Noteholders Warrants pro rata to the New
Noteholders on the Fund Date. The New Noteholders Warrants will be exercisable
for a period of five years from the Fund Date at an exercise price of $11.11 per
share.
INDEMNIFICATION. Pursuant to the Merger Agreement, Holdings will be
required to indemnify Triton's existing officers and directors against any
claims arising prior to the Effective Time to the fullest extent permitted under
Delaware law and to maintain directors' and officers' liability insurance
covering such persons for five years following the Effective Time.
INTERESTED PARTY TRANSACTIONS. Future transactions with affiliates of
Holdings, if any, will be on terms believed by Holdings to be no less favorable
than are available from unaffiliated third parties. Such interested party
transactions will be approved in light of the circumstances of the particular
transaction and in accordance with the provisions of the DGCL applicable to
interested party transactions.
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LISTING OF THE MERGER SHARES ON THE AMEX
It is a condition to each party's obligation to consummate the Merger that
the Merger Shares (including shares of Triton Common Stock issuable upon
exercise of the Assumed Options) be approved for listing on the AMEX, subject
only to official notice of issuance. Triton has agreed to cause such shares to
be so approved for listing, subject only to official notice of issuance, prior
to the Effective Time. Triton has received a favorable preliminary listing
eligibility opinion from the AMEX.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL. The following is a summary description of certain material United
States federal income tax consequences of the Merger and does not purport to
consider all aspects of United States federal income taxation that may be
relevant to a decision whether to vote in favor of approval of the Merger. The
discussion is based upon the Code, applicable Treasury Regulations thereunder,
judicial decisions and current administrative rulings and practices, all as in
effect on the date of this Proxy Statement/Prospectus, and does not address any
state, local or foreign income or other tax consequences of the Merger.
The consummation of the Merger is conditioned upon the receipt by Alarmguard
of an opinion of Ernst & Young to the effect that the Merger should be treated
for federal income tax purposes as a tax-free reorganization within the meaning
of Section 368(a) of the Code. The delivery of the Tax Opinion is conditioned
upon the receipt of certain representations to be made by executives of each of
Alarmguard and Triton, and certain other information, data, documentation and
materials as deemed necessary, none of which has been independently verified by
Ernst & Young, and certain limitations set forth therein. The material
representations upon which the Tax Opinion is based include the following: (i)
the Merger will qualify as a statutory merger under Delaware law; (ii) in the
Merger, shares of Alarmguard stock representing control of Alarmguard will be
exchanged solely for voting stock of Holdings (other than cash paid in lieu of
fractional shares); (iii) the fair market value of the Holdings stock and other
consideration, if any, received in the Merger by each holder of Alarmguard stock
will be approximately equal to the fair market value of the Alarmguard stock
surrendered in the exchange; (iv) prior to the Merger, Holdings will be in
control of Merger Sub; (v) Holdings has no plan or intention to reacquire any of
its stock issued in the Merger; (vi) Holdings has no plan or intention to sell
or otherwise dispose of any assets of Alarmguard acquired in the Merger (other
than in the ordinary course of business or transfers to corporations controlled
by Holdings); (vii) following the Merger, Holdings will continue the historic
business of Alarmguard or use a significant portion of its historic business
assets in a business; (viii) Holdings has no plan or intention to liquidate
Alarmguard, to merge Alarmguard with or into another corporation, to sell or
otherwise dispose of Alarmguard stock (except for transfers to corporations
controlled by Holdings), or to cause Alarmguard to sell or otherwise dispose of
any of its assets or any of the assets acquired from Merger Sub (except for
dispositions in the ordinary course of business or transfers to a corporation
controlled by Alarmguard); (ix) the management of Alarmguard knows of no plan or
intention on the part of the former holders of Alarmguard stock to sell or
otherwise dispose of a number of shares of Holdings stock received in the Merger
that would reduce the ownership of Holdings stock by former holders of
Alarmguard stock to a number of shares having a value, as of the date of the
Merger, of less than 50 percent of the value of all formerly outstanding stock
of Alarmguard as of that date; and (x) following the Merger, Holdings will hold
at least 90 percent of the fair market value of its net assets and at least 70
percent of the fair market value of its gross assets and at least 90 percent of
the fair market value of Merger Sub's net assets and at least 70 percent of the
fair market value of Merger Sub's gross assets held immediately prior to the
Merger.
The Tax Opinion is based on the Code and authorities interpreting the Code
as of the date of the issuance of such opinion. The Tax Opinion will not be
updated for any changes to the Code or authorities interpreting the Code that
may occur after the date of the issuance of such opinion and assumes that the
Merger will be consummated as described herein. It should be noted that no
ruling has been sought or will be sought from the IRS regarding the Merger.
Neither this summary nor the Tax Opinion is binding on the
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IRS, and, consequently, there can be no assurance that the IRS or a court will
agree with the conclusions expressed herein or in the Tax Opinion.
NOLS. The Merger may further limit the ability of Holdings to utilize the
net operating losses of Alarmguard and Triton due to the ownership change
provisions of Code Section 382. Alarmguard does not believe that this limitation
will have a material adverse effect on its ability to execute its business
strategy or to meet its obligations as they come due and, thus, does not believe
that the limitation will have a material impact on results of operations or
capital resources.
TREATMENT OF TRITON AND ITS STOCKHOLDERS. Neither Holdings nor the existing
stockholders of Triton will recognize any gain or loss as a result of the
Merger. In addition, neither Merger Sub nor Alarmguard will recognize any gain
or loss as a result of the Merger.
TREATMENT OF HOLDERS OF ALARMGUARD COMMON STOCK AND ALARMGUARD PREFERRED
STOCK. The following discussion is not a complete description of all of the
United States federal income tax consequences of the Merger to holders of
Alarmguard Common Stock and Alarmguard Preferred Stock, and, in particular, does
not address all aspects of United States federal income taxation that may be
relevant to a particular holder of Alarmguard Common Stock or Alarmguard
Preferred Stock in light of such holder's personal investment or tax
circumstances, or to a holder of Alarmguard Common Stock or Alarmguard Preferred
Stock that is subject to special treatment under United States federal income
tax laws (including life insurance companies, foreign persons, tax-exempt
entities, financial institutions, broker-dealers, or holders who acquired
Alarmguard Common Stock or Alarmguard Preferred Stock pursuant to the exercise
of employee stock options or otherwise as compensation). In addition, no
information is provided herein as to the tax consequences of the Merger to any
holder of Alarmguard Common Stock or Alarmguard Preferred Stock who exercises
appraisal rights under Section 262 of the DGCL. The discussion also assumes that
Alarmguard Common Stock and Alarmguard Preferred Stock will be held as capital
assets by the holders thereof at the Effective Time of the Merger. EACH HOLDER
OF ALARMGUARD COMMON STOCK AND ALARMGUARD PREFERRED STOCK IS ADVISED TO CONSULT
SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER
OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
The Tax Opinion is limited to certain material United States federal income
tax consequences of the Merger to holders of Alarmguard Common Stock and
Alarmguard Preferred Stock, which are as follows:
(i) No gain or loss will be recognized by a holder of Alarmguard Common
Stock or Alarmguard Preferred Stock upon the conversion of such holder's
shares of Alarmguard Common Stock or Alarmguard Preferred Stock into the
Merger Shares. A holder of Alarmguard Common Stock or Alarmguard Preferred
Stock who receives cash in lieu of a fractional interest in a share of
Holdings Common Stock will recognize gain or loss, which will be capital
gain or loss, equal to the difference between the amount of cash received
and the ratable portion of the holder's tax basis in the shares of
Alarmguard Common Stock or Alarmguard Preferred Stock being converted
pursuant to the Merger that is allocated to such fractional interest. A
holder of Alarmguard Preferred Stock who receives cash in exchange for the
right to receive dividends will recognize ordinary income to the extent of
Alarmguard's and Triton's current and accumulated earnings and profits;
(ii) The tax basis of the shares of Holdings Common Stock received by a
former holder of Alarmguard Common Stock or Alarmguard Preferred Stock
pursuant to the Merger in the aggregate will be the same as the holder's tax
basis in the shares of Alarmguard Common Stock or Alarmguard Preferred Stock
being converted pursuant to the Merger, reduced by the ratable portion of
such tax basis that is allocable to any fractional interest in a share of
Holdings Common Stock with respect to which cash is being received;
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(iii) The holding period of the shares of Holdings Common Stock received
by a former holder of Alarmguard Common Stock or Alarmguard Preferred Stock
pursuant to the Merger will include the holder's holding period with respect
to the shares of Alarmguard Common Stock or Alarmguard Preferred Stock being
converted pursuant to the Merger; and
(iv) Neither Holdings nor the existing stockholders of Triton will
recognize any gain or loss as a result of the Merger. In addition, neither
Merger Sub nor Alarmguard will recognize any gain or loss as a result of the
Merger.
APPRAISAL RIGHTS
Stockholders of Triton have no dissenters' or appraisal rights with respect
to the Merger or the issuance of the Merger Shares.
If the Merger is consummated, a holder of record of shares of Alarmguard
Common Stock or Alarmguard Preferred Stock on the date of making a demand for
appraisal, as described below, who continues to hold such shares through the
Effective Time, who has not voted such shares in favor of the Merger and who
strictly complies with the procedures set forth under Section 262 will be
entitled to have such shares appraised by the Delaware Court of Chancery under
Section 262 and to receive payment of the "fair value" of such shares in lieu of
the consideration provided for in the Merger Agreement. THE STATUTORY RIGHT OF
APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES
SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN
A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262.
The following is a summary of certain of the provisions of Section 262 and
is qualified in its entirety by reference to the full text of Section 262, a
copy of which is attached to this Proxy Statement/Prospectus as Appendix C.
Under Section 262, if the Merger is approved by the requisite votes,
Alarmguard has advised Triton that it will, either before the Effective Time or
within 10 days thereafter, notify each of the holders of shares of Alarmguard
Common Stock or Alarmguard Preferred Stock entitled to appraisal rights of the
approval of Alarmguard's stockholders and that appraisal rights are available
for any or all of such stockholder's shares (the "Notice"). The Notice will
include a copy of Section 262. The Notice may, and, if given on or after the
Effective Time, must, also notify such holders of the Effective Time. If the
Notice is given on or after the Effective Time, such Notice will be given by the
Surviving Corporation. If the Notice did not notify such holders of the
Effective Time, a second notice shall be sent in accordance with Section 262. A
holder of shares of Alarmguard Common Stock or Alarmguard Preferred Stock
electing to exercise appraisal rights under Section 262 must deliver a written
demand for appraisal of such stockholder's shares to Alarmguard within 20 days
after the date of mailing of the Notice. Such written demand must reasonably
inform Alarmguard of the identity of the stockholder of record and of such
stockholder's intention to demand appraisal of such stockholder's shares. All
such demands should be delivered to Security Systems Holdings, Inc., 125
Frontage Road, Orange, Connecticut 06477, Attention: Corporate Secretary.
Holders of shares of Alarmguard Common Stock or Alarmguard Preferred Stock
on the date of making such written demand for appraisal who continuously hold
such shares through the Effective Time are entitled to seek appraisal. Demand
for appraisal must be executed by or for the holder of record, fully and
correctly, as such holder's name appears on the holder's stock certificates
representing shares of Alarmguard Common Stock or Alarmguard Preferred Stock. If
Alarmguard Common Stock or Alarmguard Preferred Stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, the demand
should be made in that capacity, and if Alarmguard Common Stock or Alarmguard
Preferred Stock is owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be made by or for all owners of
record. An authorized agent, including one or more
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joint owners, may execute the demand for appraisal for a holder of record;
however, such agent must identify the record owner or owners and expressly
disclose in such demand that the agent is acting as agent for the record owner
or owners of such shares. Similarly, a person having a beneficial interest in
shares of Alarmguard Common Stock or Alarmguard Preferred Stock held of record
in the name of another person, such as a broker or nominee, must act promptly to
cause the record holder to follow the steps summarized herein properly and in a
timely manner to perfect such rights.
Within 120 days after the Effective Time, Alarmguard or any stockholder who
has complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of Alarmguard Common Stock or Alarmguard Preferred Stock held by all
stockholders seeking appraisal. A petitioning stockholder must serve a copy of
such petition on Alarmguard. If no petition is filed by either Alarmguard or a
dissenting stockholder within such 120-day period, the rights of all dissenting
stockholders to appraisal shall cease. Alarmguard stockholders seeking to
exercise appraisal rights should not assume that Alarmguard will file a petition
with respect to the appraisal of the fair value of their shares or that
Alarmguard will initiate any negotiations with respect to the fair value of such
shares. Alarmguard is under no obligation to and has no present intention to
take any action in this regard. Accordingly, Alarmguard stockholders who wish to
see appraisal of their shares should initiate all necessary action with respect
to the perfection of their appraisal rights within the time periods and in the
manner prescribed in Section 262. FAILURE TO FILE THE PETITION ON A TIMELY BASIS
WILL CAUSE THE STOCKHOLDER'S RIGHT TO AN APPRAISAL TO CEASE.
Within 120 days after the Effective Time, any holder of shares of Alarmguard
Common Stock or Alarmguard Preferred Stock who has complied with Section 262 is
entitled, upon written request, to receive from Alarmguard a statement setting
forth the aggregate number of shares of Alarmguard Common Stock or Alarmguard
Preferred Stock not voted in favor of the Merger and with respect to which
demands for appraisal have been received by Alarmguard and the number of holders
of such shares. Such statement must be mailed within 10 days after the written
request therefor has been received by Alarmguard or within 10 days after
expiration of the time for delivery of demands for appraisal under Section 262,
whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine which stockholders are
entitled to appraisal rights and will appraise the shares of Alarmguard Common
Stock or Alarmguard Preferred Stock owned by such stockholders, determining the
fair value of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value. In
determining fair value, the court is to take into account all relevant factors.
The Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. The Delaware Supreme Court has also held that "elements of future
value, including the nature of the enterprise, which are known or susceptible of
proof as of the date of the merger and not the product of speculation, may be
considered."
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more, the same, or
less than the value of the consideration to be received pursuant to the Merger
Agreement without the exercise of appraisal rights, and an investment banking
opinion as to fairness from a financial point of view are not necessarily
opinions as to fair value as determined under Section 262. The cost of the
appraisal proceeding may be determined by the Delaware Court of Chancery and
assessed against the parties as such court deems equitable in the circumstances.
Upon application of a stockholder, such court may order that all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding (including without limitation reasonable attorney's fees and the fees
and expenses of experts) be charged pro rata against the value of all shares of
the Alarmguard Common Stock or Alarmguard Preferred Stock entitled to appraisal.
In the absence of such a determination or assessment, each party bears its own
expenses.
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Any stockholder who has fully demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote such Alarmguard
Common Stock or Alarmguard Preferred Stock for any purpose or receive payment of
dividends or other distributions on such stock, except for dividends or
distributions, if any, payable to Alarmguard stockholders of record on a date
prior to the Effective Time.
An Alarmguard stockholder may withdraw a demand for appraisal and accept the
terms of the Merger at any time within 60 days after the Effective Time, or
thereafter may withdraw such demand with the written approval of Alarmguard. In
the event an appraisal proceeding is properly instituted in the Delaware Court
of Chancery, such proceeding may not be dismissed as to any stockholder without
the approval of the Court of Chancery, and any such approval may be conditioned
on the terms the Delaware Court of Chancery deems just.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER OF ALARMGUARD WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT HIS, HER OR ITS LEGAL ADVISOR.
ACCOUNTING TREATMENT
Pursuant to the Merger Agreement, Alarmguard will become a wholly-owned
subsidiary of Triton through the merger of Merger Sub with and into Alarmguard
and the conversion and exchange of each share of Merger Sub Common Stock for one
share of Surviving Corporation Common Stock, thus making Alarmguard the legal
acquiree and Triton the legal acquiror. However, because pursuant to the Merger
Agreement, the Alarmguard stockholders will, upon the consummation of the
Merger, hold approximately 57% of the outstanding Holdings Common Stock, the
Merger will be accounted for as a "reverse acquisition." Triton will therefore
be designated the accounting acquiree and Alarmguard the accounting acquiror. As
such, the net assets (principally cash) of Triton (the issuing company) will be
recorded at net book value and the pre-Merger financial statements of
Alarmguard, the accounting acquiror (i.e., the legal acquiree) will become the
historical financial statements of the combined company. In addition, pre-Merger
stockholders' deficiency and loss per share will be retroactively restated for
the equivalent number of shares received by the accounting acquiror (Alarmguard)
in the combination, with differences between the par value of the issuer's
(Triton) and accounting acquiror's (Alarmguard) stock recorded as an adjustment
to paid-in capital of Holdings.
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THE MERGER AGREEMENT
GENERAL
Subject to the terms and conditions of the Merger Agreement, Merger Sub will
merge with and into Alarmguard at the Effective Time and Alarmguard will be the
Surviving Corporation and will continue to be governed by the laws of the State
of Delaware.
CERTIFICATE OF INCORPORATION AND BY-LAWS. The Merger Agreement provides
that the form of Amended and Restated Certificate of Incorporation of Alarmguard
(the "Alarmguard Charter") and the form of By-Laws of Alarmguard (the
"Alarmguard By-Laws"), as in effect immediately prior to the Effective Time,
will be the Certificate of Incorporation and By-Laws of the Surviving
Corporation.
DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior to
the Effective Time will be the initial directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal. The officers of Alarmguard
immediately prior to the Effective Time will become the officers of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal.
CONVERSION OF ALARMGUARD COMMON STOCK AND ALARMGUARD PREFERRED STOCK IN THE
MERGER. At the Effective Time, the holders of shares of Alarmguard Common Stock
and Alarmguard Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than shares held by Triton, Merger Sub or any direct or
indirect wholly-owned subsidiary of Alarmguard or Triton, shares held in
treasury by Alarmguard and shares held by holders who have properly perfected
their appraisal rights under Delaware law) together with all dividends on the
Alarmguard Preferred Stock that have accrued and remain unpaid through January
31, 1997 will receive an aggregate of approximately 2,877,368 shares of Triton
Common Stock (which excludes approximately 46,003 shares of Triton Common Stock
issuable to the holders of the Assumed Options upon the exercise thereof). The
Merger shares will be allocated among the Alarmguard stockholders as follows:
(i) shares of Alarmguard Common Stock will be converted into approximately
874,683 shares of Triton Common Stock at the Common Stock Conversion Ratio; (ii)
the shares of Alarmguard Series A Preferred Stock, together with all dividends
accrued and remain unpaid through January 31, 1997, will be converted into
approximately 752,649 shares of Triton Common Stock at the Series A Preferred
Stock Conversion Ratio; and (iii) the shares of Alarmguard Series B Preferred
Stock, together with all dividends thereon that have accrued and remain unpaid
through January 31, 1997, will be converted into approximately 1,250,036 shares
of Triton Common Stock at the Series B Preferred Stock Conversion Ratio.
The Merger Agreement provides that dividends on the Alarmguard Preferred
Stock that have accrued and remain unpaid from February 1, 1997 through the
Effective Time will be paid at the consummation of the Merger in cash by Triton
to the holders of the Alarmguard Preferred Stock as of such time. Any such
payment will have no effect on the conversion of the Alarmguard Preferred Stock.
The Merger Agreement provides that Triton will not be obligated to pay any
amount in excess of $140,000 of such accrued and unpaid dividends. It is not
expected that the aggregate of such payments will exceed $140,000 on or before
the date of the Merger. If the Merger is consummated, any accrued and unpaid
dividends on the Alarmguard Preferred Stock in excess of $140,000 will become
the obligation of Holdings. If the Merger is not consummated, any such dividends
will remain the obligation of Alarmguard. No fractional shares of Triton Common
Stock will be issued in the Merger. In lieu of any such fractional securities,
each holder of Alarmguard Common Stock or Alarmguard Preferred Stock who would
otherwise have been entitled to a fraction of a share of Triton Common Stock
will be paid an amount in cash, rounded to the nearest cent, determined by
multiplying (x) the average closing price per share of Triton Common Stock on
the AMEX for the ten trading days immediately preceding the second business day
prior to the Effective Time by (y) the fractional interest to which such holder
otherwise would be entitled. In addition, the Merger
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Agreement provides that, at the Effective Time, each share of Merger Sub Common
Stock will be converted into and exchanged for one share of the Surviving
Corporation Common Stock.
EFFECTIVE TIME OF THE MERGER
As promptly as practicable after the satisfaction or waiver of the
conditions to the Merger, the Merger will be consummated by the filing of a
certificate of merger as contemplated by the DGCL, together with any required
related certificates, with the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes the following material
representations and warranties by Alarmguard as to: (i) the corporate
organization, standing and power of Alarmguard and its subsidiaries; (ii)
Alarmguard's capitalization; (iii) the authorization of the Merger Agreement;
(iv) the Merger Agreement's non-contravention of any provision of the Alarmguard
Charter or By-Laws, law, rule, regulation, order, judgment, decree or agreement
and the absence of the need (except as otherwise disclosed) for governmental or
third-party consents to the Merger Agreement; (v) Alarmguard's compliance with
any rule, instrument or other law, or obligation, including any permit, by which
it or any of its subsidiaries are bound; (vi) the conduct of Alarmguard's
business in the ordinary course and the absence of any material adverse change
in the business, financial condition, results of operations, properties, assets
or liabilities of Alarmguard; (vii) the absence (except as otherwise disclosed)
of undisclosed liabilities or litigation; (viii) the terms, existence,
operations, liabilities and compliance with applicable laws of employee benefit
plans of Alarmguard and its subsidiaries, and certain other matters relating to
ERISA; (ix) transactions with certain related persons; (x) certain labor
matters; (xi) the accuracy of the information supplied by Alarmguard for
inclusion in this Proxy Statement/Prospectus and in the Registration Statement
of which this Proxy Statement/Prospectus forms a part; (xii) brokers and finders
employed by Alarmguard; (xiii) restrictions on business activities; (xiv)
ownership of and encumbrances affecting certain property and assets; (xv)
payment of taxes by Alarmguard and its subsidiaries and other tax matters; (xvi)
certain environmental matters pertaining to Alarmguard and its subsidiaries;
(xvii) the accuracy of information supplied by Alarmguard in any certificate or
schedule furnished pursuant to the Merger Agreement; (xviii) Alarmguard's and
its subsidiaries' ownership of and rights to use certain intellectual property;
(xix) certain insurance matters; and (xx) certain matters with respect to
accounts receivable, intangible assets and inventory of Alarmguard and its
subsidiaries.
The Merger Agreement also includes the following material representations
and warranties by Triton and Merger Sub as to: (i) the corporate organization,
standing and power of Triton and its subsidiaries; (ii) Triton's capitalization;
(iii) the authorization of the Merger Agreement; (iv) the Merger Agreement's
non-contravention of any provision of the Triton Charter or By-Laws, law, rule,
regulation, order, judgment, decree or agreement and the absence of the need
(except as otherwise disclosed) for governmental or third-party consents to the
Merger Agreement; (v) Triton and Merger Sub's compliance with any rule,
instrument or other law, or obligation, including any permit, by which either
Triton or Merger Sub or any of their respective subsidiaries are bound; (vi) the
accuracy of Triton's financial statements and periodic filings with the
Commission; (vii) the conduct of Triton's business in the ordinary course and
the absence of any material adverse change in the business, financial condition,
results of operations, properties, assets or liabilities of Triton; (viii) the
absence (except as otherwise disclosed) of undisclosed liabilities or
litigation; (ix) the terms, existence, operations, liabilities and compliance
with applicable laws of employee plans of Triton and its subsidiaries and
certain other matters relating to ERISA; (x) transactions with certain related
persons; (xi) certain labor matters; (xii) the accuracy of the information to be
supplied by Triton for inclusion in this Proxy Statement/Prospectus and in the
Registration Statement of which this Proxy Statement/Prospectus forms a part;
(xiii) restrictions on business activities; (xiv) ownership of and
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encumbrances affecting certain property and assets; (xv) payment of taxes by
Triton and its subsidiaries; (xvi) brokers and finders employed by Triton;
(xvii) certain environmental matters pertaining to Triton and its subsidiaries;
(xviii) the accuracy of information supplied by Triton in any certificate or
schedule furnished pursuant to the Merger Agreement; (xix) Triton's and its
subsidiaries' ownership of and rights to use certain intellectual property; (xx)
certain insurance matters; (xxi) the fairness opinion received by Triton from
Patricof; and (xxii) the ownership, activities and assets of Merger Sub.
The representations and warranties of each of the parties contain various
customary exceptions for materiality, knowledge and previously disclosed
information. The representations and warranties of each of the parties are
deemed to be conditions to the Merger to the extent provided for in the Merger
Agreement, but will not, with the exception of certain representations and
warranties relating to, among other things, the payment of certain fees and
expenses, survive the Merger.
BUSINESS OF ALARMGUARD PENDING THE MERGER
Alarmguard has agreed that, prior to the Effective Time, except as
contemplated by the Merger Agreement or as otherwise permitted by the prior
written consent of Triton, Alarmguard will conduct its business and cause the
businesses of its subsidiaries to be conducted in the ordinary course of
business and consistent with past practice, other than actions taken by
Alarmguard or its subsidiaries in contemplation of the Merger including, without
limitation, (i) any action to enable Alarmguard to satisfy the covenants
applicable to it as set forth in the Merger Agreement and the conditions
precedent to the Merger as set forth in the Merger Agreement, (ii) any actions
taken in connection with soliciting and obtaining the Bridge Financing, provided
that the terms of such Bridge Financing will include no equity component, will
provide for a customary bridge-loan rate of interest and other customary
bridge-loan terms and the proceeds of such Bridge Financing will be used solely
for working capital and general corporate purposes in the ordinary course of
business, and (iii) any actions to amend or otherwise change the Alarmguard
Charter so as to change the mandatory redemption date of the Alarmguard
Preferred Stock from June 30, 1997 to March 31, 1998. Alarmguard shall not
directly or indirectly take, or propose to take, any of the following material
actions without the prior written consent of Triton:
(a) amend or otherwise change the Alarmguard Charter or By-Laws;
(b) except as otherwise contemplated by the Merger Agreement, issue,
sell, pledge, dispose of or encumber, or authorize the issuance, sale,
pledge, disposition or encumbrance of any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of
any kind to acquire any shares of capital stock, or any other ownership
interest (including, without limitation, any phantom interest) in
Alarmguard, any of its subsidiaries or affiliates (except for the issuance
of shares of Alarmguard Common Stock issuable pursuant to stock options
which were outstanding on the date of the Merger Agreement);
(c) sell, pledge, dispose of or encumber any assets of Alarmguard or any
of its subsidiaries (other than (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice; (ii) dispositions
of obsolete or worthless assets; and (iii) sales of assets not in excess of
$100,000).
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock; (ii) split, combine or reclassify
any of its capital stock 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 (except in connection with the Reverse Stock Split to
be effected pursuant to the Restated Charter); or (iii) amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, or permit any subsidiary to purchase, repurchase, redeem
or otherwise acquire, any of its securities or any securities of its
subsidiaries, including, without limitation, shares of Alarmguard Common
Stock or
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Alarmguard Preferred Stock or any option, warrant or right, directly or
indirectly, to acquire shares of Alarmguard Common Stock or Alarmguard
Preferred Stock, or propose to do any of the foregoing;
(e) except to enable Alarmguard to comply with its obligations under the
Merger Agreement (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization
or division thereof; (ii) incur any indebtedness for borrowed money (other
than pursuant to existing credit facilities) or issue any debt securities or
assume, guarantee (other than guarantees of bank debt of the Alarmguard's
subsidiaries entered into in the ordinary course of business) or endorse or
otherwise as an accommodation become responsible for the obligations of any
person or make any loans or advances, except in the ordinary course of
business consistent with past practice; (iii) enter into or amend any
material contract or agreement other than in the ordinary course of
business; (iv) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $100,000 for Alarmguard and
its subsidiaries taken as a whole; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited
by the foregoing;
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of, or the
granting of bonuses in the aggregate amount of $350,000 to, employees of
Alarmguard or its subsidiaries in accordance with past practices, or grant
any severance or termination pay to, or enter into any employment or
severance agreement with any director, officer (except for officers who are
terminated on an involuntary basis) or other employees of Alarmguard or any
of its subsidiaries, or establish, adopt, enter into or amend in any
material respect any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust fund policy or arrangement for the benefit of any current or former
directors, officers or employees, except, in each case, as may be required
by law;
(g) take any action to change, in any material respect, any accounting
policies or procedures;
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations, except to
the extent the amount of any such settlement has been reserved for in the
financial statements previously provided to Triton;
(i) pay, discharge or satisfy any material claim, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities of
Alarmguard;
(j) take, or agree in writing or otherwise to take any of the actions
described in the foregoing or any action which would make any of the
representations or warranties of Alarmguard contained in the Merger
Agreement untrue or incorrect in any material respect or prevent Alarmguard
in any material respect from performing or cause Alarmguard not to perform
in any material respect its covenants thereunder.
BUSINESS OF TRITON PENDING THE MERGER
Triton has agreed that, prior to the Effective Time, except as contemplated
by the Merger Agreement or as otherwise permitted by the prior written consent
of Alarmguard, Triton will conduct its business and cause the businesses of its
subsidiaries to be conducted in the ordinary course of business and consistent
with past practice, other than actions taken by Triton or its subsidiaries in
contemplation of the Merger including, without limitation, any action to enable
Triton to satisfy the covenants applicable to it as set forth in the Merger
Agreement and the conditions precedent to the Merger as set forth in the Merger
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Agreement. Triton shall not directly or indirectly take, or propose to take, any
of the following material actions without the prior written consent of
Alarmguard:
(a) amend or otherwise change the Triton Charter or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom
interest) in Triton, any of its subsidiaries or affiliates (except for the
issuance of shares of Triton Common Stock issuable pursuant to stock options
and warrants which were outstanding on the date of the Merger Agreement);
(c) sell, pledge, dispose or encumber any assets of Triton or any of its
subsidiaries (other than (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice; (ii) dispositions of
obsolete or worthless assets; (iii) sales of immaterial assets not in excess
of $100,000; and (iv) as disclosed in the reports filed by Triton with the
Commission);
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock; (ii) split, combine or reclassify
any of its capital stock 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 (except in connection with the Reverse Stock Split); or
(iii) amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire or permit any subsidiary to
purchase, repurchase, redeem or otherwise acquire any of its securities or
any securities of its subsidiaries including, without limitation, shares of
Triton Common Stock or any option, warrant or right, directly or indirectly,
to acquire shares of Triton Common Stock, or propose to do any of the
foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money (other than
pursuant to existing credit facilities) or issue any debt securities or
assume, guarantee (other than guarantees of bank debt of Triton's
subsidiaries entered into in the ordinary course of business) or endorse or
otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans or advances, except in the ordinary course of
business consistent with past practice; (iii) enter into or amend any
material contract or agreement other than in the ordinary course of
business; (iv) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $100,000 for Triton and its
subsidiaries taken as a whole; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited
by the foregoing;
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of, or the
granting of bonuses in the aggregate amount of $50,000 to, employees of
Triton or its subsidiaries in accordance with past practices, or grant any
severance or termination pay to or enter into any employment or severance
agreement with any director, officer (except for officers who are terminated
on an involuntary basis) or other employee of Triton or any of its
subsidiaries, or establish, adopt, enter into or amend in any material
respect any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust fund, policy or arrangement for the benefit of any current or former
directors, officers or employees, except, in each case, as may be required
by law;
(g) take any action to change, in any material respect, any accounting
policies or procedures;
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations, except to
the extent the amount of any such settlement has been reserved for in the
financial
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statements contained in the reports filed by Triton with the Commission
prior to the date of the Merger Agreement;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
of Triton reflected or reserved against in the financial statements
contained in the reports filed by Triton with the Commission prior to the
date of the Merger Agreement or incurred in the ordinary course of business
and consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in the foregoing or any action which would make any of the
representations or warranties of Triton contained in the Merger Agreement
untrue or incorrect in any material respect or prevent Triton in any
material respect from performing in any material respect or cause Triton not
to perform in any material respect its covenants thereunder.
NO SOLICITATION
Under the Merger Agreement, and except with respect to certain acquisitions
by Alarmguard, as stipulated in the Merger Agreement, Triton and Alarmguard have
agreed that prior to the Effective Time, neither Triton nor Alarmguard will
directly or indirectly, through any of their respective officers, directors,
employees, representatives or agents solicit or encourage the initiation of an
Acquisition Proposal. Nothing contained in the Merger Agreement shall prevent
the Triton or Alarmguard Board from considering, negotiating, approving and
recommending to their respective stockholders a bona fide Acquisition Proposal
not solicited in violation of the Merger Agreement, provided such Board
determines in good faith (upon advice of independent counsel) that it is
required to do so in order to discharge properly its fiduciary duties. No action
by the Triton or Alarmguard Board permitted by the preceding sentence (each, a
"Permitted Action") will constitute a breach of the Merger Agreement, provided
that such Permitted Action will give rise to certain termination rights as set
forth in the Merger Agreement.
Triton and Alarmguard have each agreed to immediately notify the other party
after receipt of any Acquisition Proposal, or any modification of or amendment
to any Acquisition Proposal, or any request for nonpublic information relating
to Triton or Alarmguard, as the case may be, in connection with an Acquisition
Proposal or for access to the properties, books or records of Triton or
Alarmguard, as the case may be, by any person or entity that informs the Board
of such party that it is considering making, or has made, an Acquisition
Proposal. Such notice will be made orally and in writing, will indicate whether
Triton or Alarmguard, as the case may be, is providing or intends to provide the
person making the Acquisition Proposal with access to information regarding such
party as provided in the Merger Agreement and will include a summary of terms
and identity of the parties involved.
If the Triton or Alarmguard Board, as the case may be, receives a request
for material nonpublic information by a person who makes a bona fide Acquisition
Proposal, and such Board determines in good faith and upon the advice of
independent counsel that it is required to cause Triton or Alarmguard, as the
case may be, to act as provided in the Merger Agreement in order to discharge
properly the directors' fiduciary duties, then, provided the person making the
Acquisition Proposal has executed a confidentiality agreement substantially
similar to the confidentiality agreement dated September 23, 1996 between Triton
and Alarmguard, Triton or Alarmguard, as the case may be, may provide such
person with access to information regarding such party.
Triton and Alarmguard have agreed to immediately cease and cause to be
terminated any existing discussions or negotiations with any person (other than
the other party hereto) conducted heretofore with respect to any Acquisition
Proposal. Triton and Alarmguard have agreed not to release any third party from
the confidentiality provisions of any confidentiality agreement to which Triton
or Alarmguard is a party.
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Triton and Alarmguard have agreed to ensure that their respective officers,
directors and employees and any investment banker or other advisor or
representative retained by them are aware of the restrictions described above.
CERTAIN OTHER COVENANTS
Under the Merger Agreement, both Triton and Alarmguard have agreed: (a) to
promptly make all filings and seek to obtain all authorizations required under
all applicable laws with respect to the Merger and the other transactions
contemplated by the Merger Agreement; (b) to afford access to officers,
employees, counsel, accountants and other authorized representatives of the
other party, during the period prior to the Effective Time, to their respective
properties, books and records and, during such period, to furnish promptly to
such representative all information concerning their respective businesses,
properties and personnel as may reasonably be requested; (c) to give the other
party prompt notice of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in the Merger Agreement to be materially untrue or
inaccurate; or (ii) any failure of Alarmguard, Triton or Merger Sub, as the case
may be, materially to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under the Merger Agreement; (d)
that each of Triton, Merger Sub and Alarmguard will use all reasonable efforts
to cause the Merger to qualify, and will not (both before and after consummation
of the Merger) take any actions which to its knowledge could reasonably be
expected to prevent the Merger from qualifying as a reorganization under the
provisions of Section 368(a) of the Code; (e) not to issue any press release
with respect to the Merger or the Merger Agreement without the prior consent of
the other party, which consent will not be unreasonably withheld; (f) to
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes and other fees or taxes which may become payable in connection with the
transactions contemplated by the Merger Agreement that are required or permitted
to be filed on or before the Effective Time; and (g) to use all reasonable
efforts to establish, prior to the Effective Time, bank lines of credit for the
surviving corporation in the Merger or a subsidiary thereof totaling at least
$55 million. In addition, unless otherwise required under the applicable
fiduciary duties of the directors of Triton, Triton has agreed to solicit from
its stockholders proxies in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated thereby, the issuance of the Merger
Shares, the 1997 Stock Incentive Plan and the Restated Charter Proposals and to
take all other action necessary or advisable to secure the vote or consent of
its stockholders to obtain such approvals. On or prior to the date of the Annual
Meeting, Alarmguard has agreed to hold a stockholders meeting for the purpose of
approving and adopting the Merger Agreement and the Merger, and the Alarmguard
Board shall recommend and declare advisable such approval and adoption.
Under the Merger Agreement, Triton has agreed to (i) call and hold its
stockholders' meeting as promptly as practicable for the purpose of voting upon
the approval of the Merger Agreement and the transactions contemplated thereby;
(ii) hold its stockholders' meeting as soon as practicable after the date on
which the Registration Statement of which this Proxy Statement/Prospectus forms
a part becomes effective; (iii) cause the Merger Shares to be listed, upon
official notice of issuance, on the AMEX prior to the Effective Time; (iv)
effect the Reverse Stock Split prior to the Effective Time; (v) take such action
as is necessary to cause Russell R. MacDonnell, David Heidecorn, Michael M.
Earley, Michael E. Cahr, Stuart L. Bell, Stephen L. Green and Thomas W. Janes to
be elected to serve as directors of Holdings as of the Effective Time or as soon
as practicable thereafter; (vi) enter into the TGM Management Agreement; (vii)
enter into the Registration Rights Agreement; (viii) use all reasonable efforts
to wind up and dissolve certain subsidiaries; (ix) take all necessary action to
approve and submit to the Triton stockholders the 1997 Stock Incentive Plan; (x)
take all necessary action to approve and submit to the Triton stockholders the
Restated Charter Proposals; (xi) enter into the Severance Agreements with each
of the Executives; and (xii) provide indemnification for officers and directors
of Triton and its subsidiaries from and after the Effective Time.
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Under the Merger Agreement, Alarmguard has agreed to (i) use its best
efforts to cause each person who may be deemed to be an affiliate of Alarmguard
to deliver to Triton, prior to the Effective Time, an Affiliate Agreement; and
(ii) use all reasonable efforts to restructure, prior to the Effective Time, its
existing subordinated debt substantially in accordance with the terms contained
in the Agreement in Principle or on terms more favorable to Alarmguard.
CONDITIONS; WAIVERS
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The respective
obligations of Alarmguard, Triton and Merger Sub to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions: (a) the Registration Statement of which this Proxy
Statement/ Prospectus forms a part shall have been declared effective by the
Commission under the Securities Act; no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the Commission and no
proceedings for that purpose and no similar proceeding in respect of this Proxy
Statement/Prospectus shall have been initiated or threatened by the Commission
and all necessary approvals under state securities laws or under the Securities
Act or the Exchange Act relating to the Merger Shares shall have been received;
(b) the Merger Agreement and the Merger shall have been approved and adopted by
the requisite vote of Alarmguard's stockholders and the issuance of the Merger
Shares shall have been approved by the requisite vote of Triton's stockholders;
(c) the Merger Shares shall have been authorized for listing on the AMEX upon
official notice of issuance; (d) there shall have been established bank lines of
credit for Holdings totaling at least $55 million; (e) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
and there shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger which would
make the consummation of the Merger illegal; and (f) there shall not have been
instituted, pending or threatened any action or proceeding (or any investigation
or other inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, in either
case, seeking to prohibit or limit Triton from exercising all material rights
and privileges pertaining to its ownership of Holdings or the ownership or
operation by Triton or any of its subsidiaries of all or a material portion of
the business or assets of Alarmguard or any of its subsidiaries.
CONDITIONS TO THE OBLIGATIONS OF TRITON AND MERGER SUB. The respective
obligations of Triton and Merger Sub to effect the Merger are also subject to
the satisfaction of the following additional conditions: (a) the representations
and warranties of Alarmguard contained in the Merger Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i) changes
contemplated by the Merger Agreement; (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date, subject to clause (iii)); and (iii) where the
failure to be true and correct could not reasonably be expected to have a
material adverse effect, with the same force and effect as if made on and as of
the Effective Time, and Triton and Merger Sub shall have received a certificate
to such effect signed by the President and the Chief Financial Officer of
Alarmguard; (b) Alarmguard shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Effective Time and Triton
and Merger Sub shall have received a certificate to such effect signed by the
President and the Chief Financial Officer of Alarmguard; (c) all material
consents, waivers, approvals, authorizations or orders required to be obtained,
and all filings required to be made, by Alarmguard for the authorization,
execution and delivery of the Merger Agreement and the consummation by it of the
transactions contemplated thereby shall have been obtained and made by
Alarmguard, except where the failure to receive such consents, etc. could not
reasonably be expected to have a material adverse effect on Alarmguard or
Triton; (d) Triton shall have received from Alarmguard an opinion of counsel to
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Alarmguard containing the opinions set forth in an Exhibit to the Merger
Agreement; (e) since the date of the Merger Agreement there shall not have been
any change in the facts or circumstances that would prevent Triton from
receiving an update to the Patricof Fairness Opinion dated on the date this
Proxy Statement/Prospectus is mailed to Triton's stockholders or on the closing
date of the Merger to the effect that, as of such dates, the Merger is fair,
from a financial point of view, to the stockholders of Triton; (f) Alarmguard
shall have entered into letters of intent or other agreements providing for
acquisitions for cash or stock by Alarmguard of assets or stock of corporations
having an aggregate of $500,000 of MRR; (g) Alarmguard shall have achieved MRR
of an average of at least $1.37 million for the two months prior to the closing;
(h) Alarmguard shall have restructured its existing subordinated indebtedness on
terms set forth in the Agreement in Principle or on terms more favorable to
Alarmguard; (i) since the date of the Merger Agreement, there shall not have
been any material adverse change with respect to the business, financial
condition or results of operations of Alarmguard; (j) the Lock-up Agreement
shall be in full force and effect in accordance with its terms, and each Lock-up
Stockholder shall have performed and complied with all covenants and agreements
required to be performed or complied with by such party thereunder; and (k)
holders of not more than 5.0% of the outstanding shares of voting securities of
Alarmguard shall have demanded appraisal rights for their shares in accordance
with Delaware law.
CONDITIONS TO THE OBLIGATIONS OF ALARMGUARD. The obligations of Alarmguard
to effect the Merger are also subject to the satisfaction of the following
additional conditions: (a) the representations and warranties of Triton and
Merger Sub contained in the Merger Agreement shall be true and correct in all
respects on and as of the Effective Time, except for (i) changes contemplated by
the Merger Agreement; (ii) those representations and warranties which address
matters only as of a particular date (which shall have been true and correct as
of such date, subject to clause (iii)); and (iii) where the failure to be true
and correct could not reasonably be expected to have a material adverse effect,
with the same force and effect as if made on and as of the Effective Time, and
Alarmguard shall have received a certificate to such effect signed by the
President and the Chief Financial Officer of Triton; (b) Triton and Merger Sub
shall have performed or complied in all material respects with all agreements
and covenants required by the Merger Agreement to be performed or complied with
by them on or prior to the Effective Time and Alarmguard shall have received a
certificate to such effect signed by the President and the Chief Financial
Officer of Triton; (c) all material consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by
Triton and Merger Sub for the authorization, execution and delivery of the
Merger Agreement and the consummation by them of the transactions contemplated
thereby shall have been obtained and made by Triton and Merger Sub, except where
the failure to receive such consents, etc. could not reasonably be expected to
have a material adverse effect on Alarmguard or Triton; (d) Alarmguard shall
have received from Triton an opinion of counsel to Triton containing the
opinions set forth in an Exhibit to the Merger Agreement; (e) Alarmguard shall
have received from Ernst & Young an opinion containing the opinions set forth in
an Exhibit to the Merger Agreement; (f) Triton shall have established a cash
balance of at least $16 million net of all accrued income taxes for the fiscal
year ending March 31, 1997; (g) since the date of the Merger Agreement, there
shall not have been any material adverse change with respect to the business,
financial condition or results of operations of Triton; (h) Triton shall have
entered into the Severance Agreements with the Executives; (i) Triton shall have
entered into a stock option and assumption agreement with each of the holders of
the Assumed Options; (j) Triton shall have entered into the Registration Rights
Agreement; (k) Triton shall have terminated its oral consulting agreements with
Michael M. Earley and Mark G. Foletta; and (l) Triton shall have terminated
Patricof's registration rights provided under the Patricof Warrants and under
that certain warrant, dated October 13, 1993, issued by Triton to Patricof for
the purchase of an aggregate of 150,000 shares of Triton Common Stock.
At any time prior to the Effective Time, to the extent legally allowed,
Triton or Alarmguard, without approval of the stockholders of Triton or
Alarmguard, may waive compliance with any of the agreements or conditions
contained in the Merger Agreement to be performed by the other party.
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AMENDMENT; TERMINATION
AMENDMENT. The Merger Agreement may be amended by the parties thereto by
action taken by or on behalf of their respective boards of directors at any time
prior to the Effective Time; PROVIDED, HOWEVER, that after approval of the
Merger by the stockholders of Triton or Alarmguard, no amendment may be made
which by law requires further approval by such stockholders without such further
approval. The Merger Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
TERMINATION BY MUTUAL CONSENT. The Merger Agreement may be terminated at
any time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of Alarmguard or Triton, by mutual written consent duly authorized
by the Triton Board and the Alarmguard Board.
TERMINATION BY EITHER TRITON OR ALARMGUARD. The Merger Agreement may be
terminated by either Triton or Alarmguard, at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of Alarmguard or
Triton (a) if the Merger has not been consummated by April 30, 1997 (provided
that the right to terminate will not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); (b) if a
court of competent jurisdiction or governmental, regulatory or administrative
agency or commission has issued a nonappealable final order, decree or ruling or
taken any other action having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger (provided that this right to terminate the
Merger Agreement will not be available to any party who has not complied with
its obligations to (x) take all actions necessary to consummate the Merger
Agreement or (y) has not used all reasonable efforts to cause the Merger to
qualify as a reorganization under the provisions of Section 368 of the Code and
such noncompliance materially contributed to the issuance of any such order,
decree or ruling or the taking of such action); (c) if (i) the Alarmguard Board
withdraws, modifies, or changes its approval or recommendation of the Merger
Agreement or the Merger in a manner adverse to Triton or has resolved to do so;
(ii) the Alarmguard Board recommends to the stockholders of Alarmguard an
Acquisition Proposal; or (iii) Alarmguard enters into an agreement providing for
the implementation of an Acquisition Proposal; or (d) if (i) the Triton Board
withdraws, modifies or changes its approval or recommendation of the Merger
Agreement or the Merger in a manner adverse to Alarmguard or has resolved to do
so; (ii) the Triton Board recommends to the stockholders of Triton an
Acquisition Proposal; or (iii) Triton enters into an agreement providing for the
implementation of an Acquisition Proposal.
TERMINATION BY TRITON. The Merger Agreement may be terminated by Triton, at
any time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of Alarmguard or Triton, if any of Alarmguard's representations,
warranties, agreements or covenants are untrue.
TERMINATION BY ALARMGUARD. The Merger Agreement may be terminated by
Alarmguard, at any time prior to the Effective Time, notwithstanding approval
thereof by the stockholders of Alarmguard or Triton if any of Triton's or Merger
Sub's representations, warranties, agreements or covenants are untrue.
CERTAIN CONSEQUENCES OF TERMINATION. In the event of termination of the
Merger Agreement and abandonment of the Merger as provided above, no party to
the Merger Agreement (or any of such party's respective affiliates, directors,
officers or stockholders) shall have any liability or further obligation under
the Merger Agreement, except the obligations of the parties pursuant to the
provisions of the Merger Agreement dealing with certain fees and expenses, and
the effectiveness of representations, warranties and agreements. Nothing in the
Merger Agreement will relieve any party from liability for any wilful breach of
any of its obligations under the Merger Agreement.
EXPENSES; TERMINATION FEE
Except as provided below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses, whether or not the Merger is consummated;
PROVIDED, HOWEVER, that Triton and Alarmguard will share equally all fees
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and expenses, other than attorneys' fees, incurred in connection with the
printing and filing of this Proxy Statement/Prospectus (including any
preliminary materials related hereto) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements related
hereto.
Alarmguard agrees to pay Triton a fee of $1 million upon the first to occur
of any of the following events: (i) the termination of the Merger Agreement by
Triton or Alarmguard as described above in clause (c) of the Section entitled
"--Termination by Either Triton or Alarmguard;" or (ii) the termination of the
Merger Agreement by Triton as described above in the Section entitled
"--Termination by Triton;" or (iii) an Acquisition Proposal with respect to
Alarmguard is commenced, proposed or disclosed after the date of the Merger
Agreement, and (A) the Alarmguard Board takes any Permitted Action as defined
above in the Section entitled "--No Solicitation," (B) the Merger Agreement is
terminated by Triton or Alarmguard as permitted above in clause (a) of the
Section entitled "--Termination by Either Triton or Alarmguard" and (C) on or
prior to June 30, 1997, such Acquisition Proposal is consummated or Alarmguard
enters into an agreement with respect thereto (collectively, "Triton Triggering
Events").
Triton agrees to pay Alarmguard a fee of $1 million upon the first to occur
of any of the following events: (i) the termination of the Merger Agreement by
Alarmguard or Triton as described in clause (d) of the Section entitled
"--Termination by Either Triton or Alarmguard;" or (ii) termination of the
Merger Agreement by Alarmguard as described above in the Section entitled
"--Termination by Alarmguard;" or (iii) an Acquisition Proposal with respect to
Triton is commenced, proposed or disclosed after the date of the Merger
Agreement; and (A) the Triton Board takes any Permitted Action as defined above
in the Section entitled "--No Solicitation;" (B) the Merger Agreement is
terminated by Alarmguard or Triton as permitted above in clause (a) of the
Section entitled "--Termination by Either Triton or Alarmguard;" and (C) on or
prior to June 30, 1997, such Acquisition Proposal is consummated or Triton
enters into an agreement with respect thereto (collectively, "Alarmguard
Triggering Events").
Triton and Alarmguard agree to pay any fee described above within five
business days after the first to occur of any of the Triton Triggering Events or
any of the Alarmguard Triggering Events; PROVIDED THAT, in no event shall Triton
or Alarmguard, as the case may be, be required to pay such fee to the other if,
immediately prior to the termination of the Merger Agreement, the party to
receive such fee was in material breach of its obligations under the Merger
Agreement.
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PROPOSALS 2(A)-(G):
THE RESTATED CHARTER PROPOSALS
GENERAL
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to amend and restate the Triton Charter in accordance
with the Restated Charter Proposals. The approval and adoption of each Restated
Charter Proposal is conditioned on the approval and adoption of each of the
other Restated Charter Proposals.
As required by the DGCL and the Triton Charter, the affirmative vote of the
holders of a majority of the outstanding shares of the Triton Common Stock is
required to adopt the Restated Charter Proposals. The following description of
the Restated Charter Proposals is qualified in its entirety by the Restated
Charter, a copy of which is attached hereto as Appendix D-1.
The Restated Charter Proposals effect the following significant charter
amendments.
- Proposal 2(a): to change the name of Triton to Alarmguard Holdings, Inc.;
- Proposal 2(b): to authorize the Triton Board to issue the Triton Preferred
Stock in one or more classes or series, having such rights, privileges,
designations and preferences as may be determined by the Triton Board;
- Proposal 2(c): to change the authorized capital stock of Triton to 25
million shares of Triton Common Stock and 5 million shares of Triton
Preferred Stock;
- Proposal 2(d): to effect the Reverse Stock Split;
- Proposal 2(e): to classify the directors of Triton into three classes,
with staggered three-year terms;
- Proposal 2(f): to eliminate the ability of Triton stockholders to act by
written consent; and
- Proposal 2(g): to eliminate the ability of Triton stockholders to call a
special meeting of the stockholders.
Each of the Restated Charter Proposals is discussed below in the Proposal
related thereto. For a discussion of the Triton Charter which would remain in
effect if the Merger is not approved, see "DESCRIPTION OF TRITON CAPITAL STOCK."
THE TRITON BOARD CONSIDERS THE ADOPTION AND APPROVAL OF THE RESTATED CHARTER
PROPOSALS TO BE IN THE BEST INTERESTS OF TRITON AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF THE RESTATED
CHARTER PROPOSALS.
PROPOSAL 2(A): NAME CHANGE
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to change its name to Alarmguard Holdings, Inc. This
change is contained in Article First of the Restated Charter. A copy of the
Restated Charter is set forth as Appendix D-1 to this Proxy Statement/Prospectus
and is incorporated herein by reference.
The name of Triton is proposed to be changed from "Triton Group Ltd." to
"Alarmguard Holdings, Inc." to reflect the consummation of the Merger and the
fact that the business of Alarmguard prior to the Effective Time will become the
business of Holdings after the Effective Time. The Triton Board unanimously
recommends a vote FOR this Proposal 2(a).
The approval and adoption of this Proposal 2(a) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
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PROPOSAL 2(B): PREFERRED STOCK
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to amend the Triton Charter to authorize the issuance
of Triton Preferred Stock. This change is contained in Article Fourth, Section 1
of the Restated Charter. A copy of the Restated Charter is set forth as Appendix
D-1 to this Proxy Statement/Prospectus and is incorporated herein by reference.
The Triton Board unanimously recommends a vote FOR this Proposal 2(b).
This Proposal 2(b), if adopted, will amend the Triton Charter to authorize
the Triton Board to provide for the issuance of all or any shares of Triton
Preferred Stock in one or more classes or series, to increase or decrease the
number of shares of Triton Preferred Stock designated for any class or series,
and to fix for each such class or series such voting powers, full or limited, or
no voting powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Triton Board providing for the issuance
of such class or series and as may be permitted by the DGCL, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative and may
be payable in cash, stock or other property) at such rates, on such conditions,
and at such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other series; (iii)
entitled to such rights upon the dissolution of, or upon any distribution of the
assets of, Triton; or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any other
class or classes of stock, or indebtedness or other property, of Triton at such
price or prices or at such rates of exchange and with such adjustments; all as
may be stated in such resolution or resolutions.
The Triton Board believes that the proposal to authorize the issuance of
Triton Preferred Stock is in the best interests of Triton and its stockholders.
If this Proposal 2(b) is approved by the stockholders, the Triton Preferred
Stock would be available for issuance by the Triton Board from time to time for
stock dividends, financings, acquisitions or general corporate purposes. Such
availability of shares of Triton Preferred Stock would eliminate the delay and
expense involved in first conducting a special meeting of stockholders to
authorize the issuance of such shares when needed and would provide Triton with
the flexibility to act in a timely manner to take advantage of favorable market
conditions and other opportunities. Furthermore, the Triton Board could
designate certain rights and privileges for the Triton Preferred Stock which
could discourage unsolicited tender offers or takeover proposals or have other
anti-takeover effects. The Triton Board has no current plans to issue any shares
of Triton Preferred Stock.
The approval and adoption of this Proposal 2(b) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
PROPOSAL 2(C): CHANGE IN AUTHORIZED CAPITAL
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to change its authorized capital structure. This
change is contained in Article Fourth of the Restated Charter. A copy of the
Restated Charter is set forth as Appendix D-1 to this Proxy Statement/Prospectus
and is incorporated herein by reference. The Triton Board unanimously recommends
a vote FOR this Proposal 2(c).
This Proposal 2(c), if adopted, will change the authorized capital of Triton
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF CURRENT PROPOSED
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Triton (Holdings) Common Stock.................................... 40,000,000 25,000,000
Triton (Holdings) Preferred Stock................................. 0 5,000,000
Total Authorized.................................................. 40,000,000 30,000,000
</TABLE>
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The Triton Board believes it is desirable to have a number of authorized
shares of capital stock so that there will be sufficient shares available for
purposes that the Holdings Board may hereafter determine to be in the best
interests of Holdings and its stockholders. Such purposes could include the
offer of shares for cash, the declaration of stock splits and stock dividends,
mergers and acquisitions and other general corporate purposes. In many
situations, prompt action may be required which would not permit seeking
stockholder approval to authorize additional shares for the specific
transactions on a timely basis. While the Triton Board does not have a present
plan to issue additional shares of Triton Common Stock (other than the Merger
Shares) or shares of Triton Preferred Stock, it believes that the Holdings Board
should have the flexibility to act promptly in the best interest of
stockholders. The terms of a future issuance of shares of capital stock will be
dependent largely on market and financial conditions and other factors existing
at the time of issuance.
The availability for issuance of additional shares of Holdings Common Stock
or Holdings Preferred Stock could enable the Holdings Board to render more
difficult or discourage an attempt to obtain control of Holdings. However,
Triton is not aware of any pending or threatened efforts to obtain such control.
The approval and adoption of this Proposal 2(c) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
PROPOSAL 2(D): REVERSE STOCK SPLIT
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to effect the Reverse Stock Split. This change is
contained in Article Fourth, Section 3 of the Restated Charter. A copy of the
Restated Charter is set forth as Appendix D-1 to this Proxy Statement/Prospectus
and is incorporated herein by reference. The Triton Board unanimously recommends
a vote FOR this Proposal 2(d).
This Proposal 2(d), if adopted, will amend the Triton Charter to provide
that, at the Effective Time, the Reverse Stock Split will be effected so that at
such time each share of Triton Common Stock will automatically be converted to,
and exchangeable for, one-tenth of a share of Triton Common Stock.
The approval and adoption of this Proposal 2(d) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
PROPOSAL 2(E): CLASSIFIED BOARD
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to classify the directors of Triton into three
classes, with staggered three-year terms. This change is contained in Article
Fifth, Section 2 of the Restated Charter. A copy of the Restated Charter is set
forth as Appendix D-1 to this Proxy Statement/Prospectus and is incorporated
herein by reference. The Triton Board unanimously recommends a vote FOR this
Proposal 2(e).
This Proposal 2(e), if adopted, will amend the Triton Charter to provide
that the directors of Triton will be classified with respect to the time for
which they severally hold office into three classes, as nearly equal in number
as possible, designated Class I, Class II and Class III. The directors first
appointed to Class I will hold office for the term expiring at the annual
meeting of the Holdings Board to be held in 1998; the directors first appointed
to Class II will hold office for the term expiring at the annual meeting of the
Holdings Board to be held in 1999; and the directors first appointed to Class
III will hold office for the term expiring at the annual meeting of the Holdings
Board to be held in 2000, with the members of each class to hold office until
their successors are elected and qualified. At each succeeding annual meeting of
the Holdings stockholders, the successors of the class of directors of Holdings
whose terms expire at such meeting will be elected by the affirmative vote of
the holders of at least a plurality of the votes cast at such
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<PAGE>
annual meeting, assuming a quorum is present, to hold office for a term expiring
at the annual meeting of the Holdings stockholders held in the third year
following the year of their election. Pursuant to the Merger Agreement, each of
Russell R. MacDonnell, Michael M. Earley and Stuart L. Bell will be first
appointed to Class III; each of Stephen L. Green and Michael E. Cahr will be
first appointed to Class II; and each of David Heidecorn and Thomas W. Janes
will be first appointed to Class I.
The Triton Board believes that the provision creating a board of directors
with staggered three-year terms is in the best interests of Triton and its
stockholders. This provision is designed to assure continuity and stability in
the leadership and policies of the Holdings Board. At any one time, one-third of
the Holdings Board would be in its second year of service and one-third would be
in its third year. Members elected within the most recent year would comprise
one-third of the membership of the Holdings Board. Although the Triton Board has
not experienced any problems with such continuity in the past, it believes that
this provision will decrease the likelihood of problems of continuity and
stability arising in the future and would likely lead any potential bidder for
control of Holdings into direct negotiations with the Holdings Board. A board of
directors with staggered three-year terms would make Holdings less attractive to
certain tender offerors since, given the extended time required to make any
change in the Holdings Board, a majority stockholder would normally need two
annual meetings to obtain a majority of a seven-person board of directors and
three annual meetings for complete control, as opposed to one meeting for
complete control at present. This provision will tend to discourage certain
tender offers, perhaps including some tender offers which stockholders may feel
would be in their best interests. This provision would also make it more
difficult for Holdings stockholders to change the composition of the Holdings
Board even if such stockholders believe such a change would be desirable.
The approval and adoption of this Proposal 2(e) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
PROPOSAL 2(F): PROHIBITION OF STOCKHOLDER ACTION BY WRITTEN CONSENT
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to amend the Triton Charter to eliminate the ability
of its stockholders to act by written consent. This change is contained in
Article Tenth of the Restated Charter. A copy of the Restated Charter is set
forth as Appendix D-1 to this Proxy Statement/Prospectus and is incorporated
herein by reference. The Triton Board unanimously recommends a vote FOR this
Proposal 2(f).
The DGCL states that, unless otherwise provided in the Triton Charter, any
action required or permitted to be taken by stockholders of Triton may be taken
without a meeting, without prior notice and without a vote, if a written consent
setting forth the action to be taken is signed by the holders of shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting of stockholders. The Triton Charter does not
otherwise provide, and the Triton By-Laws provide that action may be taken by
written consent. The Restated Charter, if this Proposal 2(f) is adopted, will
prohibit the use of this written consent procedure.
The Triton Board believes that prohibiting stockholder action by written
consent is in the best interests of Triton and its stockholders. Prohibiting
stockholder action by written consent will grant all Holdings stockholders the
opportunity to participate in determining any proposed stockholder action and
will prevent the holders of a majority of the voting power of Holdings from
using the written consent procedure to take stockholder action. Persons
attempting hostile takeovers of corporations have attempted to use written
consent procedures to deal directly with stockholders and avoid negotiations
with the boards of directors of such corporations. By eliminating the use of the
written consent procedure, Holdings intends to encourage persons seeking to
acquire control of Holdings to initiate an acquisition through arm's-length
negotiations with Holdings' management and the Holdings Board.
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<PAGE>
Restricting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
of stockholders unless a special meeting is called by a majority of the Holdings
Board. Because elimination of the procedures for stockholders to act by written
consent could make more difficult an attempt to obtain control of Holdings, such
action could have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of Holdings. Because tender
offers for control usually involve a purchase price higher that the prevailing
market price, restricting stockholder action by written consent may have the
effect of preventing or delaying a bid for Holdings' stock that could be
beneficial to Holdings and its stockholders. Elimination of the written consent
procedure also means that a meeting of the stockholders would be required in
order for Holdings' stockholders to replace the Holdings Board. This provision
thus will make the removal of directors of Holdings more difficult.
The approval and adoption of this Proposal 2(f) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
PROPOSAL 2(G): ELIMINATION OF STOCKHOLDER ABILITY TO CALL SPECIAL MEETINGS
As a condition precedent to Alarmguard's obligation to consummate the
Merger, Triton is required to amend the Triton Charter to eliminate the ability
of its stockholders to call special meetings. This change is contained in
Article Tenth of the Restated Charter. A copy of the Restated Charter is set
forth as Appendix D-1 to this Proxy Statement/Prospectus and is incorporated
herein by reference. The Triton Board unanimously recommends a vote FOR this
Proposal 2(g).
The Restated Charter will provide that Triton stockholders will not be
permitted to call a special meeting of stockholders or to require that the
Triton Board call a special meeting, except as otherwise required by law, or
upon the order of any court of equitable jurisdiction pursuant to Article Ninth
of the Restated Charter or as specified in the rights of any class of Triton
Preferred Stock. The Restated By-Laws will eliminate all provisions therein
relating to stockholder action by written consent or stockholder ability to call
a special meeting or require that the Triton Board call a special meeting.
The Triton Board believes that eliminating the right of stockholders to call
special meetings is in the best interests of Triton and its stockholders.
Eliminating the right of stockholders to call a special meeting would mean that
a stockholder could not force stockholder consideration of a proposal over the
opposition of the Holdings Board by calling a special meeting of stockholders
prior to such time as the Holdings Board believed such consideration to be
appropriate. By eliminating the ability of stockholders to call a special
meeting, Holdings intends to encourage persons seeking to acquire control of
Holdings to initiate an acquisition through arm's-length negotiations with
Holdings' management and the Holdings Board.
The provisions of the Restated Charter eliminating the stockholders' ability
to call special meetings may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting of stockholders unless a
special meeting is called by a majority of the Holdings Board. Because
elimination of the procedures for stockholders to call special meetings could
make more difficult an attempt to obtain control of Holdings, such action could
have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of Holdings. Because tender offers for
control usually involve a purchase price higher that the prevailing market
price, the provisions of the Restated Charter eliminating the stockholders'
ability to call special meetings may have the effect of preventing or delaying a
bid for Holdings' stock that could be beneficial to Holdings and its
stockholders. The restriction on the ability of the stockholders to call a
special meeting means that a proposal to replace the Holdings Board could be
delayed until the next annual meeting of stockholders. These provisions thus
will make the removal of directors of Holdings more difficult.
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<PAGE>
The approval and adoption of this Proposal 2(g) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of all of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
RESTATED BY-LAWS
Pursuant to the provisions of the Merger Agreement, Triton will, prior to
the Effective Time, adopt the Restated By-Laws, which will amend various
provisions of the Triton By-Laws. Under the Triton By-Laws, no action on the
part of Triton's stockholders is required to amend or repeal Triton's By-Laws.
The Triton Board has unanimously authorized, adopted and approved the Restated
By-Laws, subject to the consummation of the Merger. In the event that Proposal 1
is adopted by the requisite vote, the Restated By-Laws will, without the taking
of any stockholder action, become the By-Laws of Holdings upon the effectiveness
of the Merger.
The Restated By-Laws, if made effective upon consummation of the Merger,
will alter certain aspects of the governance of Holdings. Set forth below is a
brief description of the material changes which are proposed to be made to the
Triton By-Laws. The summary description of the Restated By-Laws is qualified in
its entirety by the Restated By-Laws, which are incorporated herein by
reference. A copy of the Restated By-Laws is set forth as Exhibit D-2 to this
Proxy Statement/Prospectus.
With respect to matters affecting stockholders, the Restated By-Laws would
no longer authorize stockholders representing at least 25% of the outstanding
common stock to call special meetings: special meetings would be called only by
the Board of Directors or the President. Under the Triton By-Laws, special
meetings of stockholders may be called by the Triton Board, the Chief Executive
Officer or stockholders representing 25% of the outstanding Triton Common Stock.
According to the Restated By-Laws, no business may be transacted and no
corporate transaction may be taken other than that stated in the notice of the
meeting unless all of the stockholders are present in person or by proxy, in
which case any and all business may be transacted at the meeting even though the
meeting is held without notice. Under the Triton By-Laws, all business to be
transacted at a special meeting must be stated in the notice of such special
meeting.
The Restated By-Laws reflect the Restated Charter which eliminates the
ability of the stockholders of Holdings to act by written consent. The Triton
By-Laws provide that any action required to be taken at any annual or special
meeting of Triton stockholders, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
With respect to Holdings' Board of Directors, the Restated By-Laws provide
that a majority of the members of the Holdings Board then in office (but in no
case less than one-third of the total number of directors nor less than two
directors) will constitute a quorum for the transaction of business. The Triton
By-Laws provide that a majority of the total number of the whole Triton Board
will constitute a quorum for all purposes. In addition, the Restated By-Laws
provide for special meetings of the Holdings Board to be held whenever called by
direction of the President or by any two of the directors then in office. The
Triton By-Laws provide that special meetings may be called by one-third of the
directors then in office (rounded up to the nearest whole number) or by the
Chief Executive Officer. The Restated By-Laws require that notice of the day,
hour and place of holding each special meeting be given by mailing the same at
least two days before the meeting. The Triton By-Laws require that notice be
mailed not less than five days before the meeting.
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RECOMMENDATION OF THE TRITON BOARD
The affirmative vote of a majority of the outstanding shares of Triton
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote is required to approve the adoption of the Restated Charter
Proposals. THE TRITON BOARD CONSIDERS THE ADOPTION AND APPROVAL OF THE RESTATED
CHARTER PROPOSALS TO BE IN THE BEST INTERESTS OF TRITON AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF THE RESTATED
CHARTER PROPOSALS.
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PROPOSAL 3: ELECTION OF THE TRITON BOARD
NOMINEES FOR ELECTION AS DIRECTORS
The Triton Board currently consists of four members. All of the directors
are elected annually and hold office until the next succeeding annual meeting of
Triton stockholders or until their respective successors are duly elected and
qualified. It is intended that the persons named in the proxy as proxies will,
except as noted below, vote FOR the election of the following nominees as
directors to serve until the earlier of (a) the next annual meeting of Triton
stockholders and the election and qualification of their respective successors
or (b) the consummation of the Merger:
Michael E. Cahr
Michael M. Earley
Mark G. Foletta
Richard R. Tartre
Each of the foregoing persons currently serves as a director of Triton and
was most recently elected as such at the annual meeting of Triton stockholders
held on September 27, 1994 (other than Mr. Foletta, who was appointed to the
Triton Board effective as of February 1, 1996). The Triton Board does not
contemplate that any of such nominees will become unable to serve. If, however,
any of such nominees should become unable to serve before the Annual Meeting,
proxies solicited by the Triton Board will be voted by the persons named as
proxies therein in accordance with the best judgment of such proxies.
Notwithstanding the foregoing, pursuant to the Merger Agreement, the
Holdings Board upon consummation of the Merger will consist of seven members,
five of whom have been designated by Alarmguard and two of whom have been
designated by Triton. Messrs. Earley and Cahr are the two Triton designees as
directors, and would therefore continue as directors of Triton after the
Effective Time of the Merger. Messrs. Foletta and Tartre would, by virtue of the
Merger Agreement and the certificates of merger to be filed thereunder, be
removed from the Triton Board at the Effective Time. If for whatever reason the
Merger does not occur, Messrs. Foletta and Tartre will continue to hold office
as directors of Triton as set forth above.
DIRECTORS AND EXECUTIVE OFFICERS OF TRITON
The following table sets forth certain information about the current
directors and executive officers of Triton. Each of the individuals named in the
following table has been nominated by the Triton Board to be elected to serve as
a director of Triton until the earlier of (a) the next annual meeting of Triton
stockholders and the election and qualification of their respective successors
or (b) the consummation of the Merger. Officers are appointed to serve until the
meeting of the Triton Board following the next annual meeting of stockholders
and until their successors have been elected and have qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael E. Cahr...................................... 56 Director, Member of Audit and Compensation Committees
Michael M. Earley.................................... 41 Director, President and Chief Executive Officer
Mark G. Foletta...................................... 36 Director, Senior Vice President, Chief Financial
Officer and Corporate Secretary
Richard R. Tartre.................................... 58 Director, Member of Audit and Compensation Committees
</TABLE>
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MICHAEL E. CAHR has been a director of Triton since June 1993 and serves as
President and Chief Executive Officer of Allscripps Pharmaceuticals, Inc., a
privately-owned company engaged in the distribution of pharmaceutical products.
He has served in this position since June 1994. He served as a Venture Group
Manager for Allstate Venture Capital, a division of Allstate Insurance Company,
between 1987 and June 1994. He is also a director of LifeCell Corporation, Optek
Technologies, Inc., and several privately-owned companies.
MICHAEL M. EARLEY has served as the President and Chief Executive Officer of
Triton since February 1996 and as a director since June 1993. Mr. Earley has
served as President and Chief Operating Officer (June 1994 to January 1996) and
Senior Vice President and Chief Financial Officer of Triton and Intermark, Inc.
(1991 to June 1994). He is also a director of Mission West and Ridgewood.
MARK G. FOLETTA has been a director of Triton since February 1996 and has
served as Senior Vice President and Chief Financial Officer since June 1994. He
also served as Vice President and Corporate Controller of Triton and Intermark,
Inc. from 1991 to June 1994 and has served as Corporate Secretary of Triton
since 1992. He is also a director of Mission West.
RICHARD R. TARTRE has been a director of Triton since June 1993 and is a
consultant and private investor. He served as President and Chief Executive
Officer of Astra Management Corp. from May 1995 to April 1996. He served as
Managing Director of Eden Financial Group from 1982 to May 1995. He also serves
as a director of Mission West and Burnham Pacific Properties.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash compensation paid by Triton and its
subsidiaries as well as certain other compensation paid or accrued to each of
the executive officers of Triton in all capacities in which they serve. The
table reflects cash compensation for the fiscal years ended March 31, 1996 and
March 31, 1995 and the nine months ended March 31, 1994. Effective January 2,
1996, the three executive officers of Triton were terminated as employees.
Pursuant to existing employment agreements, each such executive officer received
a severance payment equal to their annual salary. These severance amounts are
included in the "All Other Compensation" column in the table below. Since the
termination, Messrs. Earley and Foletta have provided management services to
Triton on a consulting basis. Under this arrangement, Triton is not providing
any perquisites or typical employee-related benefits. Messrs. Earley and Foletta
serve on a month-to-month basis and have no other contractual relationship with
Triton. The consulting payments after January 2, 1996 are included in the "Other
Annual Compensation" column in the table below.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL NUMBER OF
COMPENSATION SECURITIES
-------------------- OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION STOCK COMPENSATION
NAME AND POSITION YEAR ($) ($) (4) ($) OPTIONS (5) ($)
- --------------------------------------------------- --------- --------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Earley(1),.............................. 1996 181,201 330,000 57,453 0 485,677
President and Chief Executive Officer 1995 213,750 61,644 655 0 0
1994 136,042 27,000 785 360,000 0
Mark G. Foletta(2),................................ 1996 125,410 250,000 46,375 0 325,755
Senior Vice President, Chief Financial Officer 1995 146,250 42,466 341 0 0
and Corporate Secretary 1994 90,000 18,000 378 240,000 0
John C. Stiska(3).................................. 1996 304,554 330,000 62,829 0 784,389
1995 337,500 95,890 2,580 0 0
1994 225,000 45,000 3,038 600,000 0
</TABLE>
- ------------------------
(1) Included in the salary amount for Mr. Earley is compensation received as a
director of the following operating subsidiaries of Triton during the fiscal
years ended March 31, 1996 and March 31, 1995 and the nine months ended
March 31, 1994, respectively: Ridgewood, $10,700, $16,400 and $10,000;
Mission West, $9,000, $15,000 and $11,250; and National Airmotive, $1,667,
$12,500 and $5,000.
(2) Included in the salary amount for Mr. Foletta is compensation received as a
director of Mission West of $8,250 during the fiscal year ended March 31,
1996, $15,000 during the fiscal year ended March 31, 1995 and $11,250 for
the nine months ended March 31, 1994.
(3) Mr. Stiska resigned his position as Chief Executive Officer and Chairman of
the Triton Board effective February 1, 1996. Included in the salary amount
for Mr. Stiska is compensation received as a director of the following
operating subsidiaries of Triton during the fiscal years ended March 31,
1996 and March 31, 1995 and the nine months ended March 31, 1994,
respectively: Ridgewood, $10,700, $16,400 and $10,100; Mission West, $9,000,
$15,000 and $11,250; and National Airmotive, $1,667, $12,500 and $5,000.
(4) Triton provided perquisites and other personal benefits to the executive
officers of Triton. Included in these amounts are payments received for auto
allowance, tax and estate planning and life insurance premiums prior to
their respective terminations on January 1, 1996. These amounts also include
consulting payments subsequent to January 2, 1996 to Messrs. Earley, Foletta
and Stiska of $45,000, $35,000 and $15,000, respectively. Additionally,
these amounts include payments of directors fees to Messrs. Earley and
Foletta as directors of Triton subsequent to their respective terminations.
(5) Triton completed a distribution to its stockholders on December 8, 1995
consisting of $1.57 in cash and .066 of a share of Metromedia common stock
for each outstanding share of Triton Common Stock. Pursuant to forbearance
agreements between Triton and its executive officers, Triton distributed to
Messrs. Earley, Foletta and Stiska $260,677, $170,755 and $434,389,
respectively, in cash and market value of Metromedia common stock, in
exchange for their forbearing to exercise outstanding stock options. These
amounts distributed represent the value of the distribution to stockholders
per each share of Triton Common Stock, in excess of the $2.00 per share
exercise price of the stock options prior to the distribution. Additionally,
these amounts include the severance payments to Messrs. Earley, Foletta and
Stiska of $225,000, $155,000 and $350,000, respectively, pursuant to the
terms of their respective employment agreements with Triton which were
terminated effective January 2, 1996.
STOCK OPTIONS
On December 8, 1995, Triton completed a special distribution of $1.57 in
cash and .066 of a share of Metromedia common stock for each outstanding share
of Triton Common Stock to Triton's stockholders of record on November 17, 1995.
All of the stock options previously granted to the Triton executive officers
provided for a reduction in the exercise price to the extent cash dividends or
other distributions are made to existing holders of the Triton Common Stock. As
a result of such special distribution, the exercise price for such stock options
was reduced to the par value of the Triton Common Stock to be issued or $.0001
per share. Additionally, Triton entered into agreements with the option holders
whereby the option holders participated in the special distribution to the
extent that the value of the distribution exceeded the $2.00
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<PAGE>
per share exercise price. Each of the named executive officers exercised all of
his stock options during the fiscal year ended March 31, 1996 and there are no
unexercised stock options for the named executive officers at March 31, 1996.
The following table sets forth information with respect to the named
executive officers concerning the number of securities underlying exercised
options during fiscal year 1996.
AGGREGATE OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNEXERCISED
VALUE UNDERLYING IN-THE-MONEY
SHARES ACQUIRED REALIZED UNEXERCISED OPTIONS AT FISCAL
NAME ON EXERCISE ($) OPTIONS AT FISCAL YEAR-END YEAR-END
- ------------------------------------ --------------- ------------- ----------------------------- ---------------------
<S> <C> <C> <C> <C>
Michael M. Earley................... 360,000 134,964 -0- -0-
Mark G. Foletta..................... 240,000 89,976 -0- -0-
John C. Stiska...................... 600,000 262,440 -0- -0-
</TABLE>
At March 31, 1996, there were no outstanding stock options for the executive
officers of Triton.
PENSION AND RETIREMENT PLANS
Intermark, Inc., Triton's predecessor, had a pension plan for its officers
and employees (the "Pension Plan"). The assets of the Pension Plan were held in
a trust for its officers and employees, and former officers and employees, and
Intermark made contributions into the trust on an actuarial basis. The Pension
Plan provided for fixed benefits in the event of retirement after a specified
number of years of service. To have been eligible to accrue benefits under the
Pension Plan, an employee was required to (i) have attained age 21; (ii) have
completed one full year of continuous service with Intermark and (iii) have been
hired before age 60. Estimated annual benefits upon retirement under the Pension
Plan equaled 50% of the employee's "final average earnings," which was defined
under the Pension Plan as the average of the employee's annual earnings for the
five highest consecutive years of the last ten calendar years preceding his or
her normal retirement date, exclusive of any bonuses and expense reimbursement,
less 75% of the employee's estimated annual Social Security Benefit.
Benefit accrual under the Pension Plan was curtailed as of April 3, 1993. As
a result, the annual benefits payable under the Pension Plan were determined in
accordance with the computation of "final average earnings" as described in the
previous paragraph, using earnings for the period prior to the curtailment date
of April 3, 1993. Triton made contributions to the Pension Plan in order to fund
benefits already accrued thereunder. In October 1994, Triton purchased annuities
from a third-party insurance company to provide benefits to each participant of
the Pension Plan.
POST EMPLOYMENT AGREEMENTS
Triton was a party to certain post employment agreements (the "Post
Employment Agreements") with each of its executive officers. Each Post
Employment Agreement provided for certain severance payments to the executive
officer upon termination of employment other than for cause, or upon resignation
following a reduction in salary or benefits not shared with all other employees
of Triton pursuant to Triton's standard retirement policy, a reduction in
corporate title, or a relocation of the executive officer's place of work
greater than 50 miles from Triton's current headquarters (each a "Qualifying
Termination"). On March 22, 1995, the Triton Board authorized an amendment to
each of the Post Employment Agreements to provide that a change in control of
Triton constituted a Qualifying Termination event for purposes of such Post
Employment Agreements.
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Under the Post Employment Agreements, Triton would be obligated to make
severance payments in cash within 30 days from the date of occurrence of a
Qualifying Termination in an amount equal to the executive officer's annual base
salary immediately prior to the Qualifying Termination. Any options to purchase
Triton Common Stock held by the executive officer at the time of termination
would be exercisable in accordance with the terms of the stock option
agreements. The Post Employment Agreements did not provide for continued
employment with Triton upon termination.
Effective January 2, 1996, the executive officers of Triton were terminated
as employees of Triton. Two of the three individuals are continuing to provide
services on a consulting basis to Triton. See "--Executive Compensation--Summary
of Cash and Certain Other Compensation." In connection with their termination,
the executive officers were paid in accordance with the Post Employment
Agreements.
COMPENSATION OF DIRECTORS
In 1996, each director of Triton who was not employed by Triton received a
monthly retainer of $1,000, plus $1,500 for each meeting of the Triton Board
which he attended in person and $500 for each meeting of the Triton Board in
which he participated by conference telephone call. Additionally, Messrs. Cahr
and Tartre each received a $40,000 cash bonus in January 1996 following Triton's
special distribution to its stockholders discussed above. Directors of Triton
are also reimbursed for their expenses in attending meetings and engaging in
other business activities for Triton.
Directors who are not employees of Triton also held options to purchase
shares of Triton Common Stock pursuant to the 1993 Directors' Stock Option Plan
(the "Director Plan") which provided that:
(1) Each non-employee director of Triton who was first elected or
appointed a director on or before September 8, 1993 was granted an option to
purchase 75,000 shares of Triton Common Stock at an exercise price of $2.00
per share. Options granted under the Director Plan are fully exercisable on
or after the date of grant.
(2) Each participating director who is first elected or appointed a
director of Triton subsequent to September 8, 1993 will be granted an option
for no fewer than 50,000 shares and no more than 75,000 shares of Triton
Common Stock, the specific number of such shares to be recommended by a
committee of disinterested directors, and ratified by the entire Triton
Board.
As discussed above in "--Executive Compensation--Stock Options," the
exercise price of the options granted to directors under the Director Plan was
adjusted as a result of the special distribution completed in December 1995.
Each director elected to exercise his stock options during the year ended March
31, 1996.
Options granted under the Director Plan have a term of five years. The
Director Plan terminates on July 15, 2003.
INDEMNIFICATION AGREEMENTS
Triton entered into indemnification agreements (the "Indemnification
Agreements") with each person who was an officer or director of Triton in
October 1993. The Indemnification Agreements provide for indemnification of such
directors and officers to the fullest extent authorized or permitted by Delaware
law. The Indemnification Agreements also provide for (i) advancement by Triton
of expenses incurred by the director or officer in defending certain litigation;
(ii) the appointment of an independent legal counsel to determine whether the
director or officer is entitled to indemnity after a change in control and (iii)
the continued maintenance by Triton of the directors' and officers' liability
insurance currently in effect ($2 million of primary coverage).
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John C. Stiska, former Chairman and Chief Executive Officer of Triton, was
also a member of the Board of Directors of Biosafety Systems, Inc. until
December 1995. Richard R. Tartre, a member of Triton's Compensation Committee,
was also the Chairman of the Board of Biosafety Systems until December 1995. Mr.
Tartre was not a compensated executive officer of Biosafety Systems and was
compensated as a non-employee director.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the directors and officers of
Triton and persons who own more than 10% of a registered class of Triton's
equity securities to file with the Commission and the AMEX initial reports of
ownership and reports of changes in ownership of the Triton Common Stock and
other equity securities of Triton. Such directors, officers and greater than 10%
stockholders are required by the regulations of the Commission to furnish Triton
with copies of all Section 16(a) forms they file. To Triton's knowledge, based
solely on review of such reports furnished to Triton and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to Triton's directors, officers and greater than 10% stockholders
were complied with by such persons during the fiscal year ended March 31, 1996.
CERTAIN TRANSACTIONS
On October 20, 1995, Triton sold 59,384 shares of the common stock of Actava
to Grace Brothers, Ltd., the holder at that time of approximately 6.9% of the
Triton Common Stock, in a private transaction for $16 7/8 per share generating
net cash proceeds to Triton of approximately $1.0 million.
On March 7, 1997, Mission West, a publicly-traded real estate company of
which Triton owns approximately 44%, agreed to enter into a management agreement
with TGM, a company formed by Michael M. Earley, who is currently President and
Chief Executive Officer of Triton and a member of the Triton Board and who, upon
consummation of the Merger, is expected to become a member of the Holdings
Board, and Mark G. Foletta, who is currently Senior Vice President, Chief
Financial Officer and Corporate Secretary of Triton and a member of the Triton
Board. Pursuant to such agreement, Mission West engaged TGM to provide senior
management services to Mission West, and Mission West is paying TGM, as
compensation, $7,500 per month commencing in March 1997. The agreement will
continue until terminated by either party upon 30 days' prior written notice.
TRITON BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the report of Triton's Compensation Committee:
The Compensation Committee of the Board of Directors (the "Committee"),
which consists of the two non-management directors, is responsible for reviewing
and making recommendations to the Board with respect to Triton's executive
compensation policies. As described above, Triton emerged from bankruptcy in
June 1993 and developed a strategy for returning value in the form of cash
and/or liquid securities to its stockholders over a relatively short period of
time.
Triton believes that there should be a direct relationship between executive
compensation and value delivered to stockholders, and Triton's compensation
structure is based on this philosophy. Triton believes that the base
compensation for its executives should be competitive, enabling Triton to
attract and retain the best available people. Additionally, Triton believes that
bonus compensation based on realistic targets provides the motivation to the
executives to strive to meet or exceed company goals. Triton also believes that
stock options are a key ingredient to executive compensation because they serve
to align the interests of executive officers with stockholder value.
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<PAGE>
Among the factors considered by the Committee in assessing the
competitiveness of the compensation of the executive officers of Triton were the
number of operating units of Triton, the roles and scope of responsibilities of
each executive officer (which in all cases were multiple roles given that there
were only three executive officers employed by Triton during fiscal 1996), the
salaries paid to persons in similar positions in other companies and an
evaluation of the skills and judgment required to accomplish the announced
strategy of Triton. The Committee also was concerned that the executive salaries
fit within Triton's overhead operating budget.
The Committee also approved executive officers' bonuses of approximately
$900,000 during fiscal 1996. In consideration of the amount of the bonus, which
represents approximately 1.2 times the annual combined salaries of the three
executive officers, the Committee considered the following factors: (1) The
Committee recognized that the significant distribution to the stockholders of
cash and securities of Metromedia, completed in December 1995, represented the
substantial completion of the project that Triton had commenced in August 1993;
(2) The Committee believed that the value of the distribution, $2.80 per share
of Triton Common Stock as of the date the distribution was announced and $2.54
per share of Triton Common Stock as of the date the distribution was completed,
exceeded the expectations of many of Triton's stockholders; and (3) The
Committee noted that the pre-distribution range of trading values of the Triton
Common Stock of $3.00 to $3.25 per share far exceeded the values of the failed
tender offers for all of Triton's outstanding Common Stock of $1.80 and $2.02
per share in March and April of 1995. Accordingly, the Committee believed that
the determination of these bonuses was consistent with the established
philosophy to have a direct relationship between executive compensation and
value delivered to stockholders.
As a result of the reduction in the time necessary to manage the ongoing
business affairs of Triton following the asset sales in 1995 and the completion
of the distribution discussed above, the Committee sought to reduce the ongoing
management costs of Triton. Accordingly, effective January 2, 1996, the
Committee approved the termination of the three executive officers as employees
of Triton. The executives agreed to continue to provide consulting services to
Triton on a month-to-month basis at an annualized cost of $500,000, which is a
substantial reduction from the aggregate of the pre-termination salaries and
benefits of the executives. Upon termination, pursuant to existing employment
contracts between Triton and each of the three executives, the Committee
approved the payment of a termination benefit of one-year's annual base salary
to each executive, which amounts aggregated $730,000.
It is Triton's policy to qualify all executive compensation for
deductibility under the Code to maximize Triton's income tax deductions.
Submitted by the Compensation
Committee of the Triton Board
December 21, 1996,
Richard R. Tartre
Michael E. Cahr
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<PAGE>
PERFORMANCE GRAPH
The chart shown below is a line-graph presentation comparing the percentage
change in the cumulative total stockholder return on the Triton Common Stock for
the period beginning June 25, 1993, the date Triton emerged from its Chapter 11
reorganization proceedings, and ending September 30, 1996, with the return of
the AMEX Index and a peer group comprised of the companies included in the Value
Line Diversified Company Industry survey:
[PERFORMANCE GRAPH]
RECOMMENDATION OF THE TRITON BOARD
The Triton Board unanimously recommends that the Triton stockholders vote
FOR the election of the nominees to the Triton Board named herein.
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PROPOSAL 4: ADOPTION OF THE 1997 STOCK INCENTIVE PLAN
The Triton Board has approved and recommends to the Triton stockholders the
adoption of the 1997 Stock Incentive Plan. No grant of awards under the 1997
Stock Incentive Plan will be effective unless and until stockholder approval is
obtained. In the judgment of the Triton Board, the 1997 Stock Incentive Plan
will provide a critical long-term incentive for the management employees and
non-employee directors of Holdings. The Triton Board believes that a policy of
granting stock options to directors and employees will provide it with a
critical advantage in attracting and retaining qualified candidates. The 1997
Stock Incentive Plan will become effective as of the date of its adoption by the
Triton stockholders, immediately following the consummation of the Merger.
The purpose of the 1997 Stock Incentive Plan is to advance the interests of
Holdings and its stockholders by providing a means to attract, retain, and
reward directors, officers, other key employees and consultants of Holdings and
its subsidiaries and to enable such persons to acquire or increase a proprietary
interest in Triton. The 1997 Stock Incentive Plan is intended to provide the
compensation committee of the Holdings Board (the "Holdings Compensation
Committee") with maximum flexibility to award various types of long-term,
equity-based incentives to management employees. It is expected that such
flexibility will be critical as a part of Holdings' policy to encourage
directors and key employees to focus on the long-term growth of stockholder
value. The Triton Board believes that important advantages to Holdings will be
gained by a comprehensive compensation program such as the 1997 Stock Incentive
Plan which includes different types of incentives for motivating employees of
Holdings and rewards for outstanding service. In this regard, stock options and
other stock-related awards will be an important element of compensation for
directors, executives and other employees, thereby promoting a closer identity
of interests between directors and employees, and Holdings' stockholders. Such
awards also provide Holdings' directors and key employees with an increased
incentive to expend their maximum efforts for the success of Holdings' business.
DESCRIPTION OF THE 1997 STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan is set forth as Appendix E to this Proxy
Statement/Prospectus, and the description of the 1997 Stock Incentive Plan
contained herein is qualified in its entirety by reference to Appendix E.
The purpose of the 1997 Stock Incentive Plan is to provide officers,
directors, other key employees and consultants of Holdings and its subsidiaries
with additional incentives by increasing their ownership interests in Holdings.
Awards to key employees may be granted by the Holdings Compensation Committee,
and may include: (i) options to purchase shares of Holdings Common Stock,
including incentive stock options ("ISOs"), non-qualified stock options or both,
which options may contain automatic reload features; (ii) stock appreciation
rights ("SARs"), whether in conjunction with the grant of stock options or
independent of such grant, or SARs that are only exercisable in the event of a
change in control of Holdings (as defined in the 1997 Stock Incentive Plan) or
upon other events; (iii) restricted stock, in which Holdings Common Stock is
granted to participants subject to restrictions on transferability and other
restrictions, which lapse over time; (iv) deferred stock, in which delivery of
Holdings Common Stock occurs upon expiration of a deferral period; (v) bonus
stock, consisting of a right to receive Holdings Common Stock in an amount
determined with reference to a fixed bonus amount; (vi) dividend equivalents,
consisting of a right to receive cash, other awards, or other property equal in
value to dividends paid with respect to a specified number of shares of Holdings
Common Stock, or other periodic payments; or (vii) other awards not otherwise
provided for, the value of which are based in whole or in part upon the value of
Holdings Common Stock. The 1997 Stock Incentive Plan also provides that each
director of Holdings who is neither (i) employed by Holdings at such time, nor
(ii) a member of Holdings' Board by virtue of the fact that such director is
employed by or otherwise affiliated with an entity that is a stockholder of
Holdings (an "Eligible Director"), will receive, as of the date of the
establishment of the 1997 Stock Incentive Plan, a non-discretionary automatic
grant of non-qualified stock options for the purchase of 10,000 shares of
Holdings Common Stock. Thereafter, as of the day after the annual meeting
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of stockholders of Holdings to be held in calendar years 1998 and 1999, each
Eligible Director will receive additional non-discretionary automatic grants of
non-qualified stock options for the purchase of 10,000 shares of Holdings Common
Stock in each such year. The exercise price of each share of Holdings Common
Stock subject to any Eligible Director's option will be equal to the fair market
value of a share of Holdings Common Stock on the date such option is granted.
Michael Earley, who is President and Chief Executive Officer of Triton and will
be a director of Holdings upon the consummation of the Merger, will be such an
Eligible Director under the 1997 Stock Incentive Plan.
The flexible terms of the 1997 Stock Incentive Plan are intended to, among
other things, permit the Holdings Compensation Committee, which administers the
1997 Stock Incentive Plan, to impose performance conditions with respect to any
award to key employees, thereby requiring forfeiture of all or a part of any
award if performance objectives are not met, or linking the time of
exercisability or settlement of an award to the achievement of performance
conditions. Awards granted under the 1997 Stock Incentive Plan are generally not
assignable or transferable except by the laws of descent and distribution.
The Holdings Compensation Committee has the authority under the 1997 Stock
Incentive Plan, among other things, to: (i) select the officers and other key
employees and consultants entitled to receive awards under the 1997 Stock
Incentive Plan; (ii) determine the form of awards, or combinations thereof, and
whether such awards are to operate on a tandem basis or in conjunction with
other awards;
(iii) determine the number of shares of Holdings Common Stock or units or rights
covered by an award; and (iv) determine the terms and conditions of any awards
granted under the 1997 Stock Incentive Plan, including any restrictions or
limitations on transfer, any vesting schedules or the acceleration thereof, and
any forfeiture or termination provisions (or waivers thereof) including, but not
limited to, in connection with a determination that a 1997 Stock Incentive Plan
participant has been terminated for cause (as defined in the 1997 Stock
Incentive Plan). Other than with respect to the grant of non-discretionary stock
options to Eligible Directors as described above, the exercise price at which
shares of Holdings Common Stock may be purchased pursuant to the grant of stock
options under the 1997 Stock Incentive Plan is required to be determined at the
time of grant by the Holdings Compensation Committee in its discretion, which
discretion includes the ability to set an exercise price that is below the fair
market value of the shares of Holdings Common Stock covered by such grant at the
time of grant. In addition, unless otherwise provided by the Holdings
Compensation Committee in an award agreement, all restrictions relating to the
continued performance of services and/or the achievement of performance
objectives will immediately lapse upon a change in control (as defined in the
1997 Stock Incentive Plan) of Holdings.
The maximum number of shares of Holdings Common Stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of 770,000 shares of Holdings Common Stock or 10% of the
total number of shares of Holdings Common Stock outstanding (on a fully diluted
basis assuming, if applicable, the conversion of all warrants and convertible
securities into Holdings Common Stock). Notwithstanding the foregoing, the
number of shares of Holdings Common Stock that may be delivered upon exercise of
an ISO may not exceed 200,000 shares of Holdings Common Stock, provided,
however, that shares subject to ISOs will not be deemed delivered if such ISOs
are forfeited, expire or otherwise terminate without delivery of the Holdings
Common Stock to the 1997 Stock Incentive Plan participant. In addition, no 1997
Stock Incentive Plan participant may receive awards in any one calendar year
relating to more than 125,000 shares of Holdings Common Stock.
The 1997 Stock Incentive Plan may be amended, altered, suspended,
discontinued, or terminated by the Holdings Board without stockholder approval
unless such approval is required by law or regulation or under the rules of any
stock exchange or automated quotation system on which Holdings Common Stock is
then listed or quoted. Thus, stockholder approval will not necessarily be
required for amendments which might increase the cost of the 1997 Stock
Incentive Plan or broaden eligibility for participation in the 1997 Stock
Incentive Plan. Stockholder approval will not be deemed to be required under
laws or regulations that condition favorable treatment of participants on such
approval, although the Holdings Board may, in its discretion, seek stockholder
approval in any circumstance in which it deems such approval advisable.
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FEDERAL TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
generally arising with respect to awards that may be granted under the 1997
Stock Incentive Plan. This discussion is intended for the information of
stockholders considering how to vote at the Annual Meeting and not as tax
guidance to individuals who participate in the 1997 Stock Incentive Plan.
The grant of an option or SAR (including a stock-based award in the nature
of a purchase right) will create no tax consequences for the grantee or
Holdings. A grantee will not have taxable income upon exercising an ISO (except
that the alternative minimum tax may apply) and Holdings will receive no
deduction at that time. Upon exercising an option other than an ISO (including a
stock-based award in the nature of a purchase right), the participant must
generally recognize ordinary income equal to the difference between the exercise
price and fair market value of the freely transferable and nonforfeitable stock
received. In each case, Holdings will be entitled to a deduction equal to the
amount recognized as ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an
option, SAR or other stock-based award in the nature of a purchase right
generally will result in short-term capital gain or loss measured by the
difference between the sale price and the participant's tax basis in such shares
(or the exercise price of the option in the case of shares acquired by exercise
of an ISO and held for the applicable ISO holding periods). Generally, there
will be no tax consequences to Holdings in connection with a disposition of
shares acquired under an option or other award, except that Holdings will be
entitled to a deduction (and the participant will recognize ordinary taxable
income) if shares acquired upon exercise of an ISO are disposed of before the
applicable ISO holding periods have been satisfied.
With respect to awards granted under the 1997 Stock Incentive Plan that may
be settled either in cash, stock or other property that is either not restricted
as to transferability or not subject to a substantial risk of forfeiture, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of stock or other property received. Holdings will be entitled
to a deduction for the same amount. With respect to awards involving stock or
other property that is restricted as to transferability and subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the fair market value of the shares or other property
received at the first time the shares or other property become transferable or
not subject to a substantial risk of forfeiture, whichever occurs earlier.
Holdings will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant. A participant may elect to be taxed at the
time of receipt of shares or other property rather than upon lapse of
restrictions on transferability or the substantial risk of forfeiture, but if
the participant subsequently forfeits such shares or property he would not be
entitled to any tax deduction, including a capital loss, for the value of the
shares or property on which he previously paid tax. Such election must be made
and filed with the IRS within 30 days of the receipt of the shares or other
property.
Section 162(m) of the Code generally disallows a public corporation's tax
deduction for compensation to the chief executive officer, and the four other
most highly compensated executive officers in excess of $1 million. Compensation
that qualifies as "performance-based compensation" is excluded from the $1
million deductibility cap, and therefore remains fully deductible by the
corporation that pays it. Triton intends that options granted with an exercise
price at least equal to 100% of fair market value of the underlying stock at the
date of grant, and other awards the settlement of which is conditioned upon
achievement of performance goals (based on performance criteria described
above), will qualify as such "performance-based compensation," although other
awards under the 1997 Stock Incentive Plan may not so qualify.
RECOMMENDATION OF THE TRITON BOARD
The affirmative vote of a majority of the outstanding shares of Triton
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote is required to approve the adoption of the 1997 Stock Incentive
Plan. THE TRITON BOARD CONSIDERS THE 1997 STOCK INCENTIVE PLAN TO BE IN THE BEST
INTERESTS OF TRITON AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE ADOPTION OF THE 1997 STOCK INCENTIVE PLAN.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF TRITON COMMON STOCK
The following table sets forth, as of the close of business on March 13,
1997, certain information (without giving effect to the Reverse Stock Split to
be effected pursuant to the Restated Charter) as to (i) those stockholders known
to Triton to be the beneficial owners of more than 5% of the outstanding shares
of the Triton Common Stock (based solely upon filings by each of such
stockholders with the Commission on Schedule 13D, Schedule 13F or Schedule 13G);
(ii) the beneficial ownership of the shares of Triton Common Stock of each of
the current directors and named executive officers of Triton, individually; and
(iii) the beneficial ownership of the shares of Triton Common Stock of all
directors and executive officers of Triton as a group without naming them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
OF BENEFICIAL BENEFICIALLY
NAME AND ADDRESS OWNERSHIP OWNED (1)
- ---------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Ryback Management Corporation............................................... 3,507,400(2) 16.3%
7711 Carondelet Ave., Box 16900
St. Louis, MO 63105
Morgens Waterfall........................................................... 2,870,783(3) 13.3%
10 East 50th Street, 26th Floor
New York, NY 10022
Federated Investors......................................................... 1,235,001(4) 5.7%
1000 Liberty Street-26th Street
Federated Investors Tower
Pittsburgh, PA 15222
Michael M. Earley........................................................... 369,215 1.7%
Mark G. Foletta............................................................. 247,755 1.2%
Richard R. Tartre........................................................... 148,000 *
Michael E. Cahr............................................................. 75,000 *
All executive officers and
directors as a group (4 persons).......................................... 839,970 3.9%
</TABLE>
- ------------------------
* Less than 1.0%.
(1) Percentages have been calculated using the outstanding shares of Triton
Common Stock as of March 13, 1997 of 21,553,502.
(2) Pursuant to Amendment No. 2 to Schedule 13G filed with the Commission on
January 27, 1997 by Ryback Management Corporation ("Ryback"). Shares
indicated as beneficially owned by Ryback include 2,146,800 shares
beneficially owned by Lindner Growth Fund and 1,360,600 shares beneficially
owned by Lindner Bulwark Fund. Ryback has sole voting and dispositive power
over all of such 3,507,400 shares.
(3) Pursuant to Amendment No. 4 to Schedule 13D filed with the Commission on
October 7, 1996 jointly by (a) Phoenix Partners ("Phoenix"), (b) Betje
Partners ("Betje"), (c) Phaeton International N.V. ("Phaeton"), (d) Morgens
Waterfall Vintiadis Investments N.V. ("MWV"), (e) Morgens Waterfall Income
Partners ("MWIP"), (f) Morgens, Waterfall, Vintiadis & Company, Inc.
("Morgens Waterfall"), (g) Restart Partners L.P. ("Restart"), (h) Restart
Partners II, L.P. ("Restart II"), (i) Restart Partners III, L.P. ("Restart
III"), (j) Restart Partners IV, L.P. ("Restart IV"), (k) MWV Employee
Retirement Plan Group Trust (the "MWV Plan"), (l) The Common Fund for
Non-Profit Organizations (the "Common Fund"), (m) Edwin H. Morgens
("Morgens"), and (n) Bruce Waterfall ("Waterfall"). Shares indicated as
beneficially owned by Morgens Waterfall include 343,206 shares beneficially
owned by MWV, 173,423 shares beneficially owned by Betje, 64,768 shares
beneficially owned by
88
<PAGE>
MWIP, 501,213 shares beneficially owned by Phoenix, 400,687 shares
beneficially owned by Restart, 632,697 shares beneficially owned by Restart
II, 441,260 shares beneficially owned by Restart III, 211,830 shares
beneficially owned by Restart IV, 12,616 shares beneficially owned by the
Common Fund, and 89,083 shares beneficially owned by the MWV Plan. Each such
entity has sole voting and dispositive power over the shares which it
beneficially owns, and disclaims beneficial ownership of any securities
owned, directly or indirectly, by any other entity.
(4) Pursuant to Schedule 13G filed with the Commission on February 14, 1994 by
Federated Investors ("Federated"). Shares indicated as beneficially owned by
Federated, over which the Voting Shares Irrevocable Trust has sole voting
and dispositive power and each of John F. Donahue, Rhodora J. Donahue and J.
Christopher Donahue has shared voting and dispositive power, represent
shares beneficially owned by mutual funds advised by subsidiaries of
Federated which have the power to direct investments and vote the
securities. For purposes of the reporting requirements of Regulation 13D of
the Exchange Act, Federated, its principal stockholders and its investment
adviser subsidiaries may be deemed to be beneficial owners of such
securities; however, in accordance with Rule 13d-4 under the Exchange Act,
Federated, its principal stockholders, and its investment adviser
subsidiaries declare that the filing of the Schedule 13G disclosing
beneficial ownership of the securities should not be construed as an
admission that they are the beneficial owners of such securities, and
Federated, its principal stockholders and its investment adviser
subsidiaries expressly disclaim that they are in fact the beneficial owner
of such securities.
89
<PAGE>
OWNERSHIP OF ALARMGUARD SECURITIES PRIOR TO THE MERGER
The following table sets forth certain information regarding the ownership
of Alarmguard Voting Common Stock and Alarmguard Preferred Stock as of March 13,
1997 for (i) each stockholder of Alarmguard who is the beneficial owner of at
least 5% of Alarmguard Voting Common Stock or Alarmguard Preferred Stock; (ii)
each person who is a director of Alarmguard; (iii) each person who serves as an
executive officer of Alarmguard; and (iv) all persons who are directors or
executive officers of Alarmguard, as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL PERCENTAGE OF
NUMBER OF SHARES ALARMGUARD SHARES OF
OF ALARMGUARD VOTING COMMON NUMBER OF SHARES ALARMGUARD
NAME OF VOTING COMMON STOCK OF ALARMGUARD PREFERRED STOCK
BENEFICIAL OWNER STOCK OUTSTANDING PREFERRED STOCK OUTSTANDING
- ------------------------------------------------ ----------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Canaan Entities(1).............................. 40,000 19.6% 40,000 32.7%
105 Rowayton Avenue
Rowayton, Ct. 06853
Triumph-Connecticut Limited 64,498 31.6% 30,750 25.1%
Partnership...................................
60 State Street
21st Floor
Boston, MA 02109
Russell R. MacDonnell(2)........................ 22,175 10.7% 500 *
David Heidecorn(3).............................. 7,713 3.8% 750 *
Stuart L. Bell(4)............................... 4,159 2.0% 2,500 2.0%
Stephen L. Green(5)............................. 40,000 19.6% 40,000 32.7%
Patrick J. Herbert, III(6)...................... 25,696 12.6% 14,750 12.0%
Wiley T. Buchanan............................... 3,500 1.7% 3,500 2.9%
Ronald V. Davis(7).............................. 3,000 1.5% 3,000 2.4%
Thomas W. Janes(8).............................. 64,498 31.6% 30,750 25.1%
Gregory J. Westhoff(9).......................... 6,950 3.4% 0 *
Joseph J. Monachino(10)......................... 731 * 0 *
Peter M. Rogers................................. 0 * 0 *
All persons who are directors or
executive officers of
Alarmguard, as a group........................ 178,422 85.4% 95,750 78.2%
</TABLE>
- ------------------------
* Less than 1.0%.
(1) Consists of (a) Canaan Venture Limited Partnership, which owns 11,800
shares of Alarmguard Voting Common Stock and 11,800 shares of Alarmguard
Preferred Stock and (b) Canaan Venture Offshore Limited Partnership C.V.,
which owns 28,200 shares of Alarmguard Voting Common Stock and 28,200 shares
of Alarmguard Preferred Stock. Each of the Canaan Entities has sole voting
power with respect to its shares.
(2) Includes stock options exercisable within 60 days to purchase 2,425 shares
of Alarmguard Voting Common Stock.
(3) Includes stock options exercisable within 60 days to purchase 1,213 shares
of Alarmguard Voting Common Stock.
(4) Includes 2,500 shares of Alarmguard Voting Common Stock held by Mr. Bell as
custodian for the benefit of his three minor children and 1,659 shares of
Alarmguard Voting Common Stock held by BF
90
<PAGE>
Partners, of which Mr. Bell is a partner. Mr. Bell has sole voting power
with respect to such 1,659 shares.
(5) Mr. Green is a general partner of various venture capital investment funds
that may be deemed to be affiliated with the Canaan Entities, and thus,
under the rules and regulations of the Commission, may be deemed to be the
beneficial owner of the shares of Alarmguard Voting Common Stock and
Alarmguard Preferred Stock owned by the Canaan Entities. Accordingly, such
shares are included in the table as beneficially owned by Mr. Green. Mr.
Green is not a general partner of the Canaan Entities and has no voting
power with respect to such shares. Mr. Green disclaims beneficial ownership
of such shares.
(6) Includes 23,196 shares of Alarmguard Common Stock, 5,000 shares of Series A
Preferred Stock and 7,250 shares of Series B Preferred Stock held by Alis;
and 2,500 shares of Alarmguard Common Stock and 2,500 shares of Series A
Preferred Stock held by the 1994 Trust. Mr. Herbert serves as trustee of the
1994 Trust and is President of Simpson Estates, Inc., which is general
partner of Alis and thus, under the rules and regulations of the Commission,
may be deemed to be the beneficial owner of the shares held by the Alis
Entities. Mr. Herbert has sole dispositive power with respect to 23,833
shares of Alarmguard Common Stock, 7,450 shares of Series A Preferred Stock
and 7,250 shares of Series B Preferred Stock; and shared dispositive power
with respect to 1,713 shares of Alarmguard Common Stock. Mr. Herbert
disclaims beneficial ownership with respect to 25,526 shares of Alarmguard
Common Stock, 7,450 shares of Series A Preferred Stock and 7,200 shares of
Series B Preferred Stock.
(7) The 3,000 shares of Alarmguard Voting Common Stock and the 3,000 shares of
Alarmguard Preferred Stock are owned of record by Davis Capital, an entity
controlled by Mr. Davis, and thus, under the rules and regulations of the
Commission, Mr. Davis may be deemed to be the beneficial owner of such
shares.
(8) Mr. Janes is a general partner of Triumph, and thus, under the rules and
regulations of the Commission, may be deemed to be the beneficial owner of
the shares of Alarmguard Voting Common Stock and Alarmguard Preferred Stock
owned by Triumph. Accordingly, such shares are included in the table as
beneficially owned by Mr. Janes. Triumph has sole voting power with respect
to such shares. Mr. Janes disclaims beneficial ownership of such shares.
(9) Includes stock options exercisable within 60 days to purchase 700 shares of
Alarmguard Voting Common Stock.
(10) Includes stock options exercisable within 60 days to purchase 731 shares of
Alarmguard Voting Common Stock.
91
<PAGE>
OWNERSHIP OF HOLDINGS SECURITIES AFTER THE MERGER
The following table sets forth certain information (without giving effect to
the New Noteholders Warrants) regarding the anticipated ownership of the
Holdings Common Stock based upon the ownership of (x) the Triton Common Stock as
of the close of business on March 13, 1997 and (y) the Alarmguard Common Stock
and the Alarmguard Preferred Stock as of March 13, 1997 as adjusted by the
Common Stock Conversion Ratio and the Preferred Stock Conversion Ratio,
respectively, for (i) each stockholder of Triton or Alarmguard who will be the
beneficial owner of at least 5% of the Holdings Common Stock; (ii) each person
who is expected to become a director of Holdings; (iii) certain persons who are
expected to serve as executive officers of Holdings; and (iv) all persons
expected to be directors or executive officers of Holdings, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
HOLDINGS COMMON
NAME OF STOCK TO BE PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED OF TOTAL
- --------------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Canaan Entities.................................................................. 793,103(1) 15.8%
105 Rowayton Ave.
Rowayton, Ct. 06853
Triumph-Connecticut Limited Partnership.......................................... 767,554 15.3%
60 State Street
21st Floor
Boston, MA 02109
Ryback Management Corporation.................................................... 350,740(2) 7.0%
7711 Carondelet Ave., Box 16900
St. Louis, MO 63105
Patrick J. Herbert, III.......................................................... 332,465(3) 6.6%
Simpson Estates, Inc.
30 North La Salle Street
Suite 1232
Chicago, IL 60602
Morgens Waterfall................................................................ 287,078(4) 5.7%
10 East 50th Street, 26th Floor
New York, NY 10022
Russell R. MacDonnell............................................................ 89,682(5) 1.8%
David Heidecorn.................................................................. 39,673(6) *
Michael M. Earley................................................................ 36,922 *
Stuart L. Bell................................................................... 55,125(7) 1.1%
Stephen L. Green................................................................. 793,103(8) 15.8%
Thomas W. Janes.................................................................. 767,554(9) 15.3%
Michael E. Cahr.................................................................. 7,500 *
Gregory J. Westhoff.............................................................. 25,578(10) *
Joseph J. Monachino.............................................................. 2,691(11) *
Peter M. Rogers.................................................................. 0 *
All persons expected to become directors or
executive officers of Holdings, as a group..................................... 1,817,827 36.0%
</TABLE>
- ------------------------
* Less than 1.0%.
(1) The Canaan Entities consist of the following entities, each of which, after
the consummation of the Merger, will beneficially own the number of shares
of Holdings Common Stock indicated after its name: (a) Canaan Venture
Limited Partnership (233,965) and (b) Canaan Venture Offshore Limited
92
<PAGE>
Partnership C.V. (559,138). Each of the Canaan Entities has sole voting
power with respect to its shares.
(2) Pursuant to Amendment No. 2 to Schedule 13G filed with the Commission on
January 27, 1997 by Ryback. Shares indicated as beneficially owned by Ryback
include 214,680 shares beneficially owned by Lindner Growth Fund and 136,060
shares beneficially owned by Lindner Bulwark Fund. Ryback has sole voting
and dispositive power over all of such 350,740 shares.
(3) Includes 285,633 shares held by Alis and 46,832 shares held by the 1994
Trust. Mr. Herbert serves as trustee of the 1994 Trust and is President of
Simpson Estates, Inc., which is general partner of Alis, and thus, under the
rules and regulations of the Commission, may be deemed to be the beneficial
owner of the shares held by the Alis Entities. Mr. Herbert has sole
dispositive power with respect to 324,857 shares and shared dispositive
power with respect to 6,304 shares. Mr. Herbert disclaims beneficial
ownership with respect to 330,226 shares.
(4) Pursuant to Amendment No. 4 to Schedule 13D filed with the Commission on
October 7, 1996 jointly by (a) Phoenix, (b) Betje, (c) Phaeton, (d) MWV, (e)
MWIP, (f) Morgens Waterfall, (g) Restart, (h) Restart II, (i) Restart III,
(j) Restart IV, (k) the MWV Plan, (l) the Common Fund, (m) Morgens and (n)
Waterfall. Shares indicated as beneficially owned by Morgens Waterfall
include (subject to rounding error due to the Reverse Stock Split) 34,321
shares beneficially owned by MWV, 17,342 shares beneficially owned by Betje,
6,479 shares beneficially owned by MWIP, 50,121 shares beneficially owned by
Phoenix, 40,069 shares beneficially owned by Restart, 63,270 shares
beneficially owned by Restart II, 44,126 shares beneficially owned by
Restart III, 21,183 shares beneficially owned by Restart IV, 1,262 shares
beneficially owned by the Common Fund, and 8,908 shares beneficially owned
by the MWV Plan. Each such entity has sole voting and dispositive power over
the shares which it beneficially owns, and disclaims beneficial ownership of
any securities owned, directly or indirectly, by any other entity.
(5) Includes Assumed Options exercisable within 60 days to purchase 8,925
shares.
(6) Includes Assumed Options exercisable within 60 days to purchase 4,462
shares.
(7) Includes 9,200 shares held by Mr. Bell as custodian for the benefit of his
three minor children and 6,105 shares held by BF Partners, of which Mr. Bell
is a partner. Mr. Bell has sole voting power with respect to such 6,105
shares.
(8) Mr. Green is a general partner of various venture capital investment funds
that may be deemed to be affiliated with the Canaan Entities, and thus,
under the rules and regulations of the Commission, may be deemed to be the
beneficial owner of the shares of Holdings Common Stock that will be owned
by the Canaan Entities after the Merger. Accordingly, such shares are
included in the table as beneficially owned by Mr. Green. Mr. Green is not a
general partner of the Canaan Entities, and has no voting power with respect
to such shares. Mr. Green disclaims beneficial ownership of such shares.
(9) Mr. Janes is a general partner of Triumph, and thus, under the rules and
regulations of the Commission, may be deemed to be the beneficial owner of
the shares of Holdings Common Stock that will be owned by Triumph after the
Merger. Accordingly, such shares are included in the table as beneficially
owned by Mr. Janes. Triumph has sole voting power with respect to such
shares. Mr. Janes disclaims beneficial ownership of such shares.
(10) Includes Assumed Options exercisable within 60 days to purchase 2,576
shares.
(11) Includes Assumed Options exercisable within 60 days to purchase 2,691
shares.
93
<PAGE>
MANAGEMENT OF HOLDINGS AFTER THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS AFTER THE MERGER
The following table sets forth certain information regarding the persons who
are expected to serve as directors and executive officers of Holdings and
Alarmguard, Inc. following the Merger. Pursuant to the Merger Agreement, (i)
Triton will designate Michael M. Earley and Michael E. Cahr to be nominated and
elected to the Board of Directors of Holdings effective upon consummation of the
Merger; and (ii) Alarmguard will designate Russell R. MacDonnell, David
Heidecorn, Stuart L. Bell, Stephen L. Green and Thomas W. Janes to be nominated
and elected to the Holdings Board effective upon consummation of the Merger.
Pursuant to the Merger Agreement, each of Messrs. MacDonnell, Earley and Bell
will be first appointed as Class III directors with an initial term of three
years; each of Messrs. Green and Cahr will be appointed as Class II directors
with an initial term of two years; and each of Messrs. Heidecorn and Janes will
be appointed as Class I directors with an initial term of one year. See
"PROPOSALS 2(a)-(g): THE RESTATED CHARTER PROPOSALS." Unless otherwise
indicated, all positions refer to positions at Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Russell R. MacDonnell................................ 48 Director, Chairman,
President and Chief Executive Officer
David Heidecorn...................................... 40 Director, Executive Vice
President and Chief Financial Officer
Michael M. Earley.................................... 41 Director
Stuart L. Bell....................................... 43 Director
Stephen L. Green..................................... 45 Director
Michael E. Cahr...................................... 56 Director
Thomas W. Janes...................................... 41 Director
Gregory J. Westhoff.................................. 47 Vice President of Holdings, President and
Chief Operating Officer of
Alarmguard, Inc.
Joseph J. Monachino.................................. 45 Vice President, Sales and Marketing,
of Alarmguard, Inc.
Peter M. Rogers...................................... 43 Vice President, Operations,
of Alarmguard, Inc.
</TABLE>
RUSSELL R. MACDONNELL currently serves as Chairman, President, Chief
Executive Officer and director of Alarmguard. From 1973 to 1985, Mr. MacDonnell
served as President of Sonitrol Security Systems ("Sonitrol Security"), which
was the Northeast distributor for Sonitrol Corporation. At Sonitrol Security,
Mr. MacDonnell participated in the founding, licensing and operation of over 23
dealers in the Northeast region. From July 1986 to May 1991, Mr. MacDonnell
served as Chairman and Chief Executive Officer of Security Link Corporation,
which provided security alarm services and equipment in the Northeast, Midwest,
Mid-Atlantic and Southeast regions. See "--Certain Transactions." In December
1991, Mr. MacDonnell founded Alarmguard. Mr. MacDonnell is a member of the
Fairchester Chapter of Young Presidents Organization, the American Society for
Industrial Security, the National Burglar and Fire Alarm Association, as well as
various other security alarm industry organizations. Mr. MacDonnell received a
B.A. from Williams College in 1970 and a J.D. from Boston University School of
Law in 1973.
DAVID HEIDECORN currently serves as Executive Vice President, Chief
Financial Officer and director of Alarmguard. Mr. Heidecorn is one of the
founding investors in Alarmguard. In 1984, Mr. Heidecorn joined General Electric
Company in the International Sector. From 1986 to 1992, Mr. Heidecorn was
employed by GE Capital Corporation, as a Vice President in the Leveraged Finance
Group and a Senior Vice President of the Corporate Finance Group, where he led
the Bankruptcy and Reorganization Finance activity for the Northeast. He
received his B.A. in Economics from Lehigh University and his M.B.A. in Finance
from Columbia University.
94
<PAGE>
STUART L. BELL currently serves as director of Alarmguard. Mr. Bell served
as the Executive Vice President and Chief Financial Officer of CUC International
from 1983 to January 1995, and has served as Special Advisor to the Chief
Executive Officer of CUC International since February 1995. Mr. Bell also serves
as director of Harbinger Corp. and International Telecommunication Data Systems,
Inc. and the Chairman of Innovative Medical Research, Inc.
MICHAEL E. CAHR has been a director of Triton since June 1993 and serves as
President and Chief Executive Officer of Allscripps Pharmaceuticals, Inc., a
privately-owned company engaged in the distribution of pharmaceutical products.
He has served in this position since June 1994. He served as a Venture Group
Manager for Allstate Venture Capital, a division of Allstate Insurance Company,
between 1987 and June 1994. He is also a director of LifeCell Corporation, Optek
Technologies, Inc., and several privately-owned companies.
MICHAEL M. EARLEY has served as the President and Chief Executive Officer of
Triton since February 1996 and as a director since June 1993. Mr. Earley has
served as President and Chief Operating Officer (June 1994 to January 1996) and
Senior Vice President and Chief Financial Officer of Triton and Intermark, Inc.
(1991 to 1994). He is also a director of Mission West and Ridgewood.
STEPHEN L. GREEN currently serves as director of Alarmguard. Mr. Green is
general partner of Canaan Partners, a venture capital fund located in Rowayton,
Connecticut. Prior to joining Canaan Partners in November 1991, he served as
Managing Director in GE Capital's Corporate Finance Group for more than five
years. Mr. Green also serves as a director of the following public companies:
CapMAC Holdings Inc.; Chartwill Re Corporation; Suiza Foods Corporation; and
Advance Paradigm Inc.
THOMAS W. JANES currently serves as a director of Alarmguard. Mr. Janes is a
Managing Director of Triumph Capital Group, Inc., a private equity money
management firm which, through its affiliates, manages Triumph Connecticut
Limited Partnership, of which Mr. Janes is a general partner. He has been
affiliated with Triumph Capital Group, Inc. since 1990. Mr. Janes also serves as
a director of Ascent Pediatrics, Inc. and Dairy Mart Convenience Stores, Inc.
GREGORY J. WESTHOFF currently serves as Vice President of Alarmguard and
President and Chief Operating Officer of Alarmguard, Inc. Mr. Westhoff was the
Vice President, Mid-Atlantic Region, and Chief Operating Officer of SecurityLink
Corporation, where he served from December 1989 until May 1992 in Philadelphia,
Pennsylvania. See "--Certain Transactions." Prior to joining SecurityLink
Corporation, Mr. Westhoff was Eastern Regional Manager of Westec Security in
Philadelphia from 1988 to 1989. From 1985 to 1988, Mr. Westhoff was District
Manager for Rollins Protective Services and General Manager for Warner Amex
Security Systems from 1981 to 1985. Mr. Westhoff was General Manager for
American Alarm from 1976 to 1981 and District Manager for Westinghouse Security
Systems from 1969 to 1976. Mr. Westhoff graduated from Edinboro University of
Pennsylvania in 1969.
JOSEPH J. MONACHINO currently serves as Vice President, Sales and Marketing,
of Alarmguard, Inc. Mr. Monachino joined Alarmguard, Inc. in July 1994 to manage
its sales and marketing functions. Prior to joining Alarmguard, Inc., Mr.
Monachino formed his own marketing consulting group located in Westport,
Connecticut serving clients including Holmes Protection Group, LTD and
Dictograph Franchise Corporation. Mr. Monachino also served as Vice President of
Marketing for SecurityLink Corporation from 1987 to 1991. See "--Certain
Transactions." Mr. Monachino earned his B.A. from Franklin College in 1973 and a
Masters of Divinity from Yale University in 1976.
PETER M. ROGERS currently serves as Vice President, Operations, of
Alarmguard, Inc. Mr. Rogers joined Alarmguard, Inc. in November of 1994 to
direct Alarmguard's MIS, telecommunications, purchasing and inventory, training
and standards/procedures areas. Mr. Rogers served as Vice President of
Operations with SecurityLink Corporation from 1989 to 1991. See "--Certain
Transactions." Mr. Rogers served as Eastern Regional Manager with Eddie Bauer
from 1981 to 1984, Beekly Corporation as Vice President Operations from 1984 to
1989, and Windsor Marketing Group as Vice President of Sales from 1991 to 1994.
Mr. Rogers earned his B.A. from Harvard University in 1976 and his M.B.A. from
Rensselaer Polytechnic Institute in 1990.
95
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation for fiscal 1996 for the
persons expected to become the Chief Executive Officer and the named executive
officers of Holdings after the Merger. Unless otherwise indicated, the position
set forth is such officer's position at Alarmguard.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------
SECURITIES
UNDERLYING ALL
OPTIONS OTHER
NAME AND ANNUAL ANNUAL GRANTED(1) COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#) (#)
- ---------------------------------------------------- --------- ---------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Russell R. MacDonnell,.............................. 1996 $ 271,882 $ 67,500 0 $ 8,496(2)
Chairman, President and
Chief Executive Officer
David Heidecorn,.................................... 1996 $ 193,349 $ 57,500 0 $ 7,053(3)
Executive Vice President and
Chief Financial Officer
Gregory J. Westhoff,................................ 1996 $ 140,835 $ 40,000 0 $ 6,741(4)
Vice President
Joseph J. Monachino,................................ 1996 $ 120,069 $ 15,000 0 $ 7,043(5)
Vice President, Sales and
Marketing of Alarmguard, Inc.
Peter M. Rogers,.................................... 1996 $ 95,000 $ 20,000 0 $ 5,075(6)
Vice President, Operations of
Alarmguard, Inc.
</TABLE>
- ------------------------
(1) Number of shares of Holdings Common Stock, after giving effect to the Common
Stock Conversion Ratio, issuable after the Merger pursuant to the Assumed
Options.
(2) Includes (i) $772 representing the imputed interest on a loan from
Alarmguard to Mr. MacDonnell used to exercise certain options in 1994; (ii)
$1,758 of contributions by Alarmguard to Mr. MacDonnell's account in
Alarmguard's 401(k) Savings Plan; and (iii) $5,966 of life insurance and
health insurance premiums paid by Alarmguard for Mr. MacDonnell.
(3) Includes (i) $254 representing the imputed interest on a loan from
Alarmguard to Mr. Heidecorn used to exercise certain options in 1994; and
(ii) $1,349 of contributions by Alarmguard to Mr. Heidecorn's account in
Alarmguard's 401(k) Savings Plan; and (iii) $5,450 of life insurance and
health insurance premiums paid by Alarmguard for Mr. Heidecorn.
(4) Includes (i) $275 representing the imputed interest on a loan from
Alarmguard to Mr. Westhoff used to exercise certain options in 1994; and
(ii) $1,016 of contributions by Alarmguard to Mr. Westhoff's account in
Alarmguard's 401(k) Savings Plan; and (iii) $5,450 of life insurance and
health insurance premiums paid by Alarmguard for Mr. Westhoff.
(5) Includes (i) $1,593 of contributions by Alarmguard to Mr. Monachino's
account in Alarmguard's 401(k) Savings Plan; and (ii) $5,450 of life
insurance and health insurance premiums paid by Alarmguard for Mr.
Manachino.
(6) Includes (i) $1,356 of contributions by Alarmguard to Mr. Rogers account in
Alarmguard's 401(k) Savings Plan; and (ii) $3,719 of life insurance and
health insurance premiums paid by Alarmguard for Mr. Rogers.
Other compensation in the form of perquisites and other personal benefits
has been omitted from the above table as the aggregate amount of such
perquisites and other personal benefits constituted the lesser of $50,000 or 10%
of the total annual salary and bonus of each named executive officer for such
year.
96
<PAGE>
The following table sets forth at December 31, 1996 the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table. None of such executive officers were
granted or exercised any options during fiscal 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY
YEAR-END (1) OPTIONS AT FISCAL YEAR-END(2)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------- ----------------------- -------------------------------
<S> <C> <C>
Russell R. MacDonnell.............. 8,925/8,373 $86,300/$80,962
David Heidecorn.................... 4,462/4,186 $43,150/$40,481
Gregory H. Westhoff................ 2,576/3,312 $24,911/$32,029
Joseph J. Monachino................ 2,691/2,553 $26,024/$24,689
Peter M. Rogers.................... 0/736 $0/$7,118
</TABLE>
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(1) Number of shares of Holdings Common Stock, after giving effect to the Common
Stock Conversion Ratio, issuable after the Merger pursuant to the Assumed
Options unexercised at the end of 1996.
(2) Based on Triton Common Stock price of $10.00 per share and average exercise
price of $0.33 per share.
1997 STOCK INCENTIVE PLAN. If the 1997 Stock Incentive Plan is adopted by
the Triton stockholders, certain members of senior management of Holdings will
be eligible to receive grants of ISOs, SARs, restricted stock, deferred stock,
bonus stock, dividend equivalents or other awards consisting, or based on the
value, of Holdings Common Stock. See "PROPOSAL 4: ADOPTION OF THE 1997 STOCK
INCENTIVE PLAN."
SEVERANCE AGREEMENTS. The Merger Agreement provides that, as a condition to
the closing of the Merger, Triton will enter into the Severance Agreements with
Russell R. MacDonnell, who will be Chairman, President and Chief Executive
Officer of Holdings, David Heidecorn, who will be Executive Vice President and
Chief Financial Officer of Holdings, and Gregory J. Westhoff, who will be Vice
President of Holdings (each such person, an "Executive"). The Severance
Agreements provide benefits to the Executives in the event of their resignation
or termination under certain specified situations.
The Severance Agreements provide that in the event an Executive is
involuntarily terminated by Holdings without "cause" or resigns for "good
reason" (as such terms are defined in the Severance Agreements), the Executive
will be provided with the following termination payments and benefits: (a) any
earned and accrued but unpaid installment of such Executive's base salary; (b)
an amount equal to the sum of the Executive's annual base salary and the average
of the Executive's last three years' bonus compensation earned from Holdings or
Alarmguard; (c) reimbursements of reasonable expenses incurred by the Executive
for a period of one year in seeking subsequent employment, to a maximum of
$25,000; (d) benefit continuation for a period of one year; and (e) the
Executive's awards under the 1997 Stock Incentive Plan will continue to vest or
be exercisable for the duration of the term of such award as if such Executive's
employment with Holdings had continued during such term. In the event of an
Executive's termination of employment by reason of his death, Holdings will pay
to such Executive's designated beneficiary or estate the amounts and benefits
described in subparagraphs (a) and (b) above, and will allow an acceleration of
the vesting and exercisablity of all awards granted under the 1997 Stock
Incentive Plan. In the event of an Executive's termination of employment for
cause, disability, or his resignation without good reason, then Holdings will
pay to such Executive only the payments and benefits described in subparagraph
(a) above (except that, in the case of a disability, such Executive will also
receive the benefits set forth in subparagraph (e) above).
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In the event of the termination or resignation of an Executive for any
reason after a "change in control" (as such term is defined in the Severance
Agreements) of Holdings, Holdings will pay to such Executive (i) the amounts
described in subparagraph (a) in the previous paragraph, (ii) the amounts
described in paragraph (b) and (iii) the benefits described in subparagraphs (c)
and (d) in the previous paragraph (the "Change in Control Benefits"). The
termination or resignation of an Executive for any reason after a change in
control will also cause the accelerated vesting and lapse of restriction
provisions of the 1997 Stock Incentive Plan to become applicable to the awards
granted to such Executive. The Change in Control Benefits and the accelerated
vesting and lapse of restriction provisions of the 1997 Stock Incentive Plan
will also be applicable to an Executive in the event of his termination of
employment by Holdings within the four month period (i) prior to the date of a
change in control of Holdings, (ii) following commencement of certain "tender
offers" for Holdings stock, (iii) following the execution by Holdings of an
agreement the consummation of which would constitute a change in control, (iv)
following the solicitation of proxies for the election of directors by anyone
other than Holdings, or (v) following the approval by Holdings' stockholders of
certain transactions the consummation of which would result in a change of
control.
The Severance Agreements provide for a tax "gross-up" payment in the event
that payments to an Executive after a change in control of Holdings result in
"parachute payments" as defined in Section 280G of the Code, in an amount (on an
after-tax basis) equal to the excise tax (if any) imposed on such Executive by
reason Section 4999 of the Code on any "excess parachute payments" (as defined
in Section 280G of the Code) received by such Executive.
The Severance Agreements provide that Holdings will indemnify an Executive
for certain losses in connection with proceedings to which such Executive may be
made a party or with which he may be threatened by reason of his being or having
been an employee, officer or director of Holdings or of any other entity at
Holdings' request, other than in connection with actions taken by such Executive
which constitute gross negligence in the performance of his duties for Holdings
which such Executive has undertaken without the reasonable good faith belief
that such actions were in the best interests of Holdings.
The Severance Agreements provide for certain non-competition restrictions on
the Executives. Pursuant to the Severance Agreements, the Executives agree that
they will not (generally, and with certain exceptions) (i) during the period of
their employment with Holdings, and (ii) in the event of the their termination
or resignation from their employment for any reason (other than in connection
with a change in control), for the one-year period thereafter, own, manage, lend
to or join (as an employee or otherwise) any business which "competes" with
Holdings, as defined in the Severance Agreements (generally, an entity will be
deemed to compete with Holdings if it is engaged in the residential and/or
commercial security alarm business).
TGM MANAGEMENT AGREEMENT. The Merger Agreement provides that, as a
condition precedent to the closing of the Merger, Triton will enter into the TGM
Management Agreement pursuant to which it will engage TGM to assume the costs
and maintain the capability of Triton's San Diego office and to provide
management and consulting services to Holdings. Holdings will engage TGM as an
independent contractor for a period of one year following consummation of the
Merger to provide services primarily associated with (i) the liquidation of
Triton's remaining assets and liabilities; and (ii) the transition of the
surviving entity in the Merger into a public company. In connection with these
services, TGM will pay the normal and recurring expenses and obligations of
Triton's San Diego corporate office, including personnel and occupancy costs.
Triton will pay TGM, as compensation, an aggregate of $540,000, $300,000 of
which is payable by Triton upon consummation of the Merger, with the remaining
$240,000 payable monthly ($20,000 per month) by Holdings for the entire one-year
term of the contract. During the term of the TGM Management Agreement, Holdings
will reimburse TGM for all reasonable business-related travel expenses incurred
by TGM and its representatives in connection with the TGM Management Agreement.
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DIRECTORS COMPENSATION
Non-employee members of the Holdings Board will receive $1,000 for each
meeting attended of the Holdings Board or a committee thereof. All directors
will be reimbursed for out-of-pocket expenses incurred to attend meetings of the
Holdings Board or a committee thereof. In addition, Eligible Directors will
receive, as of the date of the establishment of the 1997 Stock Incentive Plan, a
non-discretionary automatic grant of non-qualified stock options for the
purchase of 10,000 shares of Holdings Common Stock. Thereafter, as of the day
after the annual meeting of stockholders of Holdings to be held in calendar
years 1998 and 1999, each Eligible Director will receive additional
non-discretionary automatic grants of non-qualified stock options for the
purchase of 10,000 shares of Holdings Common Stock in each such year. The
exercise price of each share of Holdings Common Stock subject to any Eligible
Director's option will be equal to the fair market value of a share of Holdings
Common Stock on the date such option is granted. See "PROPOSAL 4: ADOPTION OF
THE 1997 STOCK INCENTIVE PLAN."
CERTAIN TRANSACTIONS
ALARMGUARD SUBORDINATED DEBT. Each of Alis, the Trust, BF Partners, Coast
Mezzanine Investments, Ltd. ("Coast"), and Triumph (collectively, the
"Subordinated Debt Holders") are holders of amended and restated debentures
issued by Alarmguard (the "Debentures"). The Debentures represent an aggregate
principal amount of $4,950,480. Patrick J. Herbert, III is a member of the
Alarmguard Board and has sole voting and sole and shared investment power with
respect to the shares of Alarmguard Common Stock, Alarmguard Series A Preferred
Stock and Alarmguard Series B Preferred Stock held of record by Alis and the
Trust. Stuart L. Bell is a member of the Alarmguard Board and is expected to
become a member of the Holdings Board, and is a general partner of BF Partners.
Coast, through its ownership of Alarmguard Non-Voting Common Stock, owns
approximately 14% of the outstanding shares of Alarmguard Common Stock. Thomas
W. Janes is a member of the Alarmguard Board and is a managing director of
Triumph.
Pursuant to the terms of the Debentures, Alarmguard paid interest to each
Subordinated Debt Holder at the rate of 8% per annum from November 17, 1995
through September 30, 1996. From November 1, 1996 through March 31, 1998, the
interest rate is 10% per annum. On March 31, 1998, Alarmguard is obligated to
redeem, at par, the entire outstanding stated principal amount of each
Debenture.
The Debentures do not contain any covenants restricting the payment of any
dividends on or redemption of the capital stock of Alarmguard. All principal and
interest payments made by Alarmguard in connection with the Debentures will be
made on a pro-rated basis among the holders of all outstanding Debentures in
proportion to the outstanding aggregate principal amount of the Debenture held
by each Subordinated Debt Holder. Alarmguard may prepay any Debenture, in whole
or in part, at any time, on at least 30 days' written notice to the holder of
such Debenture. The repayment of the Debentures is subordinated to the
obligations of Alarmguard to repay the sums owed to the lenders and Agent under
the Credit Facility and to the holder under the Bridge Note.
Alarmguard is obligated to redeem the Debentures in their entirety and pay
to each Subordinated Holder any outstanding interest and principal associated
with such Debenture (i) upon the completion of an initial public offering of
Alarmguard Common Stock; (ii) upon the merger of Alarmguard with or into another
entity; (iii) upon the sale by Alarmguard of all or substantially all of its
assets; and (iv) subject to certain limitations set forth in the Debenture, at
the option of any Subordinated Debt Holder, upon a material breach by Alarmguard
of the terms and conditions of that certain Subscription Agreement dated
November 17, 1995, as amended, by and among Alarmguard and the Subordinated Debt
Holders, provided such Subordinated Debt Holder has given Alarmguard written
notice of such breach and Alarmguard has not cured such breach within 30 days of
receipt of such notice. If Alarmguard defaults on the payment of any
installments of principal or interest under the Debenture and such default
continues for a period of ten days, then (i) the Subordinated Debt Holder may
declare the entire unpaid principal amount, together with all interest accrued
thereon, due and payable; and (ii) in the case of a default in the payment of
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principal, the holders of a majority of the principal amount of all outstanding
Debentures may, at their election, compel a Reorganization Event (as such term
is defined in the Debenture). Pursuant to the Agreement in Principle, Alarmguard
will refinance the Debentures in connection with the consummation of the Merger.
REAL ESTATE MATTERS. On July 1, 1993, Alarmguard entered into a lease with
respect to Alarmguard's executive offices, central monitoring station and
administrative headquarters located at 125 Frontage Road, Orange, Connecticut,
with 125 Frontage Road LLC, a company controlled by Russell R. MacDonnell, who
is Chairman, President and Chief Executive Officer of Alarmguard and who is
expected to be Chairman, President and Chief Executive Officer of Holdings. Such
lease expires on June 30, 2003 and provides for monthly rent payments of
$25,416.67 per month for an aggregate of $305,000 per year. Alarmguard believes
that such lease is on terms no less favorable than are available from an
unaffiliated third party.
CERTAIN OTHER MATTERS. In July 1993, Alarmguard acquired SecurityLink
Corporation, a company which provided security alarm services and equipment in
the Northeast region for approximately $13 million in cash and notes. From July
1986 to May 1991, Russell R. MacDonnell, the Chairman, President and Chief
Executive Officer of Alarmguard, served as Chairman and Chief Executive Officer
of SecurityLink Corporation. From May 1991 to May 1992, Gregory J. Westhoff,
Vice President of Alarmguard, President and Chief Operating Officer of
Alarmguard, Inc., served as Vice President, Mid-Atlantic Region, of SecurityLink
Corporation. From May 1989 to August 1992, Joseph J. Monachino, Vice President,
Sales and Marketing, of Alarmguard, Inc., served as Vice President, Marketing,
of SecurityLink Corporation. From 1989 to 1991, Peter M. Rogers served as Vice
President of Operations of SecurityLink Corporation. In September 1991,
SecurityLink Corporation was placed into involuntary bankruptcy proceedings
under Chapter 11. SecurityLink Corporation emerged from such bankruptcy
proceedings in April 1993. At the time SecurityLink Corporation was acquired by
Alarmguard, none of Messrs. MacDonnell, Westhoff and Monachino had any ownership
interest in SecurityLink Corporation.
The wife of Russell R. MacDonnell owns a controlling interest in Rapid
Response ("Rapid Response"), a company that performs wholesale security alarm
monitoring services. In connection with Alarmguard's acquisition program,
Alarmguard from time to time purchases subscriber accounts from sellers which
utilize the services of Rapid Response pursuant to contracts that pre-date such
acquisitions. Alarmguard allows such contracts to be completed before
integrating the subscribers into Alarmguard's monitoring services. Alarmguard
paid Rapid Response $108,834 in 1995 and $127,223 in 1996. Alarmguard believes
that the transactions with Rapid Response are on terms no less favorable than
are available from unaffiliated third parties.
The Secretary of Alarmguard, Tracy B. Ambler, performs legal services for
Alarmguard. In this regard, Mr. Ambler has received payments for fees and
disbursements for such legal services in the amount of $88,688, $98,367 and
$61,735 for the years ended December 31, 1994, 1995 and 1996, respectively.
DESCRIPTION OF TRITON
GENERAL
Triton is a holding company which historically conducted business through a
number of operating subsidiaries in various industries. Triton emerged from
Chapter 11 proceedings in June 1993 with operating control of six subsidiaries
and a significant equity interest in a seventh company. In August 1993, Triton
announced a plan to realize value for its stockholders over a relatively short
period of time in the form of either cash or securities which, in the opinion of
Triton's management, would be liquid and fairly valued given the underlying
assets. Since 1993, Triton has completed a number of transactions consistent
with this strategy.
Triton completed the sale of National Airmotive, a turbine engine services
business, in June 1995 and sold Western Metal, a fabricated metal products
business, in November 1995. Triton also sold 3.1 million
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shares of common stock of Actava (of the 4.4 million shares then owned by
Triton) in October 1995 and repaid the balance of its secured indebtedness owed
Actava. All of these sale transactions were to unaffiliated third parties,
except for the sale of 59,384 common shares of Actava to Grace Brothers, Ltd.,
the holder at the time of such sale of approximately 6.9% of the Triton Common
Stock (for a further discussion of this transaction, see "PROPOSAL 3: ELECTION
OF THE TRITON BOARD--Certain Transactions"). Triton's management believes that
this transaction was on terms no less favorable than could have been received
from an unaffiliated third party. In December 1995, Triton completed a
significant special distribution to its stockholders consisting of $32 million
in cash ($1.57 per outstanding share of Triton Common Stock) and 1.3 million
shares of common stock of Metromedia, the successor company to Actava, following
a four-party merger completed in November 1995. The value of the Metromedia
shares distributed amounted to $19.6 million ($0.97 per outstanding share of
Triton Common Stock) at that time.
At March 13, 1997, Triton had no remaining consolidated operations but owned
44% of Mission West (676,050 shares of common stock), a publicly-traded real
estate company, with a quoted market value of $1.4 million at March 13, 1997,
and 450,000 shares of Series A Convertible Preferred Stock, with a face value of
$3.6 million, of Ridgewood, a diversified real estate company. At such date,
Triton also had $15.3 million in cash and held certain other miscellaneous
assets and liabilities.
MAJOR DEVELOPMENTS DURING 1995 AND 1996
During the calendar years 1995 and 1996, a number of material business
transactions or events occurred as described below.
SALE OF NATIONAL AIRMOTIVE. In June 1995, Triton completed the sale of
National Airmotive to First Aviation Services, Inc., an affiliate of First
Equity Development Incorporated, an investment banking firm specializing in the
aerospace industry, for cash of $11.3 million plus assumption by the buyer of
all of National Airmotive's debt. Triton recorded a net loss on the sale of
National Airmotive of $13.6 million in fiscal year 1995. The operations of
National Airmotive prior to the sale have been reclassified as a discontinued
operation for all periods presented in the consolidated financial statements of
Triton incorporated herein by reference.
SALE OF WESTERN METAL. In November 1995, Triton sold Western Metal to
Marubeni America Corporation for cash of $3 million ($2.6 million, net of
transaction costs) and the assumption of Western Metal's debt by the buyer.
Triton recognized a gain on the sale of $2.6 million for accounting purposes in
fiscal year 1996. As a result of the sale, the operating results of Western
Metal for all periods presented have been reclassified as a discontinued
operation in the consolidated financial statements of Triton incorporated herein
by reference.
SALE OF ACTAVA COMMON STOCK. In October 1995, Triton consummated the sale
in a block transaction of three million common shares of Actava owned by Triton
pursuant to a registration statement on Form S-3. The proceeds of the sale
amounted to approximately $49.5 million, of which approximately $18 million was
used to repay in full the outstanding loan balance that Triton owed Actava which
was secured by a portion of the Actava common shares owned by Triton. Also in
October 1995, Triton completed the sale of an additional 59,384 common shares of
Actava for net cash proceeds of approximately $1 million. Triton recognized an
accounting gain on the sales of the Actava common shares of approximately $39.6
million after transaction expenses.
The sale of the three million common shares of Actava was pursuant to an
earlier agreement between Triton and Actava whereby Actava agreed to register
three million of the common shares of Actava owned by Triton on a Form S-3
registration statement. Upon filing of the Form S-3 by Actava, Triton delivered
to Actava proxies in blank executed by Triton covering all 4,413,598 common
shares of Actava owned by Triton, which enabled Actava's proxy holders to vote
these shares in favor of the proposed merger of Actava with Orion Pictures
Corporation ("Orion"), MCEG Sterling Incorporated ("MCEG") and
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Metromedia International Telecommunications Inc. ("MITI"). In connection with
this agreement, Triton further agreed to waive the provisions of its Amended and
Restated Stockholder Agreement with Actava, which previously required that the
Board of Directors of Actava consist of nine members and entitled Triton to
designate up to two directors of Actava. Triton and Actava also agreed that the
net proceeds of sales pursuant to a Form S-3 registration statement would first
be used to repay in full all obligations of Triton to Actava pursuant to a loan
agreement.
In November 1995, Actava completed its four-party merger with Orion, MITI
and MCEG and renamed the newly combined company, "Metromedia International
Group, Inc." Following the merger, the common shares of Metromedia began trading
on the AMEX under the trading symbol "MMG." In December 1995, Triton completed
the distribution of the remaining 1,342,621 common shares of Metromedia owned by
Triton to its stockholders as part of a special distribution.
DISTRIBUTION TO STOCKHOLDERS. On November 1, 1995, the Triton Board
declared a special distribution of $1.57 in cash and .066 of a share of common
stock of Metromedia for each outstanding share of Triton Common Stock. The
special distribution was completed on December 8, 1995 to stockholders of record
on November 17, 1995. Cash was paid in lieu of any fractional shares of
Metromedia's common stock that would otherwise have been distributed in the
special distribution. Based on the closing price of Metromedia's common stock on
December 8, 1995 of $14.625 per share, the total value of the distribution on
such date amounted to approximately $52 million, or $2.54 per share of Triton
Common Stock.
DEFINITIVE AGREEMENT OF MISSION WEST TO SELL SUBSTANTIALLY ALL OF ITS
OPERATING ASSETS. On July 1, 1996, Mission West entered into a definitive
agreement to sell substantially all of its real estate assets for approximately
$42 million. On October 14, 1996, Mission West announced that it had exercised a
"fiduciary out" pursuant to this agreement and entered into a new definitive
agreement to sell all of its real estate assets for an aggregate purchase price
of $46.5 million. On December 6, 1996, Mission West issued a "fiduciary out"
pursuant to this second agreement and entered into a new definitive agreement to
sell all of its real estate assets for an aggregate purchase price of $50.5
million. The current agreement was approved by the stockholders of Mission West
on December 16, 1996 at a meeting held for such purpose. On January 20, 1997,
Mission West completed the sale of all but one of the properties under contract
generating gross cash proceeds of approximately $47.5 million before the
repayment of approximately $29 million of secured real estate obligations on
such properties. The last remaining property is under contract for $3 million
and Mission West expects to close this sale in the near future. On February 4,
1997, the board of directors of Mission West declared a cash dividend of $9.00
per share of Mission West common stock to stockholders of record on February 19,
1997, which was paid on February 27, 1997. This resulted in a cash distribution
to Triton of approximately $6.1 million.
DIVIDEND FROM LA JOLLA. Prior to 1993, La Jolla provided a $3 million
directors and officers ("D&O") insurance policy to its parent corporation and
Triton's predecessor, Intermark, Inc., and certain of Intermark's subsidiaries,
which expired in April 1993. In late 1996, Triton reviewed its options with
respect to this insurance policy, including the possibility of reinsuring the
remaining risks. In December 1996, La Jolla reinsured the remaining risks under
the D&O policy through the purchase of a three-year, $3 million tail insurance
policy with Reliance Insurance Company at a cost of approximately $160,000,
significantly below the reserves previously established for such risks at La
Jolla. Following the acquisition of this tail policy, La Jolla completed a $3.1
million cash dividend to Triton. See "TRITON MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-- Background and
Recent Developments."
FINANCIAL REORGANIZATION PURSUANT TO CHAPTER 11
On October 19, 1992 (the "Petition Date"), Triton and its former parent,
Intermark (together with Triton, the "Companies"), filed separate voluntary
petitions in the United States Bankruptcy Court (the "Bankruptcy Court") for the
Southern District of California (San Diego) seeking Chapter 11 protection.
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The Chapter 11 proceedings were jointly administered by the Bankruptcy Court,
while the Companies operated their businesses as debtors-in-possession, subject
to Bankruptcy Court approval for certain transactions.
On March 25, 1993, the Bankruptcy Court approved the Second Amended
Disclosure Statement and Joint Plan of Reorganization (the "Joint Plan") which
provided for the reorganization and continuation of the Companies through a
conversion of a majority of the pre-petition unsecured debt of the Companies,
principally the subordinated notes and debentures discussed below, to common
stock, and the extension of payments under the Companies' secured debt
arrangements and certain other claims over a period of years. The Joint Plan was
approved by the former creditors of Triton and Intermark and the former
stockholders of Intermark in May 1993, was confirmed by the Bankruptcy Court on
June 4, 1993 (the "Confirmation Date") and became effective on June 25, 1993
(the "Effective Date"). The principal terms of the Joint Plan were as follows:
(1) Triton and Intermark were merged into a single surviving entity,
Triton Group Ltd.
(2) The unsecured debt of Triton and Intermark (approximately 95% of
which was owed to holders of subordinated notes and debentures) was
exchanged for new common stock of Triton.
(3) The holders of the unsecured debt received 99% of the new Triton
Common Stock, with 87% going to former Triton creditors and 12% going to
former Intermark creditors. The remaining 1% was distributed to the former
common and preferred stockholders of Intermark.
(4) Secured debt totaling approximately $35 million was restructured and
remained outstanding. The majority of such debt was to mature in April 1997.
The restructured secured debt accrued interest at rates ranging from prime
plus 2% to prime plus 2.5% and interest was payable monthly or quarterly.
(5) Cash on hand, cash received from the operations of Triton's
operating companies and/or cash received on the strategic sale of assets
would be used to pay general and administrative expenses and make principal
and interest payments on the restructured secured debt.
In general, all pre-petition claims against Triton and Intermark have been
discharged and have been accorded the treatment provided under the Joint Plan.
Triton completed its distributions under the Joint Plan in December 1994.
BUSINESS
Triton currently does not consolidate any businesses but has unconsolidated
real estate operations through Mission West.
Mission West is a real estate company which, prior to January 20, 1997,
owned and managed ten commercial projects, including an executive aircraft
center and related leaseholds, two office projects and a multi-tenant industrial
project in Carlsbad, California, two business center projects and an office
plaza in San Diego, California, an office and industrial building in Riverside,
California, and an office/distribution center in Chandler, Arizona. Mission West
also had one undeveloped land parcel. As discussed above, on January 20, 1997,
Mission West completed the sale of all of its properties, except the executive
aircraft center and related leaseholds. Such property is under contract for $3
million and Mission West expects to close this sale in the near future. Mission
West's shares are traded on the AMEX and the Pacific Stock Exchange under the
trading symbol "MSW." Mission West had two employees at March 13, 1997, none of
whom is represented by a union.
EMPLOYEES
Triton had two employees at its corporate headquarters at March 13, 1997.
Additionally, Triton's two senior executives, Michael M. Earley, Triton's
President and Chief Executive Officer, and Mark G. Foletta, Triton's Senior Vice
President and Chief Financial Officer, are providing services to Triton pursuant
to
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month-to-month consulting arrangements. The services provided by these
executives relate to the ongoing management of the business affairs of Triton
and include (a) the review of alternatives to maximize the value of the
remaining assets of Triton, (b) the management of the liabilities and contingent
liabilities of Triton, (c) the direction of Triton's efforts to identify
potential merger candidates and the due diligence efforts with respect to such
candidates, and (d) the coordination of Triton's financial reporting
responsibilities as a public company.
PROPERTIES
Triton currently occupies approximately two thousand square feet of office
space in San Diego, California.
LEGAL PROCEEDINGS
Triton is party to certain lawsuits arising out of its ordinary business
activities. It is the opinion of Triton's management that the outcome of such
litigation will not have a materially adverse effect on Triton's financial
position or its results of operations.
In March 1995, a number of Triton's stockholders commenced actions against
Triton and the Triton Board in the Chancery Court of the State of Delaware,
entitled MOISE KATZ V. JOHN C. STISKA, ET AL. (C.A. No. 14132), MARVE CAMP V.
JOHN C. STISKA, ET AL. (C.A. No. 14133), JOSEPH ZOIMEN V. JOHN C. STISKA, ET AL.
(C.A. No. 14134) and FORD V. STISKA, ET AL. (C.A. No. 14139), respectively. The
claims of the plaintiffs in these four class action complaints were
substantially similar, with each plaintiff alleging, among other things, that
the Triton Board had breached its fiduciary and other common law duties by
failing to exercise independent business judgment with respect to a tender offer
by TAC, Inc. to acquire all of the outstanding stock of Triton and by failing to
take all necessary actions to maximize stockholder value for the stockholders'
shares. These lawsuits were all dismissed without prejudice in January 1996.
In May 1995, a stockholder of Ridgewood commenced a derivative and class
action lawsuit in Delaware Chancery Court against Ridgewood, its directors and
Triton entitled STRASSBURGER V. EARLEY, ET AL. (C.A. No. 14267). The lawsuit
concerns a transaction entered into in August 1994 in which Ridgewood purchased
from Triton all of the Ridgewood common stock then owned by Triton (which
consisted of approximately 75% of Ridgewood's then outstanding common stock) for
$8 million in cash and newly-issued Ridgewood preferred stock with a face value
of $3.6 million. The complaint alleges that such transaction constituted a
corporate waste and a breach by Triton of its alleged duties of loyalty and good
faith as a majority stockholder to Ridgewood's other stockholders. The complaint
seeks a rescission of the transaction and other unspecified monetary relief.
Triton intends to defend vigorously against this lawsuit. It is the opinion of
Triton's management that the ultimate resolution of such litigation will not
have a material adverse effect on Triton's financial position, results of
operations or cash flows.
THE CHAPTER 11 PROCEEDINGS. Triton, and its former parent, Intermark, each
filed voluntary petitions for bankruptcy under Chapter 11 with the Bankruptcy
Court on October 19, 1992. The following discussion is intended to illustrate
certain aspects of Triton's Chapter 11 bankruptcy proceedings regarding the
discharge of certain claims and debts, and is not a complete summary of such
proceedings, the Bankruptcy Code or applicable case law.
The Bankruptcy Court entered a bar date order establishing January 20, 1993
as the date by which claimants or interest holders were required to have filed a
proof of claim or interest in the Bankruptcy Cases, setting forth the nature and
amount of that claim or interest. Substantial claims were filed through the bar
date in respect of the Debtors' bankruptcy estates. Generally, claims against
Triton and Intermark fell into four categories: priority and administrative
claims, secured claims, unsecured claims (including certain contingent or
unliquidated claims) and equity claims.
As a result of the confirmation and consummation of the Plan, pursuant to
the Bankruptcy Code, in accordance with Section 1141(d) of the Bankruptcy Code,
Triton has been discharged of and from each
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and every Debt (as the term "Debt" is defined in the Bankruptcy Code) and Claim
(as such term is defined in the Joint Plan) that arose against Triton or
Intermark before the Effective Date of the plan, including without limitation,
any Debt and Claim of a kind specified in Section 502(g) or 502(i) of the
Bankruptcy Code, whether or not (i) a proof of claim based on such Debt or Claim
was filed or deemed filed under Section 501 of the Bankruptcy Code, (ii) such
Claim is allowed under Section 506 of the Bankruptcy Code, or (iii) the holder
of such Claim has accepted the Joint Plan. In general, all pre-petition claims
against Triton and Intermark have been discharged and have been accorded the
treatment provided under the Joint Plan.
ENVIRONMENTAL MATTERS RELATING TO CERTAIN OF TRITON'S FORMER DIVISIONS AND
SUBSIDIARIES
In the past, Triton, through certain divisions and wholly-owned
subsidiaries, has owned and operated businesses that conducted operations that
included the use, generation and disposal of hazardous waste and hazardous
substances. Certain potential environmental liabilities exist associated with
these former operations, including potential contamination at, or migrating
from, certain properties historically owned or operated by these former
divisions and subsidiaries. Triton also has limited contractual indemnification
obligations relating to certain of these matters. With respect to these
potential environmental liabilities, Triton believes that most of these
liabilities were discharged in its bankruptcy proceedings. Historically, these
environmental matters have not had a material adverse effect on Triton's
financial condition and, although there can be no assurance, Triton management
does not expect such matters to have a material adverse effect on Triton's
financial condition in the future.
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DESCRIPTION OF ALARMGUARD
GENERAL
Alarmguard was formed on December 4, 1991 to acquire and manage companies in
the security alarm system installation and monitoring business. Alarmguard sells
and installs burglar and fire alarm systems and provides monitoring and security
system repair and maintenance services to homeowners and businesses, principally
in the Northeast and Mid-Atlantic regions of the United States.
Alarmguard's principal executive office is located at 125 Frontage Road,
Orange, Connecticut 06477, and its telephone number is (203) 795-9000.
BUSINESS
Alarmguard provides security alarm monitoring services and sells, installs
and services security alarm systems for residential and business subscribers.
Alarmguard provides such security alarm systems and services primarily under its
trademark "Alarmguard." Alarmguard also sells, installs and services
Sonitrol-TM- sound-based security systems in New Haven County, Connecticut as a
Sonitrol franchisee. Alarmguard had approximately 49,000 monitored subscriber
accounts for its alarm monitoring services as of December 31, 1996
(approximately 68% of which were residential). Based on a survey of recurring
annual revenue set forth in the May 1996 issue of SDM, a security alarm industry
publication, Alarmguard is the fifteenth largest residential and commercial
security alarm monitoring company of the 79 security companies reported in such
survey.
Alarmguard's objective is to provide residential and commercial security
services to an increasing number of subscribers by making such services
affordable and by focusing on markets with attractive demographics. Alarmguard's
internal growth strategy is to enhance its position in the security alarm
monitoring industry in the Northeastern and Mid-Atlantic United States by
increasing the number and density of subscribers for whom it provides services
through a balanced growth plan that incorporates acquisitions of portfolios of
subscriber accounts in existing and contiguous markets, internal growth through
the Direct Marketing Program and the continued growth of Alarmguard's core
business through referrals and traditional local marketing. Alarmguard believes
that increasing the number and density of subscribers will help it to achieve
economies of scale and improve results of operations, thereby increasing
utilization of Alarmguard's central monitoring station and improving efficiency
of its service operations.
Alarmguard's revenues consist primarily of recurring payments under written
contracts for the monitoring, leasing and servicing of security systems and the
provision of additional enhanced security services. For the year ended December
31, 1996, monitoring and service revenues represented 69% of total revenues.
Alarmguard monitors digital signals arising from burglaries, fires and other
events through security systems installed at subscribers' premises. These
signals are received and processed at Alarmguard's central monitoring station
located in Orange, Connecticut, which, as currently configured, has the capacity
to monitor up to approximately 65,000 subscribers. With incremental capital
investment of approximately $750,000, such facility can be expanded to monitor
up to 200,000 subscribers. Alarmguard also provides enhanced security services
including, among others, two-way voice communication, supervised monitoring
services, pager service, wireless backup service and extended warranty plans, as
well as local field repair services through its eight branch offices.
From its inception, Alarmguard has grown rapidly, primarily through the
acquisition of portfolios of subscriber accounts and, more recently, through the
Direct Marketing Program. Between May 15, 1992 and December 31, 1996, Alarmguard
acquired 26 subscriber account portfolios, representing an aggregate of
approximately 36,000 monitored subscriber accounts. Alarmguard's management
believes that numerous acquisition opportunities are available. On December 20,
1996, Alarmguard entered into the Stock Purchase Agreement with respect to the
Proposed Acquisition. See "--Recent Developments." In addition, Alarmguard
intends to make acquisitions and open branches primarily in contiguous
geographic
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markets in the Northeast and Mid-Atlantic states in which Alarmguard operates
where Alarmguard does not presently have subscribers. Alarmguard intends to then
implement plans to increase the number of subscriber accounts in such markets
through the Direct Marketing Program and subsequent acquisitions, both of which
have the effect of increasing subscriber density in the area, and thereby
improving operating efficiency. Alarmguard continuously pursues both solicited
and unsolicited acquisition opportunities; however, there are currently no
acquisitions (other than the Proposed Acquisition) pending or agreements subject
to which Alarmguard would be bound.
Since the beginning of fiscal year 1995, Alarmguard has increased its
emphasis on the Direct Marketing Program, which became a more significant source
of growth than in prior years. From January 1, 1995 through December 31, 1996,
Alarmguard has added approximately 15,600 monitored subscriber accounts through
the Direct Marketing Program, including approximately 10,300 new Direct
Marketing Program monitored subscriber accounts during 1996. The total number of
new monitored subscriber accounts added during the same periods was 30,100 and
18,700, respectively. Alarmguard seeks to create additional subscriber accounts
through the Direct Marketing Program by incurring average net out-of-pocket
expenses of approximately $650 (after taking into account any revenues generated
from the sale of equipment) in connection with the initial installation of
residential and small commercial security alarm monitoring systems in order to
secure the MRR generated by a noncancellable monitoring/ equipment lease
contract which generally has a term of 60 months. By offering alarm systems at
low base installation prices, Alarmguard believes it can access a broader
demographic market than is presently being accessed by other existing companies
providing traditional high-end residential alarm service. In addition, the
Direct Marketing Program allows Alarmguard to create subscriber accounts for an
amount of net out-of-pocket costs which, expressed as a multiple of MRR
generated, is substantially lower than the amount for which Alarmguard can
acquire subscriber accounts as part of its acquisition program. Currently,
Alarmguard's out-of-pocket costs in connection with new Direct Marketing Program
accounts are between 26 and 28 times MRR. However, a competitive acquisition
environment in the security alarm industry has led to acquisitions being
completed at between 32 and 50 times MRR. Each new subscriber is subject to
credit approval prior to entering into a subscriber monitoring/equipment lease
contract under the Direct Marketing Program.
Alarmguard plans to continue to emphasize the Direct Marketing Program
because of the greater predictability and relatively lower cost of adding
subscribers through its Direct Marketing Program staff as compared with
acquisitions of larger portfolios of subscriber accounts. See "--The Direct
Marketing Program."
MARKET OVERVIEW AND TRENDS
The security industry is highly competitive and highly fragmented.
Alarmguard competes with major national firms which have substantial financial
resources. Other alarm service companies have adopted a strategy similar to
Alarmguard's that entails the aggressive purchase of alarm monitoring accounts
both through acquisitions of account portfolios and through dealer programs and
internal growth programs similar to Alarmguard. Alarmguard's target market
consists of owners of single family residences and businesses.
The security alarm industry is characterized by the following attributes:
- HIGH DEGREE OF FRAGMENTATION. The security alarm industry is primarily
comprised of a large number of small providers of alarm systems and
services. According to the publicly-available Lehman Brothers 1995
YEAR-END SECURITY INDUSTRY REVIEW, there are approximately 11,000 security
alarm companies nationally. These companies generated approximately $12.9
billion of gross revenues from alarm system sales, installation, service
and monitoring according to a survey published by SDM, a security alarm
industry publication, in May 1996. Alarmguard estimates that approximately
2,500 such companies operate in the nine states Alarmguard currently
serves. Alarmguard believes
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that most of such companies are small regional firms and that no one firm
dominates the market. The SDM survey reported that in 1995, based upon
information provided by the respondents, the 100 largest companies in the
industry accounted for approximately 23% of alarm industry revenues and
the top 10 security alarm monitoring companies served less than 3% of all
United States households. Based on its acquisition experience, Alarmguard
believes that many smaller alarm service companies, because of their size,
have higher overhead expenses as a percentage of revenues than Alarmguard
and lack access to capital on terms as attractive as those available to
Alarmguard.
- RAPID GROWTH AND LOW PENETRATION. The residential security alarm market is
growing rapidly but is still characterized by a low level of market
penetration. An industry trend toward subsidizing installation costs to
increase affordability, combined with other factors such as heightened
concern about crime and favorable demographic trends, have resulted in
increased demand for residential security alarm services. The Freeman Data
indicates that residential security alarm monitoring revenues grew at a
compounded annual rate of 9.9% between 1989 and 1995 and that, at November
1995, the percentage of total households in the United States with
monitored alarm systems was approximately 10.9%.
- ADVANCES IN DIGITAL COMMUNICATIONS TECHNOLOGY. Prior to the development of
digital communications technology, alarm monitoring required a dedicated
telephone line, which made long-distance monitoring uneconomic.
Consequently, in order to achieve a national or regional presence, alarm
monitoring companies were required to maintain a large number of
geographically dispersed monitoring stations. The development of digital
communications technology eliminated the need for dedicated telephone
lines, reducing the cost of monitoring services to the subscriber and
permitting the monitoring of subscriber accounts over a wide geographic
area from a central monitoring station. The elimination of local
monitoring stations has decreased the cost of providing alarm monitoring
services and has substantially increased the economies of scale for larger
alarm service companies. In addition, the concurrent development of
microprocessor-based control panels has substantially reduced the cost of
the equipment available to subscribers in the residential and small
business markets.
Alarmguard believes that several factors contribute to a favorable market
for security alarm services both generally in the United States and specifically
in the Northeastern and Mid-Atlantic portions of the country:
- CONCERN ABOUT CRIME. According to the Uniform Crime Report published by
the Federal Bureau of Investigation in October 1996 (the "UCR"), between
1986 and 1995 the number of violent crimes reported in the United States
increased by more than 21% and the total number of criminal offenses
increased by over 5% for the same period. The UCR also found that although
the number of reported criminal offenses decreased on a nationwide basis
from 1994 to 1995 by 1%, a property crime was committed in the United
States in 1995 once every three seconds. The 1995 property crime rate was
4,593 offenses per 100,000 population. The UCR also found that
larceny-theft increased by more than 2% from 1994 to 1995 representing
over 66% of property crimes reported and 58% of the UCR's Crime Index
total. The value of property stolen in connection with property was
estimated at $15.1 billion for 1995. In the Northeastern and Mid-Atlantic
states in which Alarmguard operates, the overall Crime Index Rate is 10%
higher than the national average in the Metropolitan Statistical Areas
(MSAs) that constitute over 90% of Alarmguard's subscriber base. While the
UCR found that the number of criminal offenses reported have declined over
the last four years, a recent survey with respect to America's perception
of crime showed that 78% of those surveyed believed that crime is worse
compared to 11% who reported that crime in America has gotten better.
- DEMOGRAPHIC TRENDS. According to the U.S. Bureau of Census 1995
Statistical Abstract of the United States, resident population in the nine
states in which Alarmguard operates accounts for
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approximately one-quarter of the total U.S. population. Population growth
is projected to increase by more than 6% from 1994 to 2010. According to
that same 1995 report, median household income in the nine states in which
Alarmguard operates is approximately 15% higher than the national average.
The report also found that disposable personal income per person in these
states is as high as 30% over the national average, with the states of
Connecticut, New Jersey, New York, and Massachusetts ranking as the top
four states respectively in the nation in this category. Other recent
trends that contribute to a favorable market for the residential security
alarm business include the following: the fact that, according to a
privately-commissioned study presented at a national dealer convention
sponsored by ITI Technologies Inc., more than 24% of all new homes in 1995
installed a monitored security system and by the year 2005 alarm
penetration will more than double to 48% of all new home construction; the
increase in the number of households headed by a single parent in the
workforce and the estimated 40 million households with two parents working
outside the home results in more children being left home alone and
creates increased demand for security alarm systems; the aging of the
population in general, as older people tend to be more concerned about
security; and the increase in people working at home resulting in
increasing demand for security services to protect home office equipment.
- INSURANCE DISCOUNTS. The increase in demand for security systems may also
be attributable in part to the practice of certain insurance companies to
grant discounts to homeowners who install alarm systems. Such discounts
are typically greater when systems are monitored by a central station. In
addition, insurance companies may require that businesses install an alarm
system as a condition of insurance coverage.
- SECURITY ALARM EFFECTIVENESS. A study entitled "Crime Statistics:
Burglaries and Robberies" in the 1996 Fact Book Issue of Security Sales
magazine reported that non-alarmed homes are burglarized 2.2 times more
often than those with alarms.
BUSINESS STRATEGY
Alarmguard's objective is to provide residential and commercial security
services to an increasing number of new subscribers through internal growth by
making such services affordable and by focusing on markets with attractive
demographics. Alarmguard's strategy is to enhance its position in the security
alarm monitoring industry in the Northeastern and Mid-Atlantic regions of the
United States by increasing the number and density of subscribers for whom it
provides services. Alarmguard is pursuing this strategy through a balanced
growth plan incorporating acquisitions of portfolios of subscriber accounts in
existing and contiguous markets, internal growth through the Direct Marketing
Program and the continued growth of Alarmguard's core business through referrals
and traditional local marketing. Alarmguard believes that increasing the number
and density of subscribers will help it to achieve economies of scale and
improve results of operations, thereby increasing utilization of Alarmguard's
central monitoring station and improving the efficiency of its service
operations.
Alarmguard's revenue has increased from $10.7 million in 1993 to $24.2
million in 1996 or 31.3% per year. Alarmguard's historical growth has enabled it
to realize economies of scale in its central monitoring station, branch
operations and corporate offices. As the number of subscribers monitored by
Alarmguard has increased from 36,212 monitored subscribers at December 31, 1995
to 49,088 monitored subscribers at December 31, 1996, the fixed costs of the
central monitoring station have been spread over a larger base. Included in the
monitoring expense for the year ended December 31, 1996 is a royalty with
respect to such period to SNET pursuant to a pilot regional licensing agreement
entered into in August 1995 among SNET, Alarmguard and one of Alarmguard's
subsidiaries (the "SNET Regional Licensing Agreement") in the amount of
approximately $180,000. Due to Alarmguard's election to terminate the SNET
Regional Licensing Agreement as of January 31, 1997, this expense will not
continue. See "--Recent Developments." An adjustment for the exclusion of such
royalty fee would increase the Adjusted EBITDA margin as a percentage of
non-Direct Marketing Program revenue by 4.0% from 20.0% to 20.8% for such
period.
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Additionally, subscribers have been added in areas surrounding Alarmguard's
branch offices, allowing Alarmguard to spread the branch office fixed costs over
a larger base and increasing the productivity of field service technicians
through more efficient scheduling and dispatching. Finally, Alarmguard's revenue
growth has exceeded the growth of its selling, general and administrative
expenses, as Alarmguard has realized management efficiencies and has spread
additional revenue over its fixed corporate expenses. Such economies of scale
have allowed Alarmguard to add subscriber accounts at attractive purchase
prices.
The principal components of Alarmguard's business strategy are as follows:
- THE DIRECT MARKETING PROGRAM. Alarmguard employs a sales force of
approximately 80 employees to generate new subscriber accounts through
direct telemarketing and other Direct Marketing Program activities. The
Direct Marketing Program offers potential subscribers security alarm
systems and services primarily under the Alarmguard trademark
"Alarmguard." Since the beginning of 1995, Alarmguard has increased its
emphasis on the Direct Marketing Program, which became a more significant
source of growth than in prior years. From January 1, 1995 to December 31,
1996, Alarmguard added approximately 15,600 monitored subscriber accounts
through the Direct Marketing Program, including approximately 10,300 new
Direct Marketing Program monitored subscriber accounts during the year
ended December 31, 1996. The total number of new monitored subscriber
accounts added during the same periods was 30,100 and 18,700,
respectively. Alarmguard seeks to create additional subscriber accounts
through the Direct Marketing Program by incurring average net
out-of-pocket expenses of approximately $650 (after taking into account
any revenues generated from the sale of equipment) in connection with the
initial installation of a residential and small commercial security alarm
monitoring system in order to capture the MRR generated by the monitoring
contract.
- ACQUISITIONS OF PORTFOLIOS OF SUBSCRIBER ACCOUNTS. Alarmguard also grows
by acquiring subscriber accounts, primarily from smaller alarm companies.
These acquisitions represented approximately 5,000 monitored subscriber
accounts in 1994, approximately 4,000 monitored subscriber accounts in
1995 and approximately 4,000 monitored subscribers in 1996. Alarmguard
typically acquires only the subscriber accounts, and not the facilities or
liabilities, of such companies. As a result, Alarmguard is able to obtain
gross margins on the monitoring of acquired subscriber accounts that are
similar to those Alarmguard currently generates on the monitoring of its
existing subscriber base. In addition, Alarmguard selectively institutes
price increases over time for acquired subscriber accounts.
- INCREASING ACCOUNT DENSITY IN EXISTING MARKETS. Alarmguard believes that
increasing account density in the regions it currently serves will enhance
the efficiency of its service routs and of its branch office marketing
organization. Alarmguard's objective is to increase the number of
installations in each branch once it has established an initial presence
in a metropolitan area. By servicing and marketing to a higher number of
accounts and potential accounts per employee, Alarmguard seeks to improve
the incremental operating margins associated with new subscriber accounts.
Alarmguard believes that, in this way, it can reduce general and
administrative expenses as a percentage of sales and increase operating
margins at any given branch office.
- TRADITIONAL SALES AND SALE OF ENHANCED SERVICES. Each of Alarmguard's six
branch offices includes sales representatives who sell new systems,
equipment additions and upgrades and enhanced services to residential and
commercial subscribers. In addition to the Direct Marketing Program,
Alarmguard receives in-bound telephone requests for security alarm
systems, primarily as a result of subscriber referrals, local crime
activity and responses to yellow pages advertising. Such leads are pursued
by one of Alarmguard's sales representatives. Alarm sales are made at the
subscriber's home or place of business, typically in a single visit by a
sales representative. Alarmguard seeks to increase revenues from current
and newly added subscribers by actively marketing enhanced services to
such subscribers. Such services include extended service protection,
two-way voice
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communication, supervised monitoring services, pager service, remote video
verification and wireless back-up.
- Alarmguard also generates new subscriber accounts by signing monitoring
contracts with new owners of residences previously occupied by Alarmguard
subscribers and through sales of alarm systems by its own personnel.
THE DIRECT MARKETING PROGRAM
Alarmguard employs a sales force of approximately 80 employees in connection
with the Direct Marketing Program to generate new subscriber accounts through
direct telemarketing. The Direct Marketing Program offers potential subscribers
security alarm systems and services primarily under the Alarmguard trademark
"Alarmguard." Alarmguard uses an EIS 24-seat CPI2000 predictive dialer
expandable to 120 seats in connection with the Direct Marketing Program.
Since the beginning of 1995, Alarmguard has increased its emphasis on the
Direct Marketing Program, which became a more significant source of growth than
in prior years. From January 1, 1995 through December 31, 1996, Alarmguard
generated approximately 15,600 monitored subscriber accounts through the Direct
Marketing Program, including approximately 10,300 new Direct Marketing Program
monitored subscriber accounts during the year ended December 31, 1996. The total
number of new monitored subscriber accounts added during the same periods was
30,100 and 18,700, respectively. Alarmguard seeks to create additional
subscriber accounts through the Direct Marketing Program by incurring average
net out-of-pocket expenses of approximately $650 in connection with the initial
installation of a residential or small commercial security alarm monitoring
system in order to capture the MRR generated by the noncancellable monitoring
contract. By offering alarm systems at a base installation price, Alarmguard
believes it can access a broader demographic market than is presently being
accessed by other existing companies providing traditional high-end residential
and commercial alarm service. In addition, the Direct Marketing Program allows
Alarmguard to create subscriber accounts for an amount of net out-of-pocket
costs which, expressed as a multiple of MRR generated, is substantially lower
than the amount for which Alarmguard can acquire subscriber accounts and which,
in Alarmguard's belief, is among the lowest in the industry. Currently,
Alarmguard's out-of-pocket costs in connection with new Direct Marketing Program
accounts are between 26 and 28 times MRR. However, a competitive acquisition
environment in the security alarm industry has led to acquisitions being
completed at between 32 and 50 times MRR. Each new subscriber is subject to
credit approval prior to entering into a monitoring/ equipment lease contract
under the Direct Marketing Program.
Alarmguard plans to continue to emphasize the Direct Marketing Program
because of the greater predictability and relatively lower cost of adding and
servicing subscribers through its Direct Marketing Program staff as compared
with acquisitions of larger portfolios of subscriber accounts which may have
older equipment that is less easily serviced than that installed for new
subscribers. In addition, the Direct Marketing Program generates a comparatively
steady flow of new subscribers spread more evenly over Alarmguard's six branch
offices, making it easier for Alarmguard's branch operations to successfully
assimilate these accounts.
THE ACQUISITION PROGRAM
Alarmguard also seeks to grow by acquiring portfolios of subscriber accounts
from other alarm companies. Alarmguard focuses on acquisitions that allow it to
"fill-in" areas surrounding branch operations, which in turn leads to greater
field maintenance and repair efficiencies. Alarmguard estimates there are
approximately 2,500 alarm companies in its markets, substantially all of which
are independently owned and may, from time to time, become acquisition targets.
Alarmguard believes that it is an effective competitor in the acquisition market
because of the substantial experience of its management in acquiring alarm
companies and subscriber accounts as a result of the 26 acquisitions made by
Alarmguard between
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May 15, 1992 and December 31, 1996. Alarmguard also believes that, through its
acquisition activities, it has developed a reputation in the alarm service
industry as an active purchaser of subscriber accounts. Historically, Alarmguard
generally offers sellers cash as determined by the requirements of both the
sellers and Alarmguard, subject to holdbacks with respect to purchase price
adjustments. Although most acquisitions add subscribers in Alarmguard's existing
market areas to achieve greater account density, Alarmguard may also make
acquisitions outside these areas in order to enter new markets.
Because Alarmguard's primary consideration in acquiring a portfolio of
subscriber accounts is the amount of cash flow that can be derived from the MRR
associated with the seller's subscriber accounts, the price paid by Alarmguard
is customarily directly tied to such MRR. To protect Alarmguard against the loss
of acquired accounts and to encourage the seller of such accounts to facilitate
the transfer of subscribers, management typically requires the seller to provide
guarantees against account cancellations for a period following the acquisition.
Alarmguard usually holds back from the seller a portion of the acquisition
price, and has the contractual right to utilize such holdback to recapture a
portion of the purchase price based on the lost MRR arising from the
cancellation of acquired accounts. See "ALARMGUARD MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--General."
In evaluating the quality of the accounts acquired, Alarmguard relies
primarily on management's knowledge of the industry, its due diligence
procedures, its experience integrating accounts into the company's operations,
its assumptions as to attrition rates for the acquired accounts and the
representations and warranties of the sellers. If the actual financial condition
or operations of a seller were inaccurately represented to Alarmguard in
connection with an acquisition or the actual attrition rate for the accounts
acquired is greater than the rate assumed by Alarmguard at the time of the
acquisition, and if Alarmguard is unable to recoup its damages from the portion
of the purchase price held back from the seller, such acquisition could have
material adverse effect on Alarmguard's financial condition or results of
operations. See "RISK FACTORS--Attrition of Subscriber Accounts."
Alarmguard actively seeks to identify prospective companies in the areas in
which it operates through senior management's contacts in the industry. The
extensive experience of Alarmguard's management in identifying and negotiating
previous acquisitions, and Alarmguard's use of standard form agreements, help to
facilitate the successful negotiation and execution of acquisitions in a timely
manner.
Alarmguard conducts an extensive pre-closing review and analysis of all
facets of the seller's operations. The process includes, but is not limited to,
a combination of selective field equipment inspections, individual review of
substantially all of the subscriber contracts, an analysis of the rights and
obligations under such contracts, telephone surveys of a representative sample
of subscribers, review of customer billing records and accounts receivable aging
reports, review of the seller's telephone traffic to determine if it is
reasonable for the number and type of subscribers and other types of
verification of the seller's operations.
Alarmguard develops for each acquisition a specific integration program in
conjunction with the seller. Integration efforts typically include a letter
approved by Alarmguard, from the seller to its subscribers, explaining the sale
and transition, followed by a personal visit by an Alarmguard representative or
mailings from Alarmguard to provide the subscriber with service brochures, field
service and monitoring phone number stickers, yard signs and window decals.
Thereafter, each new subscriber is contacted individually by telephone by a
member of Alarmguard's customer service group for the purpose of soliciting
certain information and addressing the subscriber's questions or concerns. The
acquisition management system's goal is to enhance new subscriber identification
with Alarmguard as the service provider and to maintain subscriber satisfaction,
and thus realize a higher portion of the potential value of the MRR generated by
purchased subscriber accounts.
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RECENT DEVELOPMENTS
On December 20, 1996, Alarmguard entered into the Stock Purchase Agreement
with respect to the Proposed Acquisition, pursuant to which Alarmguard will
purchase all of the issued and outstanding shares of capital stock of Protective
Alarms for an initial purchase price of approximately $17.1 million (including
$0.1 million of estimated expenses), subject to certain terms and conditions. In
addition, the Stock Purchase Agreement provides that Protective Alarm's current
and long-term debt in the amount of approximately $1.5 million will be satisfied
concurrently with the closing of the transaction. Protective Alarms is a
security alarm system company doing business primarily in Connecticut and
Westchester County, New York, that provides security equipment and monitoring
services to homeowners and businesses. Protective Alarms had approximately 9,000
subscribers as of December 31, 1996 (approximately 70% of which were
residential). In addition, Protective Alarms specializes in Chain Account Sales
under the name "Pro National," primarily in the Northeastern United States. If
the Proposed Acquisition is consummated, Alarmguard expects to be able to
develop its business with respect to Chain Account Sales. Up to $1.6 million in
additional consideration will be paid to the sellers upon the installation of
national account contracts pending on the closing date of the Proposed
Acquisition during the year following such closing date.
The proposed closing date for the Proposed Acquisition is April 4, but in no
event later than April 30, 1997, and is conditioned on essentially all of
Protective Alarm's assets being free of any liens, there having been no material
adverse change to the business, properties or affairs of Protective Alarms and
the delivery of non-compete agreements entered into by the sellers. The Stock
Purchase Agreement also creates a procedure for adjusting the purchase price
after the closing of the Proposed Acquisition based upon Alarmguard's review of
the value of Protective Alarm's assets as of such closing and a mechanism to
allow the sellers to terminate the transaction if the purchase price formula
applied on the date of such closing does not yield at least a certain minimum
selling price which the sellers desire to receive, unless Alarmguard elects to
consummate the purchase at the higher purchase price. The sellers of Protective
Alarms have agreed to indemnify Alarmguard and Protective Alarms against losses
due to breaches of representations or covenants contained in the Stock Purchase
Agreement, or due to liabilities to third parties arising prior to the closing
of the Proposed Acquisition. Alarmguard has agreed to indemnify the sellers
against losses due to breaches of its representations and covenants and due to
liabilities arising after the closing of the Proposed Acquisition. If Alarmguard
should breach the Stock Purchase Agreement and fail to close the Proposed
Acquisition, its liability is limited to an agreed amount of liquidated damages.
After the closing of the Proposed Acquisition, Alarmguard will lease a building
for five years from a partnership, one of whose partners is one of the sellers
of Protective Alarms.
In August 1995, Alarmguard and one of its subsidiaries entered into the
pilot SNET Regional Licensing Agreement, which granted Alarmguard the exclusive,
non-transferable right to use and display certain trademarks owned by SNET in
connection with making, using, advertising and selling burglary, fire and
environmental protection alarm systems and associated monitoring services in the
states of Connecticut, New York, New Jersey and Rhode Island. As of January 31,
1997, Alarmguard elected to terminate the SNET Regional Licensing Agreement.
TRADITIONAL SALES AND MARKETING
Alarmguard believes that the increasing density of its subscriber base
(i.e., the increasing concentration of subscribers in certain areas) has
increased the overall presence and visibility of Alarmguard. In connection with
sales resulting from the Direct Marketing Program, new subscribers are provided
with highly visible reflective yard signs placed prominently in front of their
homes or businesses. The presence of these signs develops greater awareness in a
neighborhood and leads to more inbound and referral business. Alarmguard
encourages referrals from existing subscribers through an incentive program
promoted through billing inserts and employee contacts.
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SONITROL FRANCHISE
Alarmguard also sells, installs and services Sonitrol-TM- sound-based
security systems in New Haven County, Connecticut as a Sonitrol franchisee. The
Sonitrol system is a sound-based monitoring system designed primarily for
commercial customers. As of December 31, 1996, Sonitrol represented
approximately 4% of Alarmguard's MRR.
DESCRIPTION OF OPERATIONS
Alarmguard's operations consist principally of alarm monitoring services,
field service repair, enhanced security services and the installation of new
subscriber equipment.
ALARM MONITORING SERVICES
SUBSCRIBER SECURITY ALARM SYSTEMS. Security alarm systems include devices
installed at the subscriber's premises designed to detect or react to various
occurrences or conditions, such as intrusion or the presence of fire or smoke.
These devices are connected to a computerized control panel that communicates
through telephone lines to a central monitoring station. Subscribers may also
initiate an emergency signal from a device such as a "panic button." In most
systems, control panels can identify the nature of the alarm and the areas
within a building where the sensor was activated, and can transmit that
information to the central monitoring station.
THE CENTRAL MONITORING STATION. Alarmguard monitors substantially all of
its subscriber accounts, including acquired accounts, at its central monitoring
station in Orange, Connecticut. The central monitoring station incorporates the
use of advanced telecommunications and computer systems that route incoming
alarm signals and telephone calls to operators. Each operator is situated at a
computer station that provides immediate information concerning the nature of
the alarm signal, the subscriber whose alarm has been activated, and the
premises on which such alarm is located. All telephone conversations are
automatically recorded.
The central monitoring station as currently configured has the capacity to
monitor up to 65,000 subscribers. With incremental capital investment of
approximately $750,000, such facility can be expanded to monitor up to 200,000
subscribers. The equipment at the central monitoring station includes:
sophisticated phone switching equipment; digital receivers that process the
incoming signals; a computer system with built-in redundancy; a network of
"smart" computer terminals; a multi-channel, voice-activated recording system;
uninterruptable power supply; and two backup generators.
Alarmguard's central monitoring station is listed by UL as a protective
signaling services station. The UL burglar and fire certificate was developed in
response to the needs of the insurance industry as a means to verify proper
installation and maintenance of burglar and fire alarm systems. To obtain a UL
certificate, which describes varying levels of response and protection, a
central monitoring station must earn the UL listing through a series of ongoing
inspections and operational tests. UL specifications for central monitoring
stations include building integrity, back-up systems, staffing and standard
operating procedures. In many jurisdictions, applicable law requires that
security alarms for certain buildings be monitored by UL-listed facilities. In
addition, such listing is required of certain commercial subscribers' by
insurance companies as a condition to insurance coverage. Of the estimated
12,000 companies in the security alarm industry, only approximately 400 carry
the UL approval. Additional listings carried by Alarmguard's central monitoring
station include FM ("Factory Mutual"), which has more stringent procedural and
equipment requirements than UL, and the Central Station Signaling Unit of the
Fire Department of New York City. Alarmguard is one of only 20 central
monitoring stations in the United States approved to monitor commercial fire
systems in New York City.
OPERATION OF THE CENTRAL MONITORING STATION. Depending upon the type of
service for which the subscriber has contracted, central monitoring station
personnel respond to alarms by relaying information
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to the local fire or police departments, notifying the subscriber or taking
other appropriate action, such as dispatching alarm response personnel to the
subscriber's premises where this service is available. Alarmguard also provides
a substantial number of subscribers with remote audio verification capability
that enables the central monitoring station to listen and speak directly into
the subscriber's premises in the event of an alarm activation. This feature
allows Alarmguard's personnel to verify that an emergency exists, to reassure
the subscriber and to expedite emergency response, even if the subscriber is
unable to reach a telephone. Remote audio verification capability also assists
Alarmguard in quickly determining if the alarm was activated inadvertently, and
thus whether a response is required.
Alarmguard's central monitoring station operates 24 hours per day, seven
days a week, including all holidays. Each operator receives training that
includes familiarization with the alarm systems in Alarmguard's subscriber base.
This enables the operator to tell subscribers how to turn off their systems in
the event of a false alarm, thus reducing the instances in which a field service
person must be dispatched. Other non-emergency administrative signals are
generated by low battery status, deactivation and reactivation of the alarm
monitoring system, and test signals, and are processed automatically by
computer.
All of Alarmguard's central monitoring station operators have received
operator certificates from the Security Industry Association ("SIA"). Founded in
1969, SIA is a security alarm industry trade organization that promotes growth
and professionalism in the alarm industry. SIA developed the first industry-wide
training program for central station operators, which was offered in April 1995.
This training program provides a standard orientation, introduction and
procedural foundation for operators which is based on UL policies as well as
input from numerous security alarm monitoring companies that operate central
stations. The program consists of classroom instruction followed by a
comprehensive written examination. The SIA operator certificate is issued to
those operators who pass such examination. The National Burglar and Fire Alarm
Association ("NBFAA") has endorsed and approved the SIA program, adding it to
the NBFAA National Training School. Alarmguard was the first security alarm
company in the United States to have all its central monitoring station
operators trained and tested in the SIA program. Of the estimated 12,000
companies in the security alarm industry, there are only 516 SIA certified
central monitoring station operators. Alarmguard has 67, or approximately 13%,
of such SIA certified central monitoring station operators which represents the
third highest number of certificates granted to any one SIA approved company.
SUBSCRIBER CONTRACTS. Alarmguard's monitoring/equipment lease contracts
generally have initial terms of 60 months in duration, and provide for automatic
renewal for a fixed period (typically one year) unless Alarmguard or the
subscriber elects to cancel the contract 90 days in advance of the end of its
term. Alarmguard maintains an individual file with a signed copy of the contract
for each of its subscribers and a computerized customer data base.
Substantially all of Alarmguard's monitoring/equipment lease contracts for
Alarmguard's residential subscribers provide for subscriber payments of between
$20 and $40 per month. Alarmguard's commercial subscribers typically pay from
$25 to $150 per month.
ENHANCED SECURITY SERVICES
Additional MRR is generated by the provision of enhanced security services
that Alarmguard offers to both its existing subscribers and in conjunction with
the sales of new systems. These enhanced security services include:
EXTENDED WARRANTY PLANS, which cover the normal costs of repair of the
system during normal business hours, after the expiration of the initial
warranty period.
TWO-WAY VOICE COMMUNICATION (Remote Audio Verification), which consists
of the ability, in the event of an alarm activation, to listen and talk
to persons at the monitored premises from the central monitoring station
through the monitoring panel located within the premises. Among
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other things, such remote audio verification helps Alarmguard determine
whether an alarm activation is a false alarm.
SUPERVISED MONITORING SERVICE, which allows the alarm system to send
various types of signals containing information on the use of the system,
such as what users armed or disarmed the system and at what time of the
day. This information is supplied to subscribers for use in connection
with the management of their households or businesses. Supervised
monitoring service can also include a daily automatic test feature and
opening and closing reports on the numbers of persons entering or leaving
a location.
PAGER SERVICE, which provides the subscriber, at discounted rates, with
standard pager services that also enable Alarmguard to reach the
subscriber in the event of an alarm activation.
WIRELESS BACK-UP, which permits the alarm system to send signals over a
dedicated radio system in the event that regular telephone service is
interrupted.
INSTALLATION AND FIELD REPAIR SERVICES
Alarmguard generally hires and maintains installation and field service
personnel in each of its branch offices. Alarmguard trains its employees to
install and maintain the various types of subscriber security systems marketed
and serviced by Alarmguard and also those typically marketed by other dealers
and found in the households of acquired subscriber accounts. The primary alarm
systems that Alarmguard installs are manufactured by ITI and Ademco. Alarmguard
has purchased alarm systems from other manufacturers and believes that it can
readily do so in the future if necessary. Alarmguard believes that the majority
of installed alarm systems monitored in the United States were manufactured by a
limited number of manufacturers. Accordingly, Alarmguard believes that it can
readily train service personnel to service these systems. Alarmguard generally
warrants such systems for one year after installation.
Installation of new alarm systems are performed promptly after the
completion of the sale of the account. After completing an installation, the
technician instructs the subscriber on the use of the system and furnishes a
written manual and, in many instances, an instruction video. Additional
follow-up instruction is provided by sales consultants in the branch office on
an as-needed basis.
Alarmguard believes one of the most effective ways of improving customer
retention is the provision of quality, responsive field repair service by
Alarmguard employees. Field service personnel are trained by Alarmguard to
provide repair services for the various types of security systems owned by
Alarmguard's subscribers. Field service personnel also inspect installations
performed by Alarmguard's installation subcontractors.
Repair services generate revenues primarily through billable field service
calls or contractual payments under Alarmguard's extended warranty plans. The
increasing density of Alarmguard's subscriber base, as a result of Alarmguard's
continuing effort to fill-in areas surrounding its branch operations with new
subscribers, permits more efficient scheduling and routing of field service
technicians, and results in economies of scale at the branch level. The
increased efficiency in scheduling and routing also allows Alarmguard to provide
faster field service response and support, which leads to a higher level of
subscriber satisfaction.
CUSTOMER RETENTION
Alarmguard believes that customer satisfaction is an important factor in the
retention of subscriber accounts. Alarmguard has implemented a number of
measures intended to maximize customer satisfaction, including an annual survey
of all subscribers, and periodic awards to the branches that maintain superior
customer satisfaction. To further enhance customer satisfaction, and therefore
customer retention, each branch is on-line with Alarmguard's central computer in
Orange, Connecticut so that employees of any branch can immediately access
subscriber account information and respond promptly to questions
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or complaints. A history of each customer's alarm, repair and payment activities
is maintained in the central computer, which enables customer representatives to
promptly and effectively respond to customer inquiries.
In the normal course of its business, Alarmguard experiences customer
cancellations of monitoring and related services as a result of subscriber
relocation, the cancellation of acquired accounts during the process of
integrating such accounts into Alarmguard's operations, unfavorable economic
conditions and other reasons. This attrition is offset to a certain extent by
revenues from the sale of additional services to existing subscribers, the
reconnection of premises previously occupied by subscribers, the conversion of
accounts previously monitored by other alarm companies, and guarantees provided
by the sellers of such accounts. Alarmguard experienced 12.3% of gross MRR
attrition in fiscal 1995 and 11.9% in fiscal 1996. Gross MRR attrition is
defined by Alarmguard for a particular period as a quotient, the numerator of
which is equal to gross MRR lost as the result of canceled subscriber accounts,
including the MRR of subscribers who have moved from homes or businesses in
which an existing alarm system was installed ("transfers"), and the denominator
of which is the average month-end MRR during such period. See "RISK
FACTORS--Attrition of Subscriber Accounts" and "ALARMGUARD MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
General--Subscriber Attrition."
COMPETITION
The security alarm industry is highly competitive and highly fragmented.
Alarmguard competes with major national firms with substantial financial
resources, including ADT, Ameritech Corporation, Wells Fargo, Honeywell, Inc.,
The Pittston Brinks Group, Western Resources and Westinghouse Electric
Corporation, as well as other strong regional providers. Other alarm service
companies have adopted a strategy similar to Alarmguard's that entails the
aggressive purchase of alarm monitoring accounts both through acquisitions of
account portfolios and through dealer programs and internal growth programs.
Some of such competitors have greater financial resources than Alarmguard, or
may be willing to offer higher prices than Alarmguard is prepared to offer to
purchase subscriber accounts. Utility companies and cable television companies
also have recently entered the alarm monitoring business and will likely compete
with Alarmguard for new accounts and for acquisitions. See "RISK
FACTORS--Competition."
Competition in the security alarm industry is based primarily on reliability
of equipment, market visibility, services offered, reputation for quality of
service and price. Alarmguard believes it competes effectively with other
national, regional and local security alarm companies in the Northeastern and
Mid-Atlantic United States because of Alarmguard's reputation for reliable
equipment and services, its concentrated presence in the areas surrounding its
branch offices, its ability to bundle monitoring, maintenance and repair and
enhanced services and its low cost structure.
The Telecommunications Act of 1996 prohibits the regional Bell operating
companies from engaging in the providing of alarm monitoring services until
February 2001, except to the extent any Bell operating company was engaged in
such business as of November 30, 1995. SNET is not covered by the prohibitions
under the Telecommunications Act of 1996.
REGULATORY MATTERS
Recently, a trend has emerged on the part of local governmental authorities
to consider or adopt various measures aimed at reducing the number of false
alarms. Such measures include: (i) subjecting alarm monitoring companies to
fines or penalties for transmitting false alarms, (ii) licensing individual
alarm systems and the revocation of such licenses following a specified number
of false alarms, (iii) imposing fines on alarm subscribers for false alarms,
(iv) imposing limitations on the number of times the police will respond to
alarms at a particular location after a specified number of false alarms and
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(v) requiring further verification of an alarm signal before the police will
respond. See "RISK FACTORS--Possible Adverse Effect of 'False Alarm'
Ordinances."
Alarmguard's operations are subject to a variety of other laws, regulations
and licensing requirements of federal, state and local authorities. In certain
jurisdictions, Alarmguard is required to obtain licenses or permits, to comply
with standards governing employee selection and training and to meet certain
standards in the conduct of its business. Many jurisdictions also require
certain of Alarmguard's employees to obtain licenses or permits.
In the states where Alarmguard installs burglary and fire systems,
Alarmguard and its individual installers are required to hold licenses which,
depending on the state, may include an electrical contractor's license and a
journeyman's license. Such states may also require, as part of the licensing
process, a security clearance or background check issued by the state's
department of public safety or similar governmental authority. In the states
where Alarmguard is required to have a single license holder, under whose
license the individual installers may operate, Alarmguard generally has two or
three license holders in order to ensure continuity in the event a licensed
employee is transferred or leaves Alarmguard's employment. Local authorities
generally require permits for large or complex fire system installations. Such
permits are generally specific to the installation site and are obtained in
advance of the commencement of work.
The alarm industry is also subject to requirements imposed by various
insurance, approval, listings and standards organizations. Depending upon the
type of subscriber served, the type of security service provided, and the
requirements of the applicable local governmental jurisdiction, adherence to the
requirements and standards of such organizations is mandatory in some instances
and voluntary in others.
Alarmguard's advertising and sales practices are regulated by both the FTC
and state consumer protection laws. Such laws and regulations include
restrictions on the manner in which Alarmguard promotes the sale of its security
alarm systems and the obligation of Alarmguard to provide purchasers of its
alarm systems with certain recision rights.
Alarmguard markets some of its products and services through telemarketing,
which is regulated on the state and federal level. Alarmguard believes that
these activities will increasingly be subject to such regulation. Such
regulation may limit Alarmguard's ability to solicit new subscribers or to offer
one or more products and services to existing subscribers and may materially
affect Alarmguard's business and revenues.
Alarmguard's alarm monitoring business utilizes telephone lines and radio
frequencies to transmit alarm signals. The cost of telephone lines and the type
of equipment which may be used in telephone line transmission are currently
regulated by both federal and state governments. The operation and utilization
of radio frequencies are regulated by the Federal Communications Commission and
state public utilities commissions. See "RISK FACTORS--Government Regulations;
Risks of Liability of Operations."
RISK MANAGEMENT
The nature of the services provided by Alarmguard potentially exposes it to
greater risks of liability for employee acts or omissions or system failure than
may be inherent in other businesses. Most of Alarmguard's alarm monitoring
agreements and other agreements pursuant to which it sells its products and
services contain provisions limiting Alarmguard's liability to subscribers in an
attempt to reduce this risk.
Alarmguard carries insurance of various types, including general liability
and errors and omissions insurance. The loss experience of Alarmguard and other
security service companies may affect the availability and cost of such
insurance. Certain of Alarmguard's insurance policies, and the laws of some
states, may limit or prohibit insurance coverage for punitive or certain other
types of damages, or liability of Alarmguard arising from gross negligence or
wanton behavior. Alarmguard experiences insurance
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claims in the ordinary course of its business. Alarmguard does not believe that
any of such pending claims will have a material adverse effect on the financial
condition or results of operations of Alarmguard or Alarmguard's ability to
obtain insurance coverage in the future.
TRADEMARKS
Alarmguard operates under the trademark "Alarmguard" and certain other
trademarks. See "-- Sonitrol Franchise."
LEGAL PROCEEDINGS
Alarmguard experiences routine litigation in the normal course of its
business. Alarmguard does not believe that any pending or threatened litigation
will have a material adverse effect on the financial condition or results of
operations of Alarmguard.
EMPLOYEES
At March 13, 1997, Alarmguard employed approximately 400 individuals on a
full-time basis. Currently, none of Alarmguard's employees is represented by a
labor union or covered by a collective bargaining agreement. Alarmguard believes
that its relations with its employees are good.
FACILITIES
Alarmguard's executive offices, central monitoring station and
administrative offices constitute 20,000 square feet and are located at 125
Frontage Road, Orange, Connecticut (the "Headquarters"). Alarmguard has entered
into a lease with respect to the Headquarters with 125 Frontage Road LLC, a
company controlled by Russell R. MacDonnell Chairman, President and Chief
Executive Officer of Alarmguard. Such lease expires on June 30, 2003. Alarmguard
also leases office space in Piscataway and Parsippany, New Jersey; New Rochelle
and Plainview, New York; Woodlyn, Pennsylvania; and Salisbury, Maryland. The
leases for these properties expire on various dates through 2002, and in some
cases are renewable at the option of Alarmguard.
TRITON SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth certain historical selected consolidated
financial data of Triton. The selected consolidated financial data are derived
from the consolidated financial statements of Triton and should be read in
conjunction with Triton's consolidated financial statements and related notes
incorporated herein by reference and with the "TRITON MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included
elsewhere in this Proxy Statement/Prospectus. The selected consolidated
financial data for the nine months ended March 31, 1994 and as of and for the
years ended March 31, 1995 and 1996 have been derived from the audited
consolidated financial statements of Triton incorporated herein by reference.
The selected consolidated financial data as of and for the years ended March 31,
1992 and 1993, as of and for the three months ended June 25, 1993 and as of
March 31, 1994 have been derived from the audited consolidated financial
statements of Triton not included or incorporated by reference in this Proxy
Statement/Prospectus. The selected consolidated financial data for the nine
months ended December 31, 1995 and 1996 and as of December 31, 1996 have been
derived from the unaudited interim consolidated financial statements of Triton,
incorporated herein by reference, which have been prepared on a consistent basis
with the audited consolidated financial statements and reflect, in the opinion
of the management of Triton, all adjustments (consisting only of normal
recurring accruals) necessary for the fair presentation of such data. Results
for the nine months ended December 31, 1996 are not necessarily indicative of
the results that may be expected for any other interim period or for the year as
a whole.
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SELECTED CONSOLIDATED FINANCIAL DATA
TRITON GROUP LTD.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (A)
--------------------------------
THREE
MONTHS NINE MONTHS NINE MONTHS ENDED
YEARS ENDED MARCH ENDED JUNE ENDED MARCH YEARS ENDED MARCH
31, 25, 31, 31, DECEMBER 31,
-------------------- ---------- ----------- -------------------- --------------------
1992 1993 1993(B) 1994 1995 1996 1995 1996
--------- --------- ---------- ----------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................ $ 19,355 $ 6,836 $ 1,735 $ 6,633 -- -- -- --
Operating income (loss)................. (18,649) (3,381) (312) 421 $ (2,722) $ (5,427) $(5,003) $ (1,104)
Income (loss) from continuing
operations............................ (153,455) (26,748) (14,027) (14,199) (10,663) 25,072 24,490 2,237
Income (loss) from discontinued
operations............................ (18,902) (14,355) (1,134) (961) (13,604) 2,514 2,514 --
Extraordinary item...................... 4,304 4,622 177,903
Net income (loss)....................... (168,053) (36,481) 162,742 (15,160) (24,267) 27,586 27,004 2,237
Per Share Data (c)(d):
Income (loss) from continuing
operations.......................... (0.71) (0.53) 1.22 1.21 0.10
Income (loss) from discontinued
operations.......................... (0.05) (0.68) 0.12 0.12 --
Net income (loss)..................... (0.76) (1.21) 1.34 1.33 0.10
Shares outstanding at year end(d)....... 19,978 19,978 21,451 19,978 21,553
Average shares, including common stock
equivalents(d)........................ 19,978 19,978 20,612 20,298 21,525
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
AT MARCH 31, AT JUNE 25, AT MARCH 31, AT DECEMBER 31,
-------------------- ----------- ------------------------------- -----------------
1992 1993 1993 (B) 1994 1995 1996 1996
--------- --------- ----------- --------- --------- --------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets (e)......................... $ 325,210 $ 254,675 $ 199,201 $ 182,181 $ 55,430 $ 14,883 $ 15,568
Long-term debt (e)....................... 351,737 104,852 94,116 89,478 25,837 915 --
Other liabilities........................ 25,285 7,227 12,329 9,200 5,716 2,887 2,637
Liabilities subject to compromise........ -- 235,541 -- -- -- -- --
Minority interest in subsidiaries........ 15,084 13,573 13,612 13,209 -- -- --
Stockholders' equity (deficit)........... (127,214) (161,461) 57,715 41,895 17,806 9,935 12,172
</TABLE>
- ------------------------
(a) Triton emerged from Chapter 11 bankruptcy proceedings on June 25, 1993
pursuant to the terms of the Joint Plan. Following the consummation of the
Joint Plan, the results of Triton, which became a new entity for financial
reporting purposes, are distinguished from the results of the predecessor
company by a solid double line.
(b) Financial data as of and for the three months ended June 25, 1993 give
effect to the consummation of the Joint Plan.
(c) Per share data for periods prior to June 25, 1993 are not presented because
of the change in the capital structure on that date as a result of the
consummation of the Joint Plan.
(d) Does not reflect the Reverse Stock Split to be effected prior to the Merger.
(e) Triton generally does not restate its consolidated balance sheet to remove
the assets, liabilities, and minority interest of discontinued operations.
Consequently, balance sheet data includes the assets and liabilities of
Liquor Barn, Inc. ("Liquor Barn"), National Airmotive, Ridgewood and Western
Metal prior to their respective dispositions. However, the consolidated
balance sheet as of March 31, 1995 reflects the net assets and liabilities
of National Airmotive as a single amount, despite the disposition date of
June 2, 1995, because Triton entered into a contract to sell National
Airmotive in March 1995.
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TRITON MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND RECENT DEVELOPMENTS
Triton is a holding company which historically conducted business through a
number of operating subsidiaries in various industries. Triton emerged from
bankruptcy proceedings under Chapter 11 in June 1993 with operating control of
six subsidiaries and a significant equity interest in a seventh company. Triton
announced in August 1993 a plan to realize value for its stockholders over a
relatively short period of time in the form of either cash or securities which,
in the opinion of management, would be liquid and fairly valued given the
underlying assets. Refer to the "Business Developments" section below which
details the progress that Triton has made toward its goal since the emergence
from Chapter 11 in 1993.
At March 13, 1997, Triton owned 44% of Mission West (676,050 shares of
common stock), a publicly-traded real estate company, with a quoted market value
of $1.4 million at such date, 450,000 shares of Series A Convertible Preferred
Stock with a face value of $3.6 million of Ridgewood, a diversified real estate
company, and 100% of La Jolla, a non-operating Bermuda insurance captive. On
such date, Triton also had $15.3 million of cash and held certain other assets
with an estimated aggregate fair market value of aproximately $300,000. These
assets included notes and other receivables, a non-voting preferred stock
interest in a private company and certain parcels of real estate. At March 13,
1997, Triton also had certain notes payable of approximately $1 million and
certain contingent liabilities in the amount of $1.9 million. Triton announced
in December 1995 that it had retained an investment banking firm to assist
Triton in developing and evaluating proposals for potential acquirors,
acquisition candidates or merger partners.
On July 1, 1996, Mission West entered into a definitive agreement to sell
substantially all of its real estate assets for approximately $42 million. On
October 14, 1996, Mission West announced that it had exercised a "fiduciary out"
pursuant to this agreement and entered into a new definitive agreement to sell
all of its real estate assets for an aggregate purchase price of $46.5 million.
On December 6, 1996, Mission West issued a "fiduciary out" pursuant to this
second agreement and entered into a new definitive agreement to sell all of its
real estate assets for an aggregate purchase price of $50.5 million. The current
agreement was approved by the stockholders of Mission West on December 16, 1996
at a meeting held for such purpose. On January 20, 1997, Mission West completed
the sale of all but one of the properties under contract and received gross cash
proceeds of approximately $47.5 million before the repayment of secured real
estate obligations on such properties totaling approximately $29 million.
Mission West has the remaining property under contract for $3 million and
anticipates closing this sale in the near future. On February 4, 1997, the board
of directors of Mission West declared a cash dividend of $9.00 per share of
Mission West common stock to stockholders of record on February 19, 1997, which
was paid on February 27, 1997. This represented a cash distribution to Triton of
approximately $6.1 million.
Pursuant to the Merger Agreement, Alarmguard will become a wholly-owned
subsidiary of Triton through the merger of Merger Sub with and into Alarmguard
and the conversion and exchange of each share of Merger Sub Common Stock for one
share of Surviving Corporation Common Stock, thus making Alarmguard the legal
acquiree and Triton the legal acquiror. However, because pursuant to the Merger
Agreement, the Alarmguard stockholders will, upon the consummation of the
Merger, hold approximately 57% of the outstanding Holdings Common Stock, the
Merger will be accounted for as a "reverse acquisition." Triton will therefore
be designated the accounting acquiree and Alarmguard the accounting acquiror. As
such, the net assets (principally cash) of Triton (the issuing company) will be
recorded at net book value and the pre-Merger financial statements of
Alarmguard, the accounting acquiror (i.e., the legal acquiree) will become the
historical financial statements of the combined company. In addition, pre-Merger
stockholders' deficiency and loss per share will be retroactively restated for
the equivalent number of shares received by the accounting acquiror (Alarmguard)
in the combination, with differences between the par value of the issuer's
(Triton) and accounting acquiror's (Alarmguard) stock recorded as an adjustment
to paid-in capital of Holdings.
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Prior to 1993, La Jolla provided certain insurance coverage for its parent
corporation and Triton's predecessor, Intermark, Inc., and certain of
Intermark's subsidiaries, including workers' compensation and D&O insurance. In
October 1992, Intermark filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. At that time, the total liabilities of La Jolla
(including reserves established for the risks inherent in these policies)
exceeded its assets by approximately $0.5 million. As a result of the La Jolla
insolvency and the Chapter 11 filing of Intermark, La Jolla was placed into a
voluntary liquidation proceeding in Bermuda to be managed by a liquidator for
the benefit of its creditors. In 1993, the remaining risks under the workers'
compensation policies were reinsured with a commercial insurance carrier and the
only remaining policy was a $3 million D&O insurance policy which expired in
April 1993.
Since La Jolla entered voluntary liquidation in late 1992, no actual claims
have been filed and La Jolla has no remaining active policies. Additionally, La
Jolla's assets have increased from $2.8 million in October 1992 to $3.4 million
in December 1996 as a result of interest, dividends, and capital gains on
invested balances. Given La Jolla's assets and the D&O policy limit of $3
million, the entity was deemed solvent in Triton's fiscal 1997. Triton received
definitive notice of La Jolla's emergence from liquidation in the third quarter,
and operating control of La Jolla has transferred back to Triton. Accordingly,
Triton will reconsolidate La Jolla as of December 31, 1996. In December 1996, La
Jolla reinsured the remaining risk under the D&O policy through the purchase of
a three-year, $3 million tail insurance policy from a commercial insurance
carrier, Reliance Insurance Company, at a cost of approximately $160,000. While
Triton believes that it has fully reinsured the risks under the 1993 D&O policy
with a financially sound insurance company, there can be no assurance that La
Jolla or Triton would not have to fund any claims that the reinsurer fails to
pay. Following the acquisition of the new tail policy, La Jolla completed a $3.1
million cash dividend to Triton.
In January 1997, Triton received a cash payment of $512,000, representing a
distribution on its claims pursuant to the bankruptcy liquidation plan of Liquor
Barn. Triton expects to receive a final distribution from Liquor Barn in
mid-1997 of up to approximately $100,000.
The consolidated financial statements of Triton incorporated herein by
reference have been prepared on a going concern basis assuming continuity of
operations and the realization of assets and liquidation of liabilities in the
ordinary course of business.
BUSINESS DEVELOPMENTS
During the three fiscal years ended March 31, 1996 and the nine months ended
December 31, 1996, the following corporate changes or significant events took
place:
FISCAL YEAR 1994
- Triton emerged from Chapter 11 as Triton Group Ltd. on June 25, 1993.
- National Airmotive amended its credit facility and repaid $7.1 million of
intercompany debt to Triton, the majority of which was used to reduce
holding company level debt.
- Triton, along with Liquor Barn's management and Liquor Barn's creditors
committee, determined that an orderly liquidation of Liquor Barn's assets
was in the best interest of all of that company's creditors. Liquor Barn's
bankruptcy plan was confirmed in May 1994.
- Triton sold its remaining interest in WSI Holdings, Inc. ("Western
Sizzlin") for $400,000.
- Triton liquidated certain miscellaneous assets generating cash of
approximately $2.8 million.
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FISCAL YEAR 1995
- Ridgewood completed the sale of certain of its real estate holdings
including two apartment buildings for $4.1 million in March 1994 and its
entire portfolio of mobile home parks and inventory for approximately $15
million in June 1994.
- Triton sold its interest in Ridgewood to Ridgewood for consideration
consisting of $8 million cash and 450,000 shares of newly issued Ridgewood
preferred stock with a face value of $3.6 million.
- Triton entered into an agreement to sell its entire ownership interest in
National Airmotive in March 1995. In June 1995, Triton completed the sale
of National Airmotive for cash proceeds of $11.3 million and the
assumption of National Airmotive's debt by the buyer.
- Actava, then 25.5% owned by Triton, completed the sale of its interest in
Qualex and exchanged its interest in its four sporting goods subsidiaries
to Roadmaster Industries, a sporting goods company listed on the New York
Stock Exchange, for 39% of the outstanding shares of Roadmaster.
- Actava signed a definitive agreement to merge with Orion, Sterling and
MITI, with the combined new company to be called Metromedia International
Group, Inc. The merger was subject to successful refinancing of the Orion
debt, Actava and Orion stockholder approval, and other customary approvals
and conditions.
- Triton delivered 100,000 shares of common stock of Mission West to Mission
West in exchange for a revised lease agreement for the facility leased by
Mission West to Triton's then wholly owned subsidiary, Western Metal. This
event caused Triton's ownership in Mission West to decline to 49.4%, below
the required level for consolidation in Triton's consolidated financial
statements.
FISCAL YEAR 1996
- Triton completed the sale of its entire equity interest in Western Metal
for net cash proceeds of $2.6 million and the assumption of Western
Metal's debt by the buyer.
- Triton consummated the sale of 3.1 million shares of Actava for net cash
proceeds of approximately $49.5 million, $18 million of which was used to
repay the balance of its secured indebtedness to Actava.
- Triton received $2.5 million in cash in an initial distribution pursuant
to Liquor Barn's bankruptcy plan of liquidation.
- Actava completed its merger with Orion, Sterling and MITI and the combined
entity was renamed Metromedia International Group, Inc.
- Triton completed a special distribution to its stockholders consisting of
$1.57 in cash and .066 of a share of common stock of Metromedia for each
outstanding share of Triton Common Stock. The value of the distribution at
that time was $2.54 per share of Triton Common Stock.
- Triton announced that it had retained an investment banking firm to assist
it in developing and evaluating proposals for potential acquirors,
acquisition candidates or merger partners.
NINE MONTHS ENDED DECEMBER 31, 1996 AND THEREAFTER
- On September 23, 1996, Triton entered into a letter of intent to merge
with Alarmguard.
- On December 5, 1996, La Jolla completed a $3.1 million cash dividend to
Triton.
- On January 28, 1997, Triton received $512,000 in cash representing a
second distribution pursuant to Liquor Barn's bankruptcy plan of
liquidation.
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- On February 4, 1997, following the sale of substantially all of Mission
West's real estate properties on January 20, 1997, as discussed above, the
board of directors of Mission West declared a cash dividend of $9.00 per
share of Mission West common stock, which was paid on February 27, 1997.
This represented a cash distribution to Triton of approximately $6.1
million.
As a result of the Liquor Barn bankruptcy liquidation plan, and the sales of
Ridgewood, National Airmotive and Western Metal, the operations of Liquor Barn,
Ridgewood, National Airmotive and Western Metal have been classified as
discontinued operations in the consolidated statements of operations and cash
flows for all periods presented prior to their respective sale dates in the
consolidated financial statements of Triton incorporated herein by reference.
FINANCIAL REORGANIZATION AND BASIS FOR PREPARATION OF FINANCIAL STATEMENTS
As a result of the financial reorganization completed by Triton in June 1993
pursuant to the Joint Plan, Triton's consolidated financial statements have been
prepared utilizing the principals outlined in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7") issued in November 1990 by the American Institute of Certified
Public Accountants. Under the provisions of SOP 90-7, Triton was required to
adopt fresh start reporting as of June 25, 1993, the Effective Date of the Joint
Plan, since the reorganization value (approximate fair value of the net assets
at the Effective Date) was less than the total of all pre-petition liabilities
and the former stockholders of the predecessor company received less than 50% of
the voting shares of the merged entity. Accordingly, the financial statements of
Triton subsequent to the Effective Date reflect the effects of the forgiveness
of debt resulting from the confirmation of the Joint Plan and the effects of the
adjustments to restate assets and liabilities of Triton to fair value pursuant
to SOP 90-7. The predecessor company had already ceased accruing interest on its
unsecured debt as of the Petition Date.
The accumulated deficit of the predecessor company was eliminated and
Triton's capital structure was recast in conformity with the Joint Plan. The
consolidated financial statements subsequent to the Effective Date represent the
results and financial position of the reorganized Triton which, in effect, is a
new entity for financial reporting purposes with assets, liabilities, capital
structure, cash flows and operating results that are not comparable with prior
periods. Accordingly, in the consolidated financial statements of Triton
incorporated herein by reference, the results of Triton have been segregated
from the results of the predecessor company by a solid double line to reflect
the significant change in reporting entity.
Despite the change in reporting entity, the reorganization had no effect on
the financial reporting of Triton's remaining operating subsidiaries at that
time. The operating subsidiaries were not a part of the Chapter 11 proceedings
and their operations, financial position and capital structures were unaffected
by the reorganization.
LIQUIDITY AND CAPITAL RESOURCES
Triton's principal remaining assets at March 13, 1997 consisted of
approximately $15.3 million of cash, its 44% interest in Mission West with a
quoted market value of $1.4 million at March 13, 1997 and certain other assets.
Triton's ability to realize the remaining value of its ownership in the Mission
West shares on a short-term basis is limited by, among other things, market
conditions and securities law restrictions. As discussed above, Mission West has
one remaining property under contract for $3 million and anticipates closing the
sale in the near future.
Triton also owns 450,000 shares of Series A Preferred Stock of Ridgewood
with a face value of $3.6 million which is carried in Triton's consolidated
balance sheet at $2 million. Triton currently accrues a quarterly dividend of
$90,000 on this investment and the preferred stock is redeemable at any time by
Ridgewood at its face value plus accrued dividends. The preferred stock is
convertible by Triton at any time into 1,350,000 Ridgewood common shares, which
would represent approximately 55% of the Ridgewood
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common shares then outstanding. Management is currently evaluating various
alternatives for realizing the value of this asset.
As discussed above, on December 5, 1996 Triton's wholly-owned insurance
captive, La Jolla, paid a $3.1 million cash dividend to Triton, and on January
28, 1997, Triton received a cash distribution of $512,000 from Liquor Barn. In
addition, on February 10, 1997, Triton advanced $500,000 to SSH pursuant to the
Bridge Note. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--Alarmguard Financing."
Triton's current quarterly cash requirements include approximately $400,000
of corporate level general and administrative expenses. Triton's management
believes that its current cash balances combined with expected cash flows are
sufficient to cover its operating requirements. Triton does not have any
material capital requirements or other commitments for capital in the next year.
RESULTS OF OPERATIONS
BUSINESS SEGMENTS. Triton no longer operates in any business segments;
however, Triton had consolidated real estate operations prior to fiscal year
1995 and had various unconsolidated operations during the three years ended
March 31, 1996 and the nine months ended December 31, 1996 and 1995. See
"DESCRIPTION OF TRITON."
REAL ESTATE. As a result of the sale of the Ridgewood common stock in
August 1994, the operating results of Ridgewood have been reclassified as a
discontinued operation for all periods presented. Additionally, Triton's
interest in Mission West declined to 49.4% in 1995, and accordingly, Mission
West has been reflected as an equity investment in the consolidated financial
statements effective as of the beginning of 1995. Accordingly, the operating
results of the Real Estate segment included in the consolidated results of
operations include only the operating results of Mission West for the year ended
March 31, 1994.
Revenues of Mission West consist primarily of rental income as Mission West
had no property sales in either 1993 or 1994. Mission West's revenues in 1994 of
$8.4 million compared to revenues of $6.8 million in the prior year due
primarily to a litigation settlement of $1.5 million in 1994, which was recorded
as revenue, relating to a property sold by Mission West in 1986. Mission West's
operating profit improved to $2.6 million in 1994 from $1.6 million in 1993
primarily due to the litigation settlement discussed above.
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
ACTAVA. Prior to the sale of 3.1 million shares of Actava in October 1995,
Triton recorded the results of Actava on a three-month delayed basis such that
Actava's calendar year results were recorded within Triton's fiscal year which
ends on March 31. Equity losses from Actava amounted to $11.2 million in fiscal
year 1994, $7.1 million in fiscal year 1995, and $12.1 million in 1996, which
included Triton's share of Actava's results through September 1995. Actava's
loss in calendar 1993 reflected operating losses at Actava's Snapper Power
Equipment Division ("Snapper") and to a lesser extent reduced operating profits
at the sporting goods group of companies. Actava attributed the Snapper losses
to manufacturing problems associated with newly introduced products as well as
increased product related expenses such as warranty. Actava attributed the
reduced operating earnings at the sporting goods companies to Diversified
Products, acquired by Actava in June 1993, which recorded losses for the period
due to a cautious retail environment as well as production problems caused by
the late delivery of certain product components. The improvement in Actava's
calendar 1994 results, recorded by Triton in fiscal year 1995, reflects reduced
operating losses at Snapper resulting from higher sales volume, a change in
product mix and improved manufacturing costs.
The increased losses recorded by Actava during the nine months ended
September 30, 1995, recorded by Triton in fiscal year 1996, were attributed to
reduced operating profits at Snapper due to reduced sales
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caused by the continuance of a dealer direct sales program which resulted in
repurchases of certain finished goods inventory from Snapper's distributors. The
losses were also attributed to increased selling and administrative expenses at
Snapper and the elimination of the operating profit of the sporting goods
companies sold in December 1994.
MISSION WEST. Mission West's operating results were fully consolidated in
Triton's consolidated statement of operations prior to fiscal year 1995.
Effective as of the beginning of fiscal year 1995, Triton has reflected its
investment in Mission West as an equity investment and Triton recorded equity in
earnings from Mission West of $154,000 in 1995 and $51,000 in 1996.
Additionally, Triton recorded equity in earnings of $10,000 and equity losses of
$15,000 for the nine months ended December 31, 1995 and 1996, respectively.
WESTERN SIZZLIN. Prior to 1993, Triton owned 67% of Western Sizzlin, a
franchisor of steak restaurants, and Western Sizzlin's results were consolidated
in Triton's consolidated financial statements. Western Sizzlin filed a Chapter
11 petition in October 1992 and Triton determined that its ownership level in
the reorganized entity would likely fall below 50%. Accordingly, Triton's
interest in Western Sizzlin was reflected as an equity investment as of the
beginning of fiscal year 1993. Prior to Triton's sale of Western Sizzlin in
1994, Triton recorded equity in earnings from Western Sizzlin of approximately
$0.3 million.
CONSOLIDATED OPERATIONS
THREE MONTHS ENDED JUNE 25, 1993. Revenues for the three months ended June
25, 1993 of $1.7 million were level with revenues for the same period in the
prior year. The consolidated operating loss of $0.3 million for the three months
ended June 25, 1993 compared to an operating loss of $1.4 million in the prior
year, reflecting primarily reduced corporate level general and administrative
expenses in 1993.
The consolidated loss from continuing operations of $14 million for the
three-month period ended June 25, 1993 compared to a loss of $8.6 million for
the same period in the prior year. The 1993 three-month period included $10.7
million of reorganization costs, $1.5 million of increased equity losses from
Actava and a $1.8 million reduction in investment and other income. Partially
offsetting these reductions were the improved operating results of $1.1 million
discussed above, a $6.8 million reduction in interest expense, principally due
to the curtailment of interest accruing on the Companies' subordinated
debentures subsequent to the date of the Chapter 11 petitions, and improved
equity earnings of Western Sizzlin of $0.7 million.
Net income of $162.7 million for the three-month period ended June 25, 1993
compared to a net loss of $5.1 million for the same period in the prior year.
The 1993 three-month period included an extraordinary gain of $178 million
associated with the conversion of substantially all of the unsecured debt of the
predecessor company to equity pursuant to the Joint Plan. The same period in the
prior year included a $4.6 million extraordinary gain associated with the
repurchase of subordinated debentures at prices below the face amount of the
debt. The three-month period ended June 25, 1993 included a $1.1 million loss
from discontinued operations, reflecting the combined operating results of
Liquor Barn, National Airmotive, Ridgewood and Western Metal, which was level
with the loss from discontinued operations for the same period in the prior
year.
NINE MONTHS ENDED MARCH 31, 1994. Revenues for the nine-month period ended
March 31, 1994 improved by $1.5 million over the same period in the prior year,
as a result of improved revenues at Mission West.
Consolidated operating income of $0.4 million for the nine-month period
ended March 31, 1994 compared to an operating loss of $2 million for the same
period in the prior year. The improved results reflected a $1.1 million
operating improvement at Mission West and a $1.3 million reduction in net
corporate expenses.
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The loss from continuing operations for the nine-month period ended March
31, 1994 amounted to $14.2 million compared to a loss of $18.1 million for the
same period in the prior year. In addition to the $2.4 million improvement in
operating results discussed above, other favorable fluctuations resulted from
the reorganization and included an $8.2 million reduction in interest expense
due to the elimination of interest on the subordinated debt of the predecessor
company and the fact that the corresponding 1993 period included $18.3 million
of reorganization costs. Partially offsetting these improvements were increased
equity losses from Actava of $12.6 million and a reduced income tax benefit of
$12.4 million.
The net loss for the nine-month period ended March 31, 1994 of $15.2 million
compared to a net loss for the same period in the prior year of $31.4 million.
The nine-month period ended March 31, 1994 included a loss from discontinued
operations of $1 million reflecting the combined operating results of National
Airmotive, Ridgewood and Western Metal. The comparable period in fiscal year
1993 included $13.2 million of losses from discontinued operations reflecting
the combined losses of Liquor Barn, Ridgewood and Western Metal offset the
earnings of National Airmotive.
YEAR ENDED MARCH 31, 1995. The consolidated operating loss of $2.7 million
in fiscal year 1995 compared to break-even results in the comparable period in
the prior year. The fiscal year 1995 loss reflects primarily the deconsolidation
of the operating results of Mission West at the beginning of fiscal year 1995
which generated operating earnings of $2.6 million in the comparable prior year
period.
The loss from continuing operations of $10.7 million in fiscal year 1995
compared to a loss in the comparable prior year period of $28.2 million. The
significant reduction in the loss from continuing operations as compared to the
prior year, despite the $2.7 million increased operating loss discussed above,
is a result of several factors including $10.7 million of reorganization costs
recorded in the prior year, reduced equity losses of Actava of $4.1 million in
fiscal year 1995, reduced interest expense of $3.7 million and reduced combined
other expenses of approximately $1.7 million. The reduction in interest expense
reflects primarily the deconsolidation of Mission West's operating results in
fiscal year 1995.
The fiscal year 1995 net loss of $24.3 million compared to net income of
$147.6 million in the comparable prior year period. The prior year included an
extraordinary gain of $178 million associated with the conversion of
substantially all of the unsecured debt of Triton's predecessor company to
equity pursuant to the Joint Plan. Fiscal year 1995 included a loss from
discontinued operations of $13.6 million, reflecting primarily the loss on the
sale of National Airmotive. The comparable prior year period included a loss
from discontinued operations of $2.1 million reflecting the combined operating
results of National Airmotive, Ridgewood, Liquor Barn and Western Metal.
YEAR ENDED MARCH 31, 1996. The operating loss in fiscal year 1996 of $5.4
million compared to an operating loss of $2.7 million in the prior year. In both
years the losses consist solely of corporate level expenses. The increased
current year expenses include $1.8 million of bonuses and severance payments and
$1.4 million ($0.7 million of which was non-cash) of stock option and warrant
compensation. Effective January 2, 1996, the executive officers of Triton were
terminated as employees. Two of the three executives terminated in January are
continuing to provide services to Triton on a consulting basis. In connection
with their terminations, the executives received one-year severance payments
pursuant to employment agreements with Triton. The stock option and warrant
compensation was recognized in connection with the participation in the special
distribution to stockholders in December 1995 of the executive officers,
directors and certain financial consultants of Triton who held options and
warrants to purchase Triton Common Stock. Partially offsetting the non-recurring
expenses described above was a $0.5 million reduction in the recurring corporate
level expenses.
The income from continuing operations in fiscal year 1996 of $25.1 million
compared to a loss of $10.7 million in the prior year. The improvement in the
current year, despite the increased operating expenses of $2.7 million described
above, reflects a $39.6 million gain on the sale of 3.1 million common shares of
Actava, a $1.2 million reduction in interest expense due to the repayment of the
majority of the secured debt in October 1995 and a $3.1 million improvement in
interest, dividends and other income. The
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increase in other income reflects primarily the effect of a binding arbitration
award received by Triton in connection with a litigation matter combined with
the adjustment of certain reserves based upon revised estimates of certain
contingencies. Partially offsetting these improvements were increased equity
losses of Actava of $5 million recorded by Triton prior to the sale of the 3.1
million common shares of Actava in October 1995 and a $0.4 million reduction in
the income tax benefit.
Net income in the current year of $27.6 million compared to a net loss of
$24.3 million in the prior year. The current year included income from
discontinued operations of $2.5 million reflecting principally the gain on the
sale of Western Metal. The prior year included a loss from discontinued
operations of $13.6 million reflecting primarily the loss on the sale of
National Airmotive.
NINE MONTHS ENDED DECEMBER 31, 1996. Consolidated income from continuing
operations for the nine months ended December 31, 1996 was $2.2 million compared
to income of $24.5 million during the comparable period in the prior year. The
prior year period included the $39.6 million gain on the sale of Actava
discussed above, partially offset by $12.1 million in equity losses of Actava
prior to the sale.
General and administrative expenses were $1.1 million for the nine months
ended December 31, 1996 compared to $5 million for the comparable period in the
prior year. The decline in these expenses reflects a reduction in salaries and
professional fees consistent with the reduced operations of Triton, combined
with the fact that the prior period included approximately $1.8 million of
executive bonuses and severance payments. The prior year period also included
stock option and warrant compensation of $1.4 million ($678,000 of which was
non-cash) representing the compensation recognized in connection with the
participation in the special distribution to stockholders in December 1995 of
Triton's executive officers, directors and certain financial advisors who held
options and warrants to purchase Triton Common Stock. Net interest income for
the nine months ended December 31, 1996 was $187,000 versus net interest expense
of $781,000 in the comparable prior year period. The interest expense in the
prior year period related primarily to interest on secured debt repaid following
the sale of the Actava common shares in October 1995.
Additionally, the current year period included a $3.2 million non-recurring
gain on the reconsolidation of La Jolla following La Jolla's emergence from
liquidation proceedings, and the reinsurance of its remaining risks for an
amount significantly below the book reserves establised for such risks. The
prior year period included a $1.8 million binding arbitration award from a
commercial insurance company included in other income.
Net income for the nine months ended December 31, 1996 was $2.2 million
compared to $27 million in the comparable prior year period. The prior year
period also included income from discontinued operations of $2.5 million,
reflecting the gain on the sale of Western Metal, partially offset by the
operating losses of Western Metal prior to disposition.
ALARMGUARD SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA
The following table sets forth certain selected historical consolidated
financial and operating data of Alarmguard. The selected consolidated balance
sheet data as of December 31, 1995 and 1996 and the selected consolidated
statement of operations data for the years ended December 31, 1994, 1995 and
1996 have been derived from the audited consolidated financial statements of SSH
(referred to herein as "Alarmguard") included elsewhere in this Proxy
Statement/Prospectus. The selected consolidated balance sheet data as of
December 31, 1992, 1993 and 1994 and the selected consolidated statement of
operations data for the period ended December 31, 1992 and the year ended
December 31, 1993 have been derived from the audited consolidated financial
statements of SSH. The selected consolidated financial data should be read in
conjunction with Alarmguard's consolidated financial statements and related
notes and with "ALARMGUARD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" included elsewhere in this Proxy
Statement/Prospectus.
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<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992(1) 1993 1994 1995 1996
---------- ---------- ---------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF
SUBSCRIBERS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Recurring revenue....................................... $ 1,880 $ 7,098 $ 10,928 $ 12,072 $ 15,011
Installation revenue.................................... 932 2,964 5,217 6,885 7,613
Service revenue......................................... 183 656 930 1,243 1,528
---------- ---------- ---------- ----------- -----------
Total revenue............................................. 2,995 10,718 17,075 20,200 24,152
Monitoring expense...................................... 326 1,071 1,688 1,691 2,258
Installation expense.................................... 612 2,009 3,454 4,196 4,685
Service expense......................................... 335 1,099 2,223 2,387 2,837
---------- ---------- ---------- ----------- -----------
Total cost of revenue..................................... 1,273 4,179 7,365 8,274 9,780
Gross profit.............................................. 1,722 6,539 9,710 11,926 14,372
Sales and marketing expense............................. 389 1,402 2,163 3,020 3,732
General and administrative expense...................... 866 3,100 5,037 6,467 8,435
Depreciation expense.................................... 53 549 1,225 2,081 3,008
Amortization expense.................................... 733 2,706 3,392 4,705 5,134
---------- ---------- ---------- ----------- -----------
Total operating expenses.................................. 2,041 7,757 11,817 16,273 20,309
Operating loss............................................ (319) (1,218) (2,107) (4,347) (5,937)
Other expense, net (principally interest)................. (406) (1,068) (1,510) (2,300) (3,051)
---------- ---------- ---------- ----------- -----------
Net loss before income taxes and extraordinary items...... $ (725) $ (2,286) $ (3,617) $ (6,647) $ (8,988)
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Pro forma loss per common share (unaudited) (2)........... $ (3.12)
-----------
-----------
Shares used in computing pro forma loss
per common share........................................ 2,877
-----------
-----------
CASH FLOW DATA:
Net cash provided by (used in) operating activities..... $ 188 $ (77) $ (1,997) $ (5,001) $ (7,261)
Net cash used in investing activities................... $ (4,224) $ (5,665) $ (3,147) $ (2,879) $ (1,623)
Net cash provided by financing activities............... $ 4,903 $ 8,282 $ 2,538 $ 8,640 $ 7,553
OTHER DATA:
Certain Subscriber Data:
MRR at end of period(3)................................. $ 348 $ 822 $ 956 $ 1,129 $ 1,392
Number of subscribers at end of period.................. 10,978 24,646 29,343 36,212 49,088
Adjusted EBITDA:
EBITDA(4)............................................... $ 467 $ 2,037 $ 2,510 $ 2,439 $ 2,205
Less Direct Marketing Program revenue(5)................ (279) (1,249) (2,166)
Plus Direct Marketing Program expenses(5)............... 656 2,084 4,351
---------- ---------- ---------- ----------- -----------
Adjusted EBITDA(6)........................................ $ 467 $ 2,037 $ 2,887 $ 3,274 $ 4,390
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Intangible assets, net(7)........................................ $ 12,669 $ 22,499 $ 23,517 $ 23,223 $ 21,430
Total assets..................................................... $ 15,092 $ 32,369 $ 33,484 $ 38,113 $ 39,131
Total obligations (8)............................................ $ 7,344 $ 16,162 $ 20,735 $ 30,776 $ 39,775
Redeemable preferred stock....................................... $ 5,010 $ 14,218 $ 14,903 $ 15,588 $ 16,273
Total stockholders' deficiency................................... $ (790) $ (3,473) $ (7,992) $ (15,264) $ (24,898)
</TABLE>
- ------------------------
(1) The operating results for the period ended December 31, 1992 include the
results of operations from the date of Alarmguard's inception (December 4,
1991) through December 31, 1992. The operating results for the period ended
December 31, 1991 were not significant.
(2) Pro forma loss per common share gives effect to the conversion of all
Alarmguard Preferred Stock (including accrued and unpaid dividends through
January 31, 1997) and Alarmguard Common Stock into the Merger Shares in
connection with the Merger. Such conversion does not include shares issuable
upon exercise of outstanding stock options.
(3) "MRR" means monthly recurring revenue that Alarmguard is entitled to receive
under contracts in effect at the end of such period. MRR is a term commonly
used in the security alarm industry as a measure of the size of a company.
It does not measure profitability or performance, and does not include any
allowance for future subscriber attrition or for uncollectible accounts
receivable.
(4) "EBITDA" means earnings before interest, taxes, depreciation and
amortization. EBITDA is derived by adding to the loss before income taxes
and extraordinary items, the sum of (i) amortization of debt issuance costs,
acquired customer accounts, covenants not to compete and goodwill; (ii)
other expense (principally interest), net; and (iii) depreciation expense.
EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles. EBITDA should not be construed as an
alternative to net income and is not indicative of Alarmguard's operating
performance or of cash flows available to fund Alarmguard's cash needs.
Items excluded from EBITDA are significant components in understanding and
assessing Alarmguard's financial performance. Alarmguard's management
believes presentation of EBITDA enhances an understanding of Alarmguard's
financial condition, results of operations and cash flows because EBITDA is
used by Alarmguard to measure its ability to meet its debt service
obligations and its capital expenditure and other operational needs as well
as to provide funds for growth. In addition, EBITDA has been used by
Alarmguard's lenders and the investment community to determine current
borrowing capacity and to estimate the long-term value of companies with
recurring revenues.
(5) Such amounts are not reportable for 1992 and 1993 as the Direct Marketing
Program did not commence until 1994.
(6) "Adjusted EBITDA" is derived by adding to EBITDA, Direct Marketing Program
expenses incurred, net of Direct Marketing Program revenues earned, during
the period. Adjusted EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles, should not be construed
as an alternative to net income, and is not indicative of Alarmguard's
operating performance or of cash flows available to fund Alarmguard's cash
needs. Alarmguard's management believes presentation of Adjusted EBITDA
enhances an understanding of Alarmguard's operating results, particularly in
comparison to other security alarm companies that grow substantially through
acquisitions of subscriber accounts. Additionally, an amount similar to
Adjusted EBITDA is used by lenders in extending credit to Alarmguard.
(7) Includes acquired customer contracts, covenants not to compete and goodwill.
(8) Total obligations includes the current and non-current portion of: term
loan, subordinated debt, capital leases (included in other liabilities) and
notes payable.
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ALARMGUARD MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical financial condition and
results of operations of Alarmguard for each of the three years in the period
ended December 31, 1996. The financial information, discussion and analysis
which follow are based upon and should be read in conjunction with Alarmguard's
consolidated financial statements and the notes thereto, included elsewhere
herein. This Proxy Statement/ Prospectus contains forward-looking statements,
including without limitation with respect to MRR, which involve risk and
uncertainties. Alarmguard's actual results may differ materially from the
results discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "RISK FACTORS"
and elsewhere in this Proxy Statement/Prospectus.
GENERAL
Alarmguard provides security alarm monitoring services and installs and
services security alarm systems for residential and commercial subscribers,
principally in the Northeastern and Mid-Atlantic regions of the United States.
At December 31, 1996, Alarmguard had approximately 49,000 subscriber accounts
for its alarm monitoring services (approximately 68% of which were residential).
From January 1, 1995 to December 31, 1996, Alarmguard added approximately 15,600
monitored subscriber accounts through the Direct Marketing Program, including
10,300 new Direct Marketing Program monitored subscriber accounts during the
year ended December 31, 1996. The total number of new monitored subscriber
accounts added during the same periods was 30,100 and 18,700, respectively.
Since January 1, 1995, Alarmguard has added approximately 7,600 subscriber
accounts in eleven separate acquisitions for aggregate consideration of
approximately $6.0 million (including assumed liabilities); 3,800 of these
accounts were acquired during 1996. Acquisitions consummated by Alarmguard
typically contain contractual provisions providing for (i) a guarantee by the
seller with respect to the rate of attrition measured in terms of MRR, generally
for a period of 6-12 months following the closing of such transaction, and (ii)
a holdback from the seller of a portion of the purchase price which, if the
actual attrition rate exceeds the guaranteed rate at the end of such 6-12 month
holdback period, is applied to adjust the effective purchase price downward.
During the period from January 1, 1995 through December 31, 1996, the guaranteed
attrition rate in connection with acquisitions averaged 7.0% per year of MRR
existing at closing and the holdback (including seller notes) averaged
approximately 40% of the purchase price. During the same period, the actual
attrition rate measured in MRR at the end of the applicable holdback period was
6.0% on an annualized basis. See "--Subscriber Attrition" for a discussion of
Alarmguard's gross attrition rate. No acquisition consummated by Alarmguard
during such period included an acquired account which was of such a size that
the loss of such account would have had a material adverse effect on the
benefits to Alarmguard of such acquisition.
Alarmguard continually pursues both solicited and unsolicited acquisition
opportunities; however, there are currently no acquisitions (other than the
Proposed Acquisition) pending or agreements subject to which Alarmguard would be
bound. Generally, acquisitions involve cash and/or seller notes. To the extent
that a transaction requires payment of the entire purchase price in cash, the
capital available to support other direct marketing growth initiatives will be
reduced, which may in turn adversely impact Alarmguard's overall liquidity.
Alarmguard increased its MRR from approximately $1.0 million at January 1, 1995
to approximately $1.4 million at December 31, 1996, which represents an increase
in annualized MRR from $12.0 million to $16.8 million. Approximately 23% of the
gross MRR added in such period was due to the acquisition of monitored
subscriber accounts, 52% was due to the Direct Marketing Program and 25% was due
to traditional sales.
Alarmguard internally generates two different types of new subscriber
accounts: accounts generated through the Direct Marketing Program and
"traditional" accounts. Alarmguard offers to install the Direct Marketing
Program basic alarm system for low downpayments (approximately $150, based upon
the
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current performance of the Direct Marketing Program). New subscribers are
generally required to enter into noncancellable monitoring/equipment lease
contracts which have terms of 60 months. Alarmguard retains ownership of the
alarm system hardware installed for the new Direct Marketing Program subscriber.
Alarmguard's costs associated with generating a new Direct Marketing Program
account substantially exceed the installation fee received from the Direct
Marketing Program customer. See "RISK FACTORS--Risks Related to Dependence Upon
the Direct Marketing Program for Growth." However, these costs are significantly
less than the monitoring revenues to be realized over the life of the
monitoring/ equipment lease contract. Each new subscriber is subject to credit
approval prior to entering into a monitoring contract under the Direct Marketing
Program. Alarmguard also markets traditional alarm systems, which are
characterized by the sale of the alarm system hardware by Alarmguard to the
subscriber at a non-subsidized price. The average sales price of a traditional
alarm system (which includes an equipment package in excess of the standard
Direct Marketing Program package) during 1996 exceeded $2,500.
A majority of Alarmguard's revenues are derived from recurring payments for
the monitoring of subscribers' security systems. The remainder of Alarmguard's
revenues include revenues for installing Direct Marketing Program alarm systems,
revenues derived from the sale and installation of traditional alarm systems,
revenues from installing and/or selling add-ons and upgrades to alarm systems,
and revenues derived from payments for service calls performed based on time
incurred and materials used. Monitoring and service revenues are recognized as
the monitoring or service is provided. Selling and marketing costs, excluding
commissions on the generation of Direct Marketing Program accounts, are
generally expensed in the period incurred. With respect to the Direct Marketing
Program, Alarmguard defers all direct costs (principally equipment, labor and
direct sales commissions) incurred in connection with installing and activating
new subscriber accounts. Such direct costs are amortized over a period of 48
months, which reflects an adjustment for estimated subscriber attrition. It is
Alarmguard's policy to review actual account attrition on a quarterly basis and,
when an installation is identified for disconnection, to fully write off and
charge to amortization expense the remaining net book value of the installation
costs. Substantially all other costs associated with the Direct Marketing
Program (principally telemarketing and overhead) are expensed as incurred. See
"--General--Accounting Policies for Direct Marketing Program Installations and
Subscriber Account Purchases."
Alarmguard grew rapidly in the year ended December 31, 1996, as illustrated
by an increase of 35.6% in the number of monitored subscriber accounts from
36,212 at December 31, 1995 to 49,088 at December 31, 1996 and a 23.3% increase
in its MRR from $1.1 million at December 31, 1995 to $1.4 million at December
31, 1996. In 1995, Alarmguard's MRR (excluding cancellations) increased by
$300,000, of which approximately 37% was due to the Direct Marketing Program,
approximately 27% was due to acquisitions and approximately 36% was due to
traditional sales. In 1996, MRR (excluding cancellations) increased by $417,000,
of which approximately 63% was due to the Direct Marketing Program, 19% was due
to acquisitions and 18% was due to traditional sales. Total revenues increased
by 19.6% from $20.2 million in 1995 to $24.2 million in 1996. Adjusted EBITDA as
a percentage of Non-Direct Marketing Program installation revenues (total
revenue less non Direct Marketing Program installation revenues) increased from
17.3% in 1995 to 20.0% in 1996. Operating loss increased by 36.6% from $(4.3)
million in 1995 to $(5.9) million in 1996. Alarmguard's loss applicable to
common shares increased from $(7.3) million in 1995 to $(9.7) million in 1996.
ACCOUNTING POLICIES FOR DIRECT MARKETING PROGRAM INSTALLATIONS AND
SUBSCRIBER ACCOUNT PURCHASES. The difference between Alarmguard's accounting
policy for the generation of subscriber accounts through the Direct Marketing
Program and its accounting policy for the acquisition of subscriber account
portfolios has a significant impact on Alarmguard's results of operations.
Substantially all telemarketing and overhead costs related to the generation of
subscriber accounts under the Direct Marketing Program are expensed in the
period in which such costs are incurred. During 1996, the costs of the Direct
Marketing Program which were expensed relating to an average Direct Marketing
Program installation exceeded the amount of
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installation revenues recognized based on the current performance of the Direct
Marketing Program. Accordingly, new Direct Marketing Program accounts adversely
affect operating results for the period in which the associated marketing
expenses are incurred. In contrast to the accounting policy for the Direct
Marketing Program expenses, costs associated with acquisitions of subscriber
accounts are capitalized and amortized primarily over six to ten years, the
estimated average life of an acquired account, on a straight-line basis.
Alarmguard personnel and related support costs incurred solely in connection
with subscriber account acquisitions and transitions are generally expensed as
incurred. As a result of these accounting policies, Alarmguard's results of
operations may vary in any period depending on the relative contribution to
growth in subscriber accounts from internal generation of Direct Marketing
Program accounts and from acquisitions of subscriber account portfolios.
SALES OFFICES. The expenses associated with the opening of new Direct
Marketing Program sales offices are expensed in the period in which incurred and
thus may impact Alarmguard's operating results during such period. Since 1994,
two Direct Marketing Program sales offices were opened (Dover, Delaware and
Parsippany, New Jersey). Such offices generally require a one-time cost of
approximately $20,000 to establish.
SUBSCRIBER ATTRITION. Subscriber attrition has an adverse effect on
Alarmguard's financial position and results of operations, since it affects
Alarmguard's revenues. See "RISK FACTORS--Attrition of Subscriber Accounts."
Subscribers cancelling in 1994, 1995 and 1996 was approximately 3,600, 4,500 and
5,800, respectively. Attrition can be measured in terms of decreased MRR
resulting from canceled subscriber accounts. Gross MRR attrition is defined by
Alarmguard for a particular period as a quotient, the numerator of which is
equal to gross MRR lost as the result of canceled subscriber accounts, including
the MRR of subscribers who have moved from homes or businesses in which an
existing alarm system was installed ("transfers"), during such period and the
denominator of which is the average month-end MRR during such period. The
following table sets forth Alarmguard's gross MRR attrition for the years
indicated:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
MRR:
Beginning of period................................ $ 821,958 $ 956,165 $1,128,579
Direct Marketing Program additions:................ 9,234 110,287 263,683
Acquisition additions.............................. 138,011 81,723 80,470
Other additions (1)................................ 95,595 108,332 72,523
Canceled MRR (2)................................... (108,633) (127,928) (153,538)
----------------- ----------------- ------------------
End of period...................................... $ 956,165 $ 1,128,579 $ 1,391,717
----------------- ----------------- ------------------
----------------- ----------------- ------------------
Annual attrition................................... 11.8% 12.3% 11.9%
</TABLE>
- ------------------------
(1) Includes MRR of new subscribers who move into premises that were previously
occupied by Alarmguard subscribers and in which existing alarm systems have
already been installed ("reconnects").
(2) Includes canceled MRR of subscribers who have moved from homes or businesses
in which an existing alarm system has already been installed ("transfers").
In determining gross MRR attrition, Alarmguard includes reconnects under
"other additions" rather than offsetting the number of transfers against the
number of reconnects under "canceled MRR." Alarmguard believes that this method,
while resulting in a higher attrition rate, is a more appropriate means of
measuring attrition. However, Alarmguard has historically obtained reconnects
for a significant number of these transfers. In addition, if a transfer is not
replaced by a reconnect customer, it is
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Alarmguard's policy to pursue legal action to obtain the balance due under the
monitoring contract if the transfer customer fails to comply.
AVERAGE MRR PER SUBSCRIBER. Alarmguard's average MRR per existing
subscriber was approximately $28.00 at December 31, 1996.
FUTURE NET LOSSES. Alarmguard expects to incur net losses for the
foreseeable future. See "RISK FACTORS--History of Net Losses; Anticipated Future
Losses." Factors contributing to Alarmguard's net losses include the initial
excess of expenses over revenue generated by the Direct Marketing Program, the
charges incurred by Alarmguard for amortization of purchased subscriber accounts
and capitalized costs (materials, labor and direct sales commissions) associated
with the Direct Marketing Program, and interest incurred on its indebtedness.
Although the Direct Marketing Program adversely impacts current period results,
Alarmguard believes the Direct Marketing Program will benefit operating results
in the future years because of the ongoing monitoring revenues associated with
the Direct Marketing Program accounts.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues, other than Adjusted EBITDA which is a percentage of non-Direct
Marketing Program installation revenue (total revenue less Direct Marketing
Program installation revenue) for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Recurring revenue............................................................... 64.0% 59.8% 62.2%
Installation revenue............................................................ 30.6% 34.1% 31.5%
Service revenue................................................................. 5.4% 6.1% 6.3%
--------- --------- ---------
Total Revenue .................................................................... 100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
Monitoring expense ............................................................. 9.9% 8.4% 9.3%
Installation expense............................................................ 20.2% 20.8% 19.4%
Service expense................................................................. 13.0% 11.8% 11.8%
--------- --------- ---------
Total cost of revenue ............................................................ 43.1% 41.0% 40.5%
--------- --------- ---------
Gross profit ................................................................... 56.9% 59.0% 59.5%
Sales and marketing expense .................................................... 12.7% 15.0% 15.5%
General and administrative expense ............................................. 29.5% 32.0% 34.9%
Depreciation expense ........................................................... 7.2% 10.3% 12.5%
Amortization expense ........................................................... 19.9% 23.2% 21.3%
--------- --------- ---------
Total operating expenses ......................................................... 69.3% 80.5% 84.2%
--------- --------- ---------
Operating loss ................................................................. (12.4%) (21.5%) (24.7%)
--------- --------- ---------
--------- --------- ---------
Other operating data:
EBITDA ......................................................................... 14.7% 12.1% 9.1%
Less Direct Marketing Program installation revenue............................ (1.6%) (6.2%) (9.0%)
Plus Direct Marketing Program expenses ....................................... 3.8% 10.3% 18.0%
--------- --------- ---------
Adjusted EBITDA................................................................. 17.2% 17.3% 20.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
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1996 COMPARED TO 1995
REVENUE. Revenue for 1996 increased by $4.0 million, or 19.6%, to $24.2
million from $20.2 million for 1995. RECURRING REVENUE increased by $3.0
million, or 24.3%, which was primarily the result of an increase in the number
of monitored accounts generated by the Direct Marketing Program and the
acquisition of portfolios of subscriber accounts. INSTALLATION REVENUE, which
includes revenues from the installation of Direct Marketing Program systems and
from sales of traditional systems, increased by 10.6% to $7.6 million in 1996
from $6.9 million in 1995. SERVICE REVENUE increased by 22.9% to $1.5 million in
1996 from $1.2 million in 1995.
COST OF REVENUE. Cost of revenue in 1996 increased by $1.5 million, or
18.2%, to $9.8 million from $8.3 million in 1995. As a percentage of total
revenues, cost of revenue decreased in 1996 to 40.5% from 41.0% in 1995.
MONITORING EXPENSE increased by $0.6 million, or 33.5%, due to increased
activity at Alarmguard's central monitoring station as a result of a larger
subscriber account base. INSTALLATION EXPENSES declined as a percentage of total
revenues to 19.4% in 1996 from 20.8% in 1995. SERVICE EXPENSES increased by $0.4
million to $2.8 million in 1996 from $2.4 million in 1995. NET SERVICE EXPENSE
(service revenue less service expense) as a percentage of recurring revenue
decreased in 1996 to 8.7% from 9.5% in 1995.
GROSS PROFIT. Gross profit in 1996 increased by $2.5 million, or 20.5%, to
$14.4 million from $11.9 million in 1995. This increase was due to the growth in
MRR as a result of the addition of acquired account portfolios and growth
related to the Direct Marketing Program. As a percentage of total revenues,
gross profit rose from 59.0% in 1995 to 59.5% in 1996.
SALES AND MARKETING. Sales and marketing expenses for 1996 increased by
$0.7 million, or 23.6%, to $3.7 million from $3.0 million in 1995. This increase
was primarily the result of greater marketing efforts directed at adding new
subscriber accounts through traditional sales and the Direct Marketing Program.
The Direct Marketing Program added 5,300 and 10,300 monitored subscriber
accounts in 1995 and 1996, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for 1996 increased $1.9 million, or 30.4%, to $8.4 million from $6.5 million in
1995. This increase was due to the significant growth associated with the Direct
Marketing Program during 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased in 1996 by $1.3 million, or 20.0%, to $8.1 million from $6.8 million
in 1995. This increase was primarily the result of Alarmguard's acquisition of
approximately 3,800 subscriber accounts and the addition of approximately 10,300
monitored subscriber accounts from the Direct Marketing Program during 1996.
INTEREST EXPENSE. Interest expense for 1996 increased by $0.7 million, or
30.8%, to $3.0 million from $2.3 million in 1995. This increase was the result
of higher weighted average debt outstanding under the Credit Facility.
Alarmguard increased its borrowing during this period to fund Direct Marketing
Program account growth and the acquisition of subscriber account portfolios.
1995 COMPARED TO 1994
REVENUES. Revenues for 1995 increased by $3.1 million, or 18.3%, to $20.2
million, from $17.1 million for the comparable 1994 period. RECURRING REVENUES
increased by $1.1 million or 10.5%, which was the result of the net addition of
approximately 6,900 subscribers during 1995. The increase in subscribers was a
result of the Direct Marketing Program and the acquisition of monitored
subscriber accounts. MRR increased to $1.1 million at December 31, 1995 from
$0.9 million at December 31, 1994. INSTALLATION REVENUES, increased $1.7
million, or 32.0% to $6.9 million during 1995 from $5.2 million during 1994.
SERVICE REVENUES increased by 33.7% to $1.2 million in 1995 from $0.9 million in
1994, due to an increase in the subscriber base.
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COST OF REVENUES. Cost of revenues for 1995 increased by $0.9 million to
$8.3 million, from $7.4 million in 1994. MONITORING EXPENSES remained the same
at $1.7 million, although total subscribers increased from 29,343 to 36,212. The
expense level remained constant despite an increase in the number of accounts
due to increased efficiencies in the central station, as well as the ability to
spread fixed costs over a larger account base. As a percentage of recurring
revenues, monitoring expenses declined to 14.0% during 1995, as compared to
15.4% in 1994. This decline as a percentage of recurring revenues was the result
of improved economies of scale at the central monitoring station generated by
the increase in subscribers. INSTALLATION EXPENSES increased by $0.7 million to
$4.2 million at December 31, 1995, from $3.5 million for the comparable 1994
period. Installation expenses declined as a percentage of installation revenue
to 60.9% during 1995 as compared to 66.2% for 1994, due to Alarmguard's emphasis
on the Direct Marketing Program. Direct costs associated with the installation
of Direct Marketing accounts are capitalized and amortized over the estimated
life of the contract. NET SERVICE EXPENSE as a percentage of recurring revenue
improved to 9.5% in 1995 from 11.8% in 1994.
GROSS PROFIT. Gross profit for the year ended December 31, 1995 increased
by $2.2 million to $11.9 million, from $9.7 million for the year ended December
31, 1994. As a percentage of total revenues, gross profit increased from 56.9%
to 59.0% at December 31, 1994 and 1995, respectively. The increase was
attributable to higher installation revenues, the opening of a new branch
location, and the expansion of the Direct Marketing Program.
SALES AND MARKETING. Sales and marketing expenses during 1995 increased by
$0.8 million, or 39.6%, to $3.0 million, from $2.2 million in 1994. The increase
was attributable to high installation revenues, the opening of a new branch
location and the expansion of the Direct Marketing Program.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1995 increased by $1.4 million, or 28.4% to $6.4
million, from $5.0 million for the comparable period in 1994. This increase was
due to the decentralization of certain accounting functions to local branch
offices to facilitate greater customer service.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses for
the year ended December 31, 1995 increased by $2.2 million, or 47.0% to $6.8
million, from $4.6 million for the year ended December 31, 1994. This increase
was the result of Alarmguard's acquisition of approximately 4,000 monitored
subscriber accounts during 1995 and the addition of approximately 5,500 Direct
Marketing Program monitored subscriber accounts during the same period.
INTEREST EXPENSE. Interest expense increased by $0.8 million, or 52.3%, to
$2.3 million in 1995, from $1.5 million in 1994, reflecting Alarmguard's use of
debt to finance a substantial portion of its subscriber account growth.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Since May 1992, Alarmguard has financed its operations and growth
from a combination of borrowings under revolving credit facilities and sales of
its capital stock. Alarmguard's principal uses of cash are the costs associated
with marketing and installing Direct Marketing Program systems, acquisitions of
subscriber account portfolios, and interest payments on borrowings under the
Credit Facility. A substantial portion of Alarmguard's future operating cash
flow will be used to fund the Direct Marketing Program and to service borrowings
under the New Credit Facility and other Alarmguard debt.
As of January 31, 1997, IBJ Schroder Bank & Trust Company ("IBJS") and Bank
of Boston had term loans to the Borrower under the Credit Facility in an
aggregate principal amount of approximately $30.9 million. The Credit Facility
is a senior secured term credit facility. Loans outstanding under the Credit
Facility bear interest based, at the option of the Borrower, at a floating rate
equal to either (i) the greater of (x) IBJS's base rate and (y) the Federal
Funds effective rate plus 0.5% per annum, plus, in either case, the applicable
margin of 1.5% to 1.75% per annum; or (ii) the Eurodollar rate, plus the
applicable margin of 3% to 3.25%. Availability under the Credit Facility is
limited to funding Alarmguard's Direct
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Marketing Program and such availability terminates on April 15, 1997. Current
availability of loans under the Credit Facility is approximately $1.96 million
and is limited to an amount equal to a 22.5 multiple of MRR. The loans under the
Credit Facility will be required to be repaid in equal monthly installments
through September 2001.
The loans and other obligations under the Credit Facility are secured by a
first lien on all the tangible and intangible personal property of the Borrower
and its subsidiaries, a pledge of the capital stock of all of SSH's existing or
future subsidiaries and is guaranteed by SSH and a subsidiary.
The Credit Facility contains covenants which, among other matters, (i) limit
indebtedness, (ii) limit capital expenditures, (iii) require the satisfaction of
certain financial ratios and (iv) limit the declaration of dividends. As of
December 31, 1995 and 1996, the restricted net assets of Alarmguard, Inc.,
Alarmguard's wholly-owned, consolidated subsidiary, were approximately $1.5
million and $1.1 million, respectively.
The Credit Facility provides for the following material events of default:
(i) nonpayment of principal or interest; (ii) breach by the Borrower of any
affirmative or negative covenants; (iii) any misrepresentation by the Borrower;
(iv) cross default with respect to other agreements or obligations of the
Borrower; (v) cessation of the employment of Russell R. MacDonnell or David
Heidecorn; (vi) incurrence of additional indebtedness of SSH, except for certain
permitted indebtedness; (vii) creation of any liens on SSH's property, assets or
revenues other than certain permitted liens; (viii) redemption or repurchase of
any Alarmguard Preferred Stock in whole or in part; and (ix) certain defaults
relating to bankruptcy, insolvency, ERISA and judgments, with customary
limitations and time periods.
After giving consideration to the conversion of the Alarmguard Preferred
Stock and the refinancing of SSH's existing subordinated debt, Alarmguard's
management believes that the funds provided by Triton in the Merger and
available under the New Credit Facility will be adequate to meet Alarmguard's
anticipated requirements for operating expenses (including Direct Marketing
Program costs), interest payments required by the New Credit Facility and
capital expenditures for a period of at least two years. Alarmguard, depending
upon its future needs and the cost and availability of various financing
alternatives, may from time to time seek additional debt or equity financing in
the public or private markets in order to support its acquisition and Direct
Marketing Program strategy.
If the Merger and related transactions are not consummated, Alarmguard
management intends to curtail the Direct Marketing Program and to implement a
cost reduction strategy to the extent necessary to meet its obligations. Based
on these plans, and in light of the extensions of the mandatory redemption date
of the Alarmguard Preferred Stock, and the maturity date of SSH's existing
subordinated debt and certain other obligations of Alarmguard (see Note 13 to
Alarmguard's audited consolidated financial statements included elsewhere in
this Proxy Statement/Prospectus), it is Alarmguard management's opinion that
Alarmguard will be able to meet its obligations as they come due for at least
one year from January 1, 1997.
During 1996, 1995 and 1994, Alarmguard's net cash used in operating
activities was ($7.3) million, ($5.0) million and ($2.0) million, respectively.
These increases were primarily the result of capitalized Direct Marketing
Program installation costs.
During 1996, 1995 and 1994, Alarmguard's net cash used in investing
activities was ($1.6) million, ($2.9) million and ($3.1) million, respectively.
These decreases were primarily the result of the acquisition of subscriber
account portfolios in all three years.
During 1996, 1995 and 1994, Alarmguard's net cash provided by financing
activities was $7.6 million, $8.6 million and $2.5 million, respectively.
Financing activities were principally the result of the restructuring and
extension of the Credit Facility in all three years.
NEW CREDIT FACILITY. Pursuant to the Commitment Letter, the Bank of Boston
has committed to provide the Borrower, upon consummation of the Merger, up to
$60 million under the New Credit Facility. The Commitment Letter contemplates
that the New Credit Facility will consist of the senior secured Revolver
converting to a five-year term loan two years after the Conversion Date. There
can be no
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assurance as to whether, or the definitive terms on which, the New Credit
Facility actually will be available to Alarmguard. See "PROPOSAL 1: THE MERGER
AND THE ISSUANCE OF THE MERGER SHARES--Alarmguard Financing."
BRIDGE FINANCING. Pursuant to the Merger Agreement, Alarmguard may obtain
bridge financing up to an aggregate amount of $1.5 million for working capital
and general corporate purposes in the ordinary course of business.On February
10, 1997, SSH executed the Bridge Note payable to Triton establishing a line of
credit in the amount of up to $1.5 million, and on that date borrowed $500,000
thereunder. The Bridge Note is available to Alarmguard for borrowings through
April 30, 1997 absent an event of default thereunder. All amounts outstanding
under the Bridge Note bear interest at a rate of 11% per annum, are to be
prepaid in full upon consummation of the Merger and are otherwise due on the
Maturity Date. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER
SHARES--Alarmguard Financing."
CAPITAL EXPENDITURES. Alarmguard requires capital expenditures for its core
operations, which have previously included central monitoring station equipment,
phone systems and the refurbishment of offices of under $1.0 million annually.
This amount will vary based on the growth of subscriber accounts and significant
acquisitions of subscriber accounts.
ADOPTION OF RECENT ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," which is effective for financial statements for fiscal years
beginning after December 15, 1995. This statement requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Alarmguard
determines the value of its "Acquired Customer Contracts" based on the
undiscounted cash flows from the MRR stream using the most recent historical
attrition rate and aggregate MRR. At December 31, 1996, the undiscounted cash
flows from the MRR stream were significantly in excess of the carrying value of
"Acquired Customer Contracts." The January 1, 1996 adoption of this standard did
not have a significant effect on Alarmguard's financial statements.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
December 31, 1996 and the unaudited pro forma condensed combined statement of
operations for the year then ended give effect to the Merger. The Merger will be
accounted for as a reverse acquisition and Triton will therefore be designated
the accounting acquiree and Alarmguard the accounting acquiror. As such, the net
assets of Triton (principally cash) will be recorded at net book value and
Alarmguard's pre-Merger stockholders' deficiency and loss per common share will
be retroactively restated for the equivalent number of Merger Shares received by
holders of Alarmguard Common Stock and Alarmguard Preferred Stock in the Merger,
with differences between the par value of Triton's and Alarmguard's stock
recorded as an adjustment to paid-in capital of Holdings. See "PROPOSAL 1: THE
MERGER AND THE ISSUANCE OF THE MERGER SHARES--Accounting Treatment."
In addition, the unaudited pro forma condensed combined balance sheet as of
December 31, 1996 and the unaudited pro forma condensed combined statement of
operations for the year then ended give effect to the Proposed Acquisition which
will be accounted for under the purchase method of accounting. Accordingly, the
initial purchase price of approximately $17.1 million (including $0.1 million of
estimated expenses) will be allocated to the assets acquired and liabilities
assumed based on their relative fair values at the date of acquisition. Up to
$1.6 million in additional consideration will be paid to the sellers of
Protective Alarms upon the installation of national account contracts pending on
the closing date during the year following the closing of the Proposed
Acquisition. See "DESCRIPTION OF ALARMGUARD-- Recent Developments."
The unaudited pro forma condensed combined balance sheet as of December 31,
1996 reflects the Merger and the Proposed Acquisition as if such transactions
had occurred on December 31, 1996. The unaudited pro forma condensed combined
statement of operations for the year then ended reflects the Merger and Proposed
Acquisition as if the transactions had occurred on January 1, 1996.
In the opinion of Triton's and Alarmguard's management, all adjustments
necessary to present fairly such pro forma condensed combined financial
information have been made. This unaudited pro forma condensed combined
financial information is not necessarily indicative of the actual results of
operations that would have occurred had the Merger and the Proposed Acquisition
been consummated as of the date indicated above or of operating results that may
be obtained in the future. This unaudited pro forma condensed combined financial
information should be read in conjunction with the accompanying notes and the
historical consolidated financial statements and notes thereto of Triton
incorporated herein by reference and of Alarmguard included elsewhere herein.
139
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ALARMGUARD,
PRO FORMA ALARMGUARD PROTECTIVE PRO FORMA TRITON AND
TRITON ALARMGUARD ADJUSTMENTS & TRITON ALARMS ADJUSTMENTS PROTECTIVE ALARMS
--------- ----------- ------------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 9,839 $ 230 $ 3,105 ( C,D $ 13,174 $ 74 $ (8,690)(F) $ 4,558
Accounts receivable,
net.................... -- 3,791 -- 3,791 1,470 -- 5,261
Inventories.............. -- 1,698 -- 1,698 198 -- 1,896
Prepaid expenses......... -- 332 -- 332 232 -- 564
Other current assets..... 157 250 -- 407 -- (250) 157
--------- ----------- ------------- ----------- ----------- ----------- -------
Total current assets....... 9,996 6,301 3,105 19,402 1,974 (8,940) 12,436
Property and equipment,
net...................... -- 2,478 -- 2,478 783 -- 3,261
Customer installation
costs, net............... -- 7,531 -- 7,531 -- -- 7,531
Acquired customer
contracts, net........... -- 16,443 -- 16,443 971 10,465(F) 27,879
Covenants not to compete,
net...................... -- 2,930 -- 2,930 -- 5,000(F) 7,930
Goodwill, net.............. -- 2,057 -- 2,057 -- -- 2,057
Investment in Mission West
Properties............... 2,958 -- (1,606)(A) 1,352 -- -- 1,352
Other assets............... 2,614 1,391 (412)( ,B) 3,593 46 (46)(F) 3,593
--------- ----------- ------------- ----------- ----------- ----------- -------
Total assets............... $ 15,568 $ 39,131 $ 1,087 $ 55,786 $ 3,774 $ 6,479 $ 66,039
--------- ----------- ------------- ----------- ----------- ----------- -------
--------- ----------- ------------- ----------- ----------- ----------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable......... -- $ 1,469 -- $ 1,469 $ 373 -- $ 1,842
Accrued expenses......... $ 759 1,390 -- 2,149 390 $ 100(F) 2,639
Current portion of term
loan................... -- 4,169 $ (4,169)(B) -- 771 (771)(F) --
Current portion of notes
payable................ -- 696 -- 696 26 1,600 2,322
Deferred revenue......... -- 4,621 -- 4,621 1,198 -- 5,819
Other current
liabilities............ -- 1,008 -- 1,008 56 -- 1,064
--------- ----------- ------------- ----------- ----------- ----------- -------
Total current
liabilities.............. 759 13,353 (4,169) 9,943 2,814 929 13,686
Term loan, less current
portion.................. -- 26,467 4,169(B) 30,636 700 5,800(F) 37,136
Subordinated debt.......... -- 4,951 (829)(C) 4,122 -- -- 4,122
Notes payable, less current
portion.................. -- 2,563 -- 2,563 -- -- 2,563
Other liabilities.......... 2,637 422 -- 3,059 10 -- 3,069
Redeemable preferred
stock.................... -- 16,273 (16,273)(E) -- -- -- --
Stockholders' equity
(deficiency):
Common stock............. 2 237 (238)(E) 1 5 (5)(F) 1
Additional paid-in
capital................ 21,774 35 8,823 ( D,E 30,632 -- -- 30,632
Accumulated deficit...... (9,604) (25,135) 9,569(E) (25,170) 245 (245)(F) (25,170)
Notes receivable from
officers............... -- (35) 35 -- -- -- --
--------- ----------- ------------- ----------- ----------- ----------- -------
Total stockholders' equity
(deficiency)............. 12,172 (24,898) 18,189 5,463 250 (250) 5,463
--------- ----------- ------------- ----------- ----------- ----------- -------
Total liabilities and
stockholders' equity
(deficiency)............. $ 15,568 $ 39,131 $ 1,087 $ 55,786 $ 3,774 $ 6,479 $ 66,039
--------- ----------- ------------- ----------- ----------- ----------- -------
--------- ----------- ------------- ----------- ----------- ----------- -------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
140
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ALARMGUARD,
PRO FORMA ALARMGUARD PROTECTIVE PRO FORMA TRITON AND
TRITON ALARMGUARD ADJUSTMENTS & TRITON ALARMS ADJUSTMENTS PROTECTIVE ALARMS
--------- ----------- ------------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Recurring revenue.............. -- $ 15,011 -- $ 15,011 $ 4,067 -- $ 19,078
Installation revenue........... -- 7,613 -- 7,613 3,110 -- 10,723
Service revenue................ -- 1,528 -- 1,528 322 -- 1,850
--------- ----------- ------------- ----------- ----------- ------------- --------
Total Revenue.................... -- 24,152 -- 24,152 7,499 -- 31,651
Monitoring expense............. -- 2,258 -- 2,258 669 -- 2,927
Installation expense........... -- 4,685 -- 4,685 2,259 -- 6,944
Service expense................ -- 2,837 -- 2,837 917 -- 3,754
--------- ----------- ------------- ----------- ----------- ------------- --------
Total cost of revenue............ -- 9,780 -- 9,780 3,845 -- 13,625
Gross profit..................... -- 14,372 -- 14,372 3,654 -- 18,026
Sales and marketing expense.... -- 3,732 -- 3,732 1,099 -- 4,831
General and administrative
expense...................... $ 1,528 8,435 -- 9,963 2,074 -- 12,037
Depreciation expense........... -- 3,008 -- 3,008 154 -- 3,162
Amortization expense........... -- 5,134 -- 5,134 487 $ 2,040(H) 7,661
--------- ----------- ------------- ----------- ----------- ------------- --------
Total operating expenses......... 1,528 20,309 -- 21,837 3,814 2,040 27,691
--------- ----------- ------------- ----------- ----------- ------------- --------
Operating income (loss).......... (1,528) (5,937) -- (7,465) (160) (2,040) (9,665)
Other income (expense)(K)........ 3,970 (3,051) $ (561)(J) 358 (380) (596)(I) (618)
--------- ----------- ------------- ----------- ----------- ------------- --------
Income (loss) before income
taxes.......................... 2,442 (8,988) (561) (7,107) (540) (2,636) (10,283)
Income tax benefit............... 377 -- -- 377 98 -- 475
--------- ----------- ------------- ----------- ----------- ------------- --------
Income (loss) from continuing
operations..................... $ 2,819 $ (8,988) $ (561) $ (6,730) $ (442) $ (2,636) $ (9,808)
--------- ----------- ------------- ----------- ----------- ------------- --------
--------- ----------- ------------- ----------- ----------- ------------- --------
Income (loss) from continuing
operations per common share.... $ 1.31 $ (3.12) $ (1.34) $ (1.95)
--------- ----------- ----------- --------
--------- ----------- ----------- --------
Number of shares used in
calculating income (loss) from
continuing operations per
common share................... 2,156 2,877 5,033 5,033
--------- ----------- ----------- --------
--------- ----------- ----------- --------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
information.
141
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(A) The Merger Agreement requires Triton to have a minimum of $16 million in
cash at the time the Merger is effected. Such cash will be obtained through
the following transactions: (1) realization of Triton's investment in
Mission West with a book value of approximately $3 million and an estimated
realizeable value of $7.4 million, consisting of a $6.1 million cash
dividend and the estimated fair value of a remaining property based on a
signed sales contract, (2) realization of $0.5 million of cash from Liquor
Barn and (3) Triton's available cash.
(B) Concurrent with the Merger, Alarmguard will replace the existing Credit
Facility with the New Credit Facility--see "PROPOSAL 1: THE MERGER AND THE
ISSUANCE OF THE MERGER SHARES--Alarmguard Financing." The costs incurred in
obtaining the New Credit Facility (approximately $0.9 million) will be
deferred and amortized over the term of the respective underlying debt. In
addition, the costs related to the Credit Facility and subordinated debt
(approximate book value of $0.8 million) will be charged to expense in
connection with the early extinguishment of debt. Pursuant to the terms of
the New Credit Facility, no principal payments will be due until two years
after the commencement of such New Credit Facility. Therefore, the $4.2
million current portion of the term loan under the Credit Facility at the
time of the Merger will be reclassified to non-current as it will be
refinanced with borrowings under the New Credit Facility.
(C) In connection with the Merger, SSH will refinance its existing subordinated
debt which accrues interest at 10% (8% through September 30, 1996) and is
currently due in 1998 by issuing the New Notes to the New Subordinated
Noteholders. The New Notes will mature two years after the Fund Date, and
will accrue interest at 15%. In addition, $350,000 of SSH's existing
subordinated debt will be repaid from cash on hand. In connection with the
refinancing, Alarmguard will issue the New Noteholders Warrants. The
estimated fair value of such New Noteholders Warrants (approximately
$478,000) was offset against the proceeds of the New Notes and is being
amortized as interest expense over the two-year life of such New Notes. See
"PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--Interests of
Certain Persons in the Merger."
(D) In connection with the Merger, Alarmguard and Triton will incur
approximately $3.0 million in transaction costs (including $0.9 million
relating to the New Credit Facility, see note B), consisting primarily of
legal, accounting, printing and investment banker fees.
(E) Pursuant to the Merger Agreement, Alarmguard will become a wholly-owned
subsidiary of Holdings through the merger of Merger Sub with and into
Alarmguard and the conversion and exchange of each share of Merger Sub
Common Stock for one share of Surviving Corporation Common Stock, thus
making Alarmguard the legal acquiree and Trition the legal acquiror.
However, because pursuant to the Merger Agreement, the Alarmguard
stockholders will, upon the consummation of the Merger, hold approximately
57% of the outstanding Holdings Common Stock, the Merger will be accounted
for as a "reverse acquisition." Trition will therefore be designated the
accounting acquiree and Alarmguard the accounting acquiror. As such, the net
assets (principally cash) of Triton (the issuing company) will be recorded
at net book value and the pre-Merger financial statements of Alarmguard, the
accounting acquiror (i.e., the legal acquiree) will become the historical
financial statements of the combined company. In addition, pre-Merger
stockholders' deficiency and loss per share will be retroactively restated
for the equivalent number of shares received by the accounting acquiror
(Alarmguard) in the combination, with differences between the par value of
the issuer's (Triton) and accounting acquiror's (Alarmguard) stock recorded
as an adjustment to paid-in capital of Holdings. The Merger Shares will be
allocated among the Alarmguard stockholders as follows: (i) the shares of
Alarmguard Common Stock will be converted into approximately 874,683 shares
of Triton Common Stock at the Common Stock Conversion Ratio; (ii) the shares
of Alarmguard Series A Preferred Stock, together with all dividends thereon
that have accrued and remain unpaid through January 31, 1997, will be
converted into approximately 752,649 shares of Triton Common Stock at the
Series A
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<PAGE>
Preferred Stock Conversion Ratio; and (iii) the shares of Series B Preferred
Stock, together with all dividends thereon that have accrued and remain
unpaid through January 31, 1997, will be converted into approximately
1,250,036 shares of Triton Common Stock at the Series B Conversion Ratio.
Dividends that have accrued and remain unpaid from February 1, 1997 through
the consummation of the merger will be paid at the consummation of the
merger in cash by Triton to the holders of the Alarmguard Preferred Stock as
of such time; provided that in no event will Triton be obligated to pay any
amount in excess of $140,000 of such accrued and unpaid dividends.
Accordingly, this adjustment was recorded to reflect the issuance of Merger
Shares for the outstanding Alarmguard Common Stock and Alarmguard Preferred
Stock.
(F) Subsequent to consummation of the Merger, Alarmguard is expected to
purchase all of the issued and outstanding stock of Protective Alarms for an
initial purchase price of approximately $17.0 million in cash. Up to $1.6
million in additional consideration will be paid to the sellers of
Protective Alarms upon the installation of national account contracts
pending on the closing date during the year following the closing of the
Proposed Acquisition. The Proposed Acquisition will be accounted for under
the purchase method of accounting and accordingly, the purchase price will
be allocated to the assets acquired (acquired customer contracts $10.5
million and covenants not to compete $5 million) and liabilities assumed
based on their relative fair values at the date of acquisition. In
accordance with the terms of the Stock Purchase Agreement, Alarmguard made
an initial payment of $250,000 and will pay an additional $8.7 million in
cash, of which a portion will be used to pay off the current ($771,000) and
long-term debt ($700,000) of Protective Alarms concurrent with the closing
of the transaction. Alarmguard will also write off the deferred costs
($46,000) related to this debt. In addition, $6.5 million in borrowings
under the New Credit Facility and a note payable due to the sellers secured
by a letter of credit as a purchase price holdback ($1.6 million) will be
used to pay for the remaining balance of the purchase price. Also,
approximately $0.1 million of transaction related expenses will be incurred.
(G) The pro forma information is based on the historical financial statements of
Triton (incorporated herein by reference) for the nine months ended December
31, 1996 and the year ended March 31, 1996, the historical financial
statements of Alarmguard (included herein) for the year ended December 31,
1996 and the historical financial statements of Protective Alarms for the
three months ended December 31, 1996 and the year ended September 30, 1996.
The historical financial statements of Triton and Protective Alarms have
been adjusted to conform with Alarmguard's December 31 year-end.
(H) To record amortization expense of acquired customer contracts (ten-year
life) and covenants not to compete (five-year life) resulting from the
acquisition of Protective Alarms (see Note F).
(I) To record interest expense on the borrowings incurred to finance the
Proposed Acquisition of Protective Alarms (see Note F). Interest is
calculated at Alarmguard's estimated borrowing rate (9% per annum) at
December 31, 1996.
(J) To record as interest expense, the amortization of the estimated fair value
of the New Noteholders Warrants issued in connection with the refinancing of
SSH's existing subordinated debt and the interest expense that would have
been incurred on the New Notes (see note C) as if they were outstanding
during the periods presented.
(K) Principally interest expense, net, for Alarmguard and Protective Alarms.
143
<PAGE>
DESCRIPTION OF TRITON CAPITAL STOCK
GENERAL
The following description is a summary of the material provisions of
Triton's capital stock. It does not, however, purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Triton Charter.
COMMON STOCK
Triton's authorized capital stock consists of 40,000,000 shares of Triton
Common Stock. As of March 13, 1997, 21,553,502 shares of Triton Common Stock
were issued and outstanding (without giving effect to the Reverse Stock Split).
Each holder of Triton Common Stock is entitled to one vote for each share
owned by such holder on all matters submitted to a vote of the stockholders of
Triton. Such shares are not entitled to any cumulative voting rights. The
holders of Triton Common Stock are entitled to receive ratably such dividends as
may be declared from time to time by the Triton Board out of funds legally
available therefor. In the event of any liquidation, dissolution or winding up
of Triton, holders of Triton Common Stock are entitled to share equally and
ratably in any assets remaining after payment of all debt and liabilities. The
holders of Triton Common Stock have no preemptive or other subscription or
conversion rights. The Triton Common Stock is not subject to redemption and the
outstanding shares of Triton Common Stock are, and the Merger Shares will be,
fully paid and nonassessable.
PUBLIC WARRANTS
As of March 13, 1997, 782,386 Triton Public Warrants were outstanding. Each
Triton Public Warrant entitles the holder thereof to purchase 1.84 shares of
Triton Common Stock at a purchase price of $2.04 per warrant. In the aggregate,
the Triton Public Warrants provide for the purchase of up to 1,439,590 shares of
Triton Common Stock for a price of $1,596,067. The Triton Public Warrants expire
on June 25, 1998. The Triton Public Warrants were issued on June 25, 1993 in
connection with the Joint Plan. According to the terms of the Triton Public
Warrants, Triton will (i) take all steps necessary to permit the public trading
of the Triton Public Warrants, (ii) reserve sufficient shares of Triton Common
Stock to provide for the exercise of the Triton Public Warrants, and (iii) take
all necessary steps to permit the public trading of any Triton Common Stock
issued upon the exercise of the Triton Public Warrants.
144
<PAGE>
DESCRIPTION OF ALARMGUARD CAPITAL STOCK
GENERAL
Alarmguard is authorized to issue 256,500 shares of Alarmguard Common Stock,
of which 33,800 shares are Alarmguard Non-Voting Common Stock, 50,000 shares of
Alarmguard Series A Preferred Stock and 72,500 shares of Alarmguard Series B
Preferred Stock. As of March 13, 1997, 237,671 shares of Alarmguard Common Stock
were issued and outstanding, 50,000 shares of Alarmguard Series A Preferred
Stock were issued and outstanding and 72,500 shares of Series B Preferred Stock
were issued and outstanding. As of March 13, 1997, 36 stockholders owned 100% of
the common equity of Alarmguard.
The following description is a summary of the material provisions of
Alarmguard's capital stock. It does not, however, purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Alarmguard Charter.
COMMON STOCK
PRIORITY. All rights and privileges of the Alarmguard Common Stock are
expressly made subject to those of the Alarmguard Preferred Stock as set forth
in the Alarmguard Charter. Except for the right to vote accorded to the
Alarmguard Voting Common Stock, all shares of Alarmguard Common Stock enjoy all
of the same rights, preferences and privileges, and are a single class of
shares.
VOTING RIGHTS. Except as set forth below under "--Large Institutional
Stockholders," the shares of Alarmguard Voting Common Stock are entitled to one
vote for each share of Alarmguard Voting Common Stock. Except as otherwise
provided by law, the shares of Alarmguard Non-Voting Common Stock are not
entitled to vote on any matter. The foregoing notwithstanding, shares of
Alarmguard Non-Voting Common Stock are accorded the same rights to vote as, and
will thereafter for all purposes be considered to be, shares of Alarmguard
Voting Common Stock upon the occurrence of (i) the consummation of the sale of
the beneficial interest of such shares by the initial holder thereof to other
than an affiliate of the initial holder thereof; or (ii) the consummation of a
public offering of Alarmguard Common Stock.
DIVIDENDS. Subject to provisions of law and the Alarmguard Charter, the
holders of Alarmguard Common Stock are entitled to receive dividends out of
funds legally available therefor at such times and in such amounts as the
Alarmguard Board may determine in their sole discretion.
LIQUIDATION. Upon any liquidation, dissolution or winding up of Alarmguard,
whether voluntary or involuntary, after the payment or provision for payment of
all debts and liabilities of Alarmguard and all preferential amounts to which
the holders of the Alarmguard Preferred Stock are entitled with respect to the
distribution of assets in liquidation, the holders of Alarmguard Common Stock
are entitled to share ratably in the remaining assets of Alarmguard available
for distribution.
NO DILUTION OR IMPAIRMENT. Alarmguard will not, except by amendment of the
Alarmguard Charter or through any reorganization, transfer of capital stock or
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action with the vote of at least 66.7% of the outstanding shares
of the Alarmguard Voting Common Stock, avoid or seek to avoid the observance or
performance of any of the rights of the Alarmguard Voting Common Stock set forth
in the Alarmguard Charter, but Alarmguard will at all times carry out all of
such rights and take such action as may be necessary or appropriate in order to
protect the rights of the holders of the Alarmguard Voting Common Stock against
dilution or other impairment.
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<PAGE>
RIGHT OF FIRST OFFER. Before Alarmguard may offer, issue, sell or exchange,
agree or obligate itself to offer, issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, any (i) shares of common capital stock,
(ii) other equity security of Alarmguard, (iii) convertible debt security of
Alarmguard, (iv) security of Alarmguard that is a combination of debt and
equity, or (v) option, warrant or other right to subscribe for, purchase or
otherwise acquire any such equity security or any such debt security, Alarmguard
will, in each case, first offer to sell such securities (the "Offered
Securities") to holders of Alarmguard Common Stock pursuant to terms which are
no more favorable, in the aggregate, to such other person or persons or less
favorable to Alarmguard than those set forth in the offer made pursuant to the
provisions described herein. Such right of first offer may be waived only upon
the prior written consent or affirmative vote of the holders of at least 66.7%
of the outstanding Alarmguard Preferred Stock voting as a separate class, and
will terminate immediately prior to the effectiveness of the registration
statement with respect to a public offering of the Alarmguard Common Stock, but
expressly conditioned on the consummation of such public offering.
Such right of first offer does not apply to: (i) Alarmguard Common Stock
issued as a stock dividend to holders of Alarmguard Common Stock or upon any
subdivision or combination of shares of Alarmguard Common Stock; (ii) Alarmguard
Preferred Stock issued as a dividend to holders of Alarmguard Preferred Stock
upon any subdivision or combination of shares of the Alarmguard Preferred Stock;
or (iii) the issuance of up to 50,000 shares of Alarmguard Common Stock (A)
31,250 of which may be issued pursuant to exercise of the existing stock options
granted by Alarmguard and (B) the balance to management on such terms and
conditions as may be decided in the sole discretion of the Compensation
Committee of the Alarmguard Board; PROVIDED, HOWEVER, that none of the shares of
Alarmguard Common Stock described in (A) and (B) above shall be sold before the
Alarmguard Preferred Stock is redeemed either by the original holder thereof or
by any transferee, nor may they be transferred before the Alarmguard Preferred
Stock is redeemed except to the ancestors, descendants or spouse (or to trusts
for the benefit of such persons) or the original holder thereof. These shares
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event.
REGISTRATION RIGHTS. At any time after the earlier of September 9, 1997 or
six months after the closing of Alarmguard's first public offering of
Registrable Shares (as defined below) pursuant to a registration statement,
either (x) a single holder holding of record at least 20% of Registrable Shares
or (y) several holders owning of record, in the aggregate, at least 40% of
Registrable Shares (such percentages to be determined without taking into
account any shares issued upon exercise of options granted to management) (the
"Requesting Shareholders") may request at any time and from time to time in
writing that Alarmguard effect a registration of Registrable Shares owned by
such holder or holders. Upon receipt of any such request from a Requesting
Shareholder, Alarmguard will promptly give written notice of the proposed
registration to all shareholders of record holding Registrable Shares (the
"Other Shareholders"). The Other Shareholders will have the right, by giving
written notice to Alarmguard within 30 days after Alarmguard provides its
notice, to elect to have included in such registration such of their Registrable
Shares as the Other Shareholders may elect in such notice of election.
Thereafter, Alarmguard shall, as expeditiously as possible, use its best efforts
to effect the registration of all Registrable Shares that Alarmguard has been
requested to so register. Alarmguard is not required to effect more than two
registrations pursuant to the provisions described in this paragraph.
"Registrable Shares" means (A) any shares of common capital stock issued by
Alarmguard, and (B) any other shares of common capital stock of Alarmguard
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations or similar events).
At any time after Alarmguard becomes eligible to file a registration
statement on Form S-3 (or any successor form relating to secondary offerings), a
holder or holders holding in the aggregate at least 20% of the Registrable
Shares (the "Form S-3 Requesting Shareholders") may request Alarmguard, in
writing, to effect a registration on Form S-3 (or such successor form), of
Registrable Shares having an aggregate offering price of at least $500,000
(based on the current market price). Upon receipt of any such request,
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<PAGE>
Alarmguard will promptly give written notice of such proposed registration to
all Other Shareholders. The Other Shareholders will have the right, by giving
written notice to Alarmguard within 30 days after Alarmguard provides its
notice, to elect to have included in such registration such of their Registrable
Shares as the Other Shareholders may request in such notice of election.
Thereafter, Alarmguard will, as expeditiously as possible, use its best efforts
to effect the registration on Form S-3, or such successor form, of all
Registrable Shares that Alarmguard has been requested to register. Alarmguard is
not required to effect more than three registrations (and no more than one per
year) pursuant to the provisions described in this paragraph.
Every time Alarmguard proposes to file a registration statement (other than
pursuant to the provisions described in the preceding two paragraphs), it will,
prior to such filing, give written notice to all shareholders of record holding
Registrable Shares (the "Registrable Shareholders") of its intention. Any
Registrable Shareholder wishing to have shares registered shall send Alarmguard
a written request within 20 days after receipt of such notice. Alarmguard shall
use its best efforts to cause all Registrable Shares that Alarmguard has been so
requested to register to be registered under the Securities Act. Alarmguard has
the right to postpone or withdraw any registration affected pursuant to the
provisions described in this paragraph (b) without obligation to any
shareholder. The shareholder registration rights provisions described in the
preceding two paragraphs notwithstanding, no shareholder may participate in any
public offering of Registrable Securities unless (i) the shares of Alarmguard
Preferred Stock have been redeemed and all accrued dividends paid or (b) if all
of the shares of Alarmguard Preferred Stock have not been redeemed and dividends
paid, then the net proceeds to be received by Alarmguard in the public offering
must be used for and be sufficient to redeem all shares of Alarmguard Preferred
Stock outstanding at their face amount plus all accrued and unpaid dividends.
PREFERRED STOCK
SERIES OF ALARMGUARD PREFERRED STOCK. Under the Alarmguard Charter, the
Alarmguard Preferred Stock is issued in two series, Alarmguard Series A
Preferred Stock and Alarmguard Series B Preferred Stock. Except for the par
value per share of shares issued in each such series, all shares of the
Alarmguard Preferred Stock enjoy all of the same rights, preferences and
privileges, and are a single class of shares.
VOTING. Except as set forth below under "--Large Institutional
Stockholders," the shares of Alarmguard Preferred Stock are voted equally with
the shares of the Alarmguard Voting Common Stock upon the following basis: Each
holder of Alarmguard Preferred Stock is entitled to a number of votes as shall
be equal to the whole number of shares of Alarmguard Preferred Stock held by
such stockholder.
So long as any of the Alarmguard Preferred Stock remains outstanding,
Alarmguard may not effect or validate any one or more of the following without
the approval, as a separate class, of at least 66.7% of the outstanding shares
of the Alarmguard Preferred Stock: (i) the sale, transfer, lease or other
disposition or encumbrance, directly or through any subsidiary, of the property
or assets of Alarmguard, or any subsidiary of Alarmguard except in the ordinary
course of business and except as security for debt incurred in the acquisition
of business and assets for the benefit of Alarmguard; (ii) consolidate or merge
Alarmguard or engage in any other transaction in which control of Alarmguard is
transferred; (iii) authorize or issue or obligate itself to issue any series or
class of preferred stock in addition to the Alarmguard Preferred Stock or of any
other class of stock ranking prior to or on a parity with the Alarmguard
Preferred Stock with respect to either the payment of dividends or the
distribution of assets upon liquidation or of any securities convertible into
Alarmguard Preferred Stock or any such shares ranking prior thereto or on a
parity therewith; (iv) the amendment of the Alarmguard Charter or Alarmguard
By-Laws so as to affect adversely any of the preferences or other rights of the
holders of Alarmguard Preferred Stock; (v) incur, create or assume any
indebtedness that will cause Alarmguard and its subsidiaries' total indebtedness
to exceed a debt to equity ratio of 3 to 1 at any time, determined on a
consolidated basis; (vi) declare or pay any dividends to or return any capital
to or make any distribution of assets to the holders of any shares of Alarmguard
capital stock, as such, other than the Alarmguard Preferred Stock or permit any
subsidiary to
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do any of the foregoing; (vii) purchase, redeem, retire, or otherwise acquire
for value any shares of Alarmguard capital stock other than the Alarmguard
Preferred Stock; (viii) notwithstanding the foregoing, subsidiaries of
Alarmguard may declare and make payment of cash and stock dividends, return
capital and make distribution of assets to Alarmguard, and nothing in the
Alarmguard Charter shall prevent Alarmguard from: (A) effecting a stock split or
declaring or paying any dividend consisting of shares of any class of capital
stock paid to the holders of shares of such class of capital stock; or (B)
complying with any specific provision of the terms of the Alarmguard Preferred
Stock (including, without limitation, provisions relating to the liquidation
preference, cumulative dividends or redemption right of the Alarmguard Preferred
Stock); or (ix) liquidate, dissolve, recapitalize or wind-up Alarmguard.
DIVIDENDS. The holders of Alarmguard Preferred Stock are entitled to
receive cumulative dividends at an annual rate of 5% of the par value of each
share. Dividends on the Alarmguard Preferred Stock have a preference over and
will be paid before dividends are paid on the Alarmguard Common Stock so that if
dividends on the Alarmguard Preferred Stock, in respect of any previous or
current annual period, have not been paid in full or declared and a sum
sufficient for the payment thereof set apart, such accrued but unpaid dividends
on the Alarmguard Preferred Stock will be fully paid before any dividend or
other distribution will be paid or declared and set apart for the Alarmguard
Common Stock.
LIQUIDATION PREFERENCE. In the event of any dissolution, liquidation,
winding up or insolvency of Alarmguard, before any distribution or payment is
made to any holders of any other class or series of capital stock of Alarmguard,
the holders of Alarmguard Preferred Stock are entitled to be paid first out of
the assets of Alarmguard an amount equal to the par value of each share of
Alarmguard Preferred Stock outstanding (the "Preferred Stock Price"), plus all
accrued but unpaid dividends thereon, whether or not declared, up to and
including the date full payment shall be tendered to the holders of Alarmguard
Preferred Stock. A capital reorganization of the Alarmguard Preferred Stock or
Alarmguard Common Stock or a merger or consolidation of Alarmguard with or into
another corporation, or the sale of all or substantially all of Alarmguard's
capital stock or assets to any other person or entity, or any other form of
business combination or reorganization in which control of Alarmguard is
transferred will be regarded as a liquidation, dissolution or winding up of
Alarmguard ("Liquidating Event"). Notwithstanding the immediately preceding
sentence, any reorganization, merger or consolidation involving (i) only a
change in the state of incorporation of Alarmguard, (ii) a merger of Alarmguard
with or into a wholly-owned subsidiary of Alarmguard, (iii) an acquisition by
merger, reorganization or consolidation, of which Alarmguard is substantively
the surviving corporation and operates as a going concern, of another
corporation incorporated in the United States that is engaged in a business
complementary with or similar or related to the business of Alarmguard and which
does not involve a recapitalization or reorganization of the Alarmguard
Preferred Stock will not be regarded as a Liquidating Event.
PUBLIC OFFERING. Upon the closing of a public offering of the Alarmguard
Common Stock, and before any distribution or payment is made out of the net
proceeds of such public offering available for distribution to Alarmguard and/or
the holders of Alarmguard's capital stock, an amount equal to the Preferred
Stock Price, plus all accrued but unpaid dividends thereon, whether or not
declared, up to and including the date full payment is made, will be made to the
holders of Alarmguard Preferred Stock from such net proceeds. Such net proceeds
will be first applied to pay accrued but unpaid dividends, then to the
repurchase of shares of Alarmguard Preferred Stock at the Preferred Stock Price.
REDEMPTION RIGHTS. Unless the Alarmguard Preferred Stock has already been
redeemed, Alarmguard will redeem the outstanding shares of the Alarmguard
Preferred Stock as follows: (i) on March 31, 1997 (the "Optional Redemption
Date"), Alarmguard will, upon 60 days' written notice from such holder, redeem
75% of the outstanding shares of Alarmguard Preferred Stock held by each holder
giving such notice; and (ii) on March 31, 1998 (the "Mandatory Redemption
Date"), Alarmguard will redeem all remaining outstanding shares of Alarmguard
Preferred Stock. The redemption price (the "Preferred Stock Redemption Price")
for each share of Alarmguard Preferred Stock so redeemed will be the par value
per
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share plus all accrued and unpaid dividends thereon, whether or not declared, on
such shares up to and including the date fixed for redemption.
In addition, the holders of a majority of the outstanding shares of
Alarmguard Preferred Stock, voting as a class, will have the following rights
with respect to the redemption of the Alarmguard Preferred Stock upon the
occurrence of an Event of Noncompliance (as defined below): If any Event of
Noncompliance occurs and is continuing and Alarmguard fails to cure such Event
of Noncompliance within 45 days of written notice thereof, upon the written
request of the holders of a majority of the outstanding shares of Alarmguard
Preferred Stock, Alarmguard will redeem, on the date specified in such notice
(even if such date is prior to the Optional Redemption Date), which date shall
be not less than 20 days after the date of such written notice, that number of
shares of Alarmguard Preferred Stock (which may be any or all of the then
outstanding shares) indicated in such notice, at the Preferred Stock Redemption
Price. An "Event of Noncompliance" means one of more of the following: (a)
Alarmguard fails to make any liquidation payment with respect to the Alarmguard
Preferred Stock which it is obligated to make under the Alarmguard Charter; or
(b) any representation, warranty or certification made by Alarmguard relating to
the issuance in 1992 or 1993 of Alarmguard Preferred Stock and Alarmguard Common
Stock proves to have been false or misleading when made and as of the respective
closing in 1992 or 1993 of such issuance in any material respect with respect to
Alarmguard's assets, financial condition, business or operation.
LARGE INSTITUTIONAL STOCKHOLDERS
Certain large institutional stockholders of Alarmguard identified in the
Alarmguard Charter (each a "Large Institutional Stockholder") are entitled to
appoint the number of members of the Alarmguard Board determined in accordance
with the criteria described below in this paragraph. The number of directors
which a Large Institutional Stockholder has the right to appoint is determined
by the percentage of the issued and outstanding shares of Alarmguard's capital
stock it owns of record (the "Equity Percentage"). For so long as the Equity
Percentage owned of record by a Large Institutional Stockholder is in excess of
ten, it has the right to appoint two directors. If the Equity Percentage so
owned is ten or less, but greater than zero, it has the right to appoint one
director. At such time and after the Equity Percentage owned of record by a
Large Institutional Stockholder falls to zero, it no longer has any right to
appoint directors pursuant to the provisions described in this paragraph.
DIRECTORS' LIABILITY
The Alarmguard Charter includes provisions to eliminate the personal
liability of its directors to Alarmguard for monetary damages for breach of
fiduciary duty as a director. This provision does not eliminate liability for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, violations under
Section 174 of the DGCL concerning the unlawful payment of dividends or stock
redemption or repurchases, or any transaction from which the director derives an
improper personal benefit. In addition, these provisions will not limit the
liability of Alarmguard directors under federal securities laws. Alarmguard
believes that these provisions are necessary to attract and retain qualified
persons as directors.
COMPARATIVE RIGHTS OF TRITON STOCKHOLDERS,
ALARMGUARD STOCKHOLDERS AND HOLDINGS STOCKHOLDERS
Triton is a publicly held corporation. The rights of Triton stockholders are
currently governed by Delaware law, the Triton Charter and the Triton By-Laws.
It is a condition to Alarmguard's obligations to consummate the Merger that the
Triton Charter and the Triton By-Laws be amended, in which case the Restated
Charter and the Restated By-Laws will govern the rights of the stockholders of
Holdings. Alarmguard is a closely held Delaware corporation, with a small number
of institutional stockholders that exercise control of the corporation. The
rights of Alarmguard stockholders are currently governed by Delaware law, the
Alarmguard Charter and the Alarmguard By-Laws. Following the Merger, the
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Alarmguard stockholders will be governed by Delaware law, the Restated Charter
and the Restated By-Laws. Accordingly, the material differences between (i) the
present rights of Triton stockholders and their rights as Holdings stockholders;
and (ii) the present rights of Alarmguard stockholders and their rights as
Holdings stockholders is that following the Merger they will be stockholders in
a public company governed by the Restated Charter and the Restated By-Laws.
Other significant differences between the rights of (x) Alarmguard
stockholders and Triton stockholders and (y) Holdings stockholders are set forth
below. This summary is not intended to be relied upon as an exhaustive list or
detailed description of the provisions discussed and is qualified in its
entirety by reference to (i) the Alarmguard Charter and Alarmguard By-Laws; (ii)
the Triton Charter and Triton By-Laws; and (iii) the Restated Charter and
Restated By-Laws, to which documents each of the Alarmguard stockholders and
Triton stockholders are referred.
AUTHORIZED SHARES OF CAPITAL STOCK; DIVIDENDS
ALARMGUARD. The Alarmguard Charter authorizes the issuance of 256,500
shares of Alarmguard Common Stock, including 33,800 shares of Alarmguard
Non-Voting Common Stock, 50,000 shares of Alarmguard Series A Preferred Stock
and 72,500 Series B Preferred Stock. Dividends on the Alarmguard Preferred Stock
have a preference over and will be paid before dividends are paid on the
Alarmguard Common Stock so that if dividends on the Alarmguard Preferred Stock
have not been paid in full or declared and a sum sufficient for the payment
thereof set apart, such accrued but unpaid dividends on the Alarmguard Preferred
Stock will be fully paid before any dividend or other distribution will be paid
or declared and set apart for the Alarmguard Common Stock.
TRITON. The Triton Charter authorizes the issuance of 40,000,000 shares of
Triton Common Stock. The holders of Triton Common Stock are entitled to receive
ratably such dividends as may be declared by the Triton Board.
HOLDINGS. The Restated Charter will authorize the issuance of 25,000,000
shares of Holdings Common Stock and 5,000,000 shares of Holdings Preferred
Stock. Subject to the preferred rights of the holders of shares of any class or
series of Holdings Preferred Stock, the holders of shares of Holdings Common
Stock are entitled to receive, as and when declared by the Holdings Board out of
funds of Holdings legally available therefor, such dividends (payable in cash,
stock or otherwise) as the Holdings Board may from time to time determine.
REDEMPTION AND REPURCHASE OF CAPITAL STOCK
Under the DGCL, subject to certain limitations, a corporation's stock may be
made subject to redemption by the corporation at its option, at the option of
the holders of such stock or upon the happening of a specified event. The DGCL
also provides that, subject to certain exemptions, a corporation may repurchase
its own shares with certain exceptions.
ALARMGUARD. Unless the Alarmguard Preferred Stock has already been
redeemed, Alarmguard is required to redeem (i) on March 31, 1997, upon 60 days'
notice, 75% of the outstanding shares of Alarmguard Preferred Stock held by each
holder giving such notice; and (ii) on March 31, 1998, all remaining outstanding
shares of Alarmguard Preferred Stock at the Preferred Stock Redemption Price. In
addition, if any Event of Noncompliance occurs and is continuing and Alarmguard
fails to cure such Event of Noncompliance within 45 days of written notice
thereof, upon the written request of the holders of a majority of the
outstanding shares of Alarmguard Preferred Stock, Alarmguard will redeem, on the
date specified in such notice, the number of shares of Alarmguard Preferred
Stock included in such notice, at the Preferred Stock Redemption Price.
TRITON. The Triton Charter does not provide for any rights with respect to
the redemption or repurchase of capital stock beyond or in limitation of the
rights under the DGCL described above.
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HOLDINGS. The Restated Charter does not provide for any rights with respect
to the redemption or repurchase of Holdings Common Stock beyond or in limitation
of the rights under the DGCL described above. The Restated Charter authorizes
the Holdings Board to fix for any class or series of Holdings Preferred Stock
the redemption rights of any holders thereof.
LIQUIDATION RIGHTS
ALARMGUARD. Upon any liquidation, dissolution or winding up of Alarmguard,
whether voluntary or involuntary, after the payment or provision for payment of
all debts and liabilities of Alarmguard and all preferential amounts to which
the holders of the Alarmguard Preferred Stock are entitled with respect to the
distribution of assets in liquidation, the holders of Alarmguard Common Stock
are entitled to share ratably in the remaining assets of Alarmguard available
for distribution. With respect to the Alarmguard Preferred Stock, a Liquidating
Event will be regarded as a liquidation, dissolution or winding up of
Alarmguard.
TRITON. Neither the Triton Charter nor the Triton By-Laws provide for any
rights with respect to the liquidation, dissolution or winding up of Triton.
HOLDINGS. Upon any liquidation, dissolution or winding up of Holdings,
whether voluntary or involuntary, after the distribution or payment to the
holders of shares of any class or series of Preferred Stock as provided by the
Holdings Board with respect to any such class or series of Preferred Stock, the
holders of Holdings Common Stock are entitled to share ratably in the remaining
assets of Holdings available for distribution.
VOTING RIGHTS
ALARMGUARD. The shares of Alarmguard Voting Common Stock are entitled to
one vote for each share of Alarmguard Voting Common Stock at any annual or
special meeting of stockholders of Alarmguard. Except as otherwise provided by
law, the shares of Alarmguard Non-Voting Common Stock are not entitled to vote
on any matter. The provisions described in the foregoing sentence
notwithstanding, shares of Alarmguard Non-Voting Common Stock are immediately
and automatically accorded the same rights to vote as, and will thereupon and
thereafter for all purposes be considered to be, shares of Voting Common Stock
upon the occurrence of (i) the consummation of the sale of the beneficial
interest of such shares by the initial holder thereof to other than an affiliate
of the initial holder thereof; or (ii) the consummation of a public offering of
Alarmguard Common Stock. The shares of Alarmguard Preferred Stock are voted
equally with the shares of the Alarmguard Voting Common Stock. Each holder of
Alarmguard Preferred Stock is entitled to one vote for each such share.
TRITON. Each share of Triton Common Stock is entitled to one vote on each
matter submitted to a vote of the stockholders of Triton. Shares of Triton
Common Stock are not entitled to any cumulative voting.
HOLDINGS. Except as otherwise required by law or as provided by the
Holdings Board with respect to any class or series of Holdings Preferred Stock,
the entire voting power and all voting rights will be vested exclusively in the
Holdings Common Stock and each holder of shares of Holdings Common Stock will be
entitled to one vote for each such share.
SUPERMAJORITY VOTING REQUIREMENTS FOR BUSINESS COMBINATIONS
ALARMGUARD. The Alarmguard Charter provides that so long as any of the
Alarmguard Preferred Stock remains outstanding, Alarmguard may not effect
certain transactions without the affirmative vote of 66.7% of the outstanding
shares of Alarmguard Preferred Stock. See "DESCRIPTION OF ALARMGUARD CAPITAL
STOCK--Preferred Stock."
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TRITON. The Triton Charter and the Triton By-Laws do not have supermajority
voting requirements for business combinations or similar transactions.
HOLDINGS. The Restated Charter and the Restated By-Laws do not have
supermajority voting requirements for business combinations or similar
transactions.
PREEMPTIVE RIGHTS
ALARMGUARD. The Alarmguard Charter provides for certain preemptive rights
of first offer for the holders of Alarmguard Common Stock. See "DESCRIPTION OF
ALARMGUARD CAPITAL STOCK--Common Stock."
TRITON. The Triton Charter does not provide for preemptive rights for
stockholders.
HOLDINGS. The Restated Charter does not provide for preemptive rights for
stockholders.
REGISTRATION RIGHTS
ALARMGUARD. The Alarmguard Charter provides for certain registration rights
with respect to Registrable Shares. See "DESCRIPTION OF ALARMGUARD CAPITAL
STOCK--Common Stock."
TRITON. Except as provided under the Patricof Warrant with respect to the
Patricof Warrant Shares, there are no registration rights with respect to any
shares of Triton Common Stock.
HOLDINGS. Except as provided under the Registration Rights Agreement, there
will be no registration rights with respect to any shares of Holdings Common
Stock. See "PROPOSAL 1: THE MERGER AND THE ISSUANCE OF THE MERGER SHARES--The
Registration Rights Agreement."
APPRAISAL RIGHTS
The DGCL provides for appraisal rights only in the case of certain mergers
or consolidations and not (unless the certificate of incorporation of a
corporation so provides) in the case of other mergers, a sale or transfer of all
or substantially all of its assets or an amendment to its certificate of
incorporation. In addition, the DGCL does not provide appraisal rights in
connection with a merger or consolidation (unless the certificate of
incorporation so provides) to the holders of shares of a constituent corporation
listed on a national securities exchange (or designated as a national market
system security by the National Association of Securities Dealers, Inc.) or held
of record by more than 2,000 stockholders, unless the applicable agreement of
merger or consolidation requires the holders of such shares to receive, in
exchange for such shares, any property other than shares of stock of the
resulting or surviving corporation, shares of stock of any other corporation
listed on a national securities exchange (or designated as described above) or
held of record by more than 2,000 holders, cash in lieu of fractional shares or
any combination of the foregoing. The DGCL also denies appraisal rights to the
stockholders of the surviving corporation in a merger if such merger did not
require for its approval the vote of the stockholders of such surviving
corporation.
None of the Alarmguard Charter, the Triton Charter or the Restated Charter
provides for appraisal rights other than those rights designated by the DGCL.
ANNUAL MEETINGS OF STOCKHOLDERS
ALARMGUARD. The Alarmguard By-Laws provide that annual meetings of
stockholders may be called by (i) the Alarmguard Board; (ii) the president;
(iii) the chairman of the board; (iv) any two directors; (v) at the request in
writing of stockholders owning at least 40% in amount of the entire capital
stock of Alarmguard issued and outstanding and entitled to vote; or (vi) at the
request in writing of stockholders owning at least 20% of any class of capital
stock of Alarmguard issued and outstanding and entitled to vote.
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TRITON. The Triton By-Laws provide that annual meetings of stockholders,
for any purpose or purposes prescribed in the notice of the meeting, may be
called by the Triton Board, the chief executive officer or by stockholders
representing at least 15% of the outstanding Triton Common Stock.
HOLDINGS. The Restated By-Laws provide that annual meetings of stockholders
may be held on such date, at such time and place as may be designated by the
Board of Directors.
SPECIAL MEETINGS OF STOCKHOLDERS
ALARMGUARD. The Alarmguard By-Laws provide that special meetings may be
called by (i) the Alarmguard Board; (ii) the president of Alarmguard; (iii) the
chairman of the board; (iv) any two directors of Alarmguard; or (v) at the
request in writing of stockholders owning at least 40% of the entire capital
stock of Alarmguard entitled to vote or at the request in writing of
stockholders owning at least 20% of any class of capital stock of Alarmguard
entitled to vote.
TRITON. The Triton By-Laws provide that special meetings of stockholders
may be called by (i) the Triton Board; (ii) the chief executive officer; or
(iii) the stockholders representing at least 25% of the outstanding Triton
Common Stock.
HOLDINGS. The Restated Charter provides that special meetings may only be
called by (i) the Holdings Board; (ii) the chairman of the board; or (iii) the
president of Holdings.
STOCKHOLDER ACTIONS WITHOUT A MEETING
ALARMGUARD. The Alarmguard By-Laws provide that any action which may be
taken at any annual or special meeting of the stockholders may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
TRITON. The Triton By-Laws provide that any action required or permitted to
be taken at any annual or special meeting of stockholders may be taken without a
meeting, if a consent or consents in writing, setting forth the action so taken,
is signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting.
HOLDINGS. The Restated Charter provides that any action required or
permitted to be taken by Holdings stockholders may only be effected at an annual
or special meeting of such stockholders and may not be effected by any consent
in writing of such stockholders.
STOCKHOLDER PROPOSALS PROCEDURES
None of the DGCL, the Alarmguard Charter and the Alarmguard By-Laws, the
Triton Charter and the Triton By-Laws or the Restated Charter and the Restated
By-Laws limit the ability of Alarmguard and Triton stockholders, respectively,
to bring any business (other than nominations for the election of directors)
before a meeting of stockholders. See "--Nominations of Directors."
STOCKHOLDER RIGHTS PLAN
None of Alarmguard, Triton or Holdings has a stockholder rights plan.
CLASSIFIED BOARD OF DIRECTORS
None of the DGCL, the Alarmguard Charter and the Alarmguard By-Laws, and the
Triton Charter and the Triton By-Laws provide for a classified board of
directors.
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HOLDINGS. The Restated Charter provides for a classified board of directors
for Holdings. See "PROPOSALS 2(a)-(g): THE RESTATED CHARTER PROPOSALS."
NOMINATIONS OF DIRECTORS
ALARMGUARD. The Alarmguard Charter provides the Large Institutional
Stockholders with certain rights with respect to the appointment of the number
of members of the Alarmguard Board determined by the Equity Percentage. See
"DESCRIPTION OF ALARMGUARD CAPITAL STOCK--Large Institutional Stockholders."
TRITON. Neither the Triton Charter nor the Triton By-Laws limit the ability
of stockholders to nominate directors for election.
HOLDINGS. Neither the Holdings Charter nor the Holdings By-Laws limit the
ability of stockholders to nominate directors for election.
REMOVAL OF DIRECTORS
ALARMGUARD. The Alarmguard By-Laws provide that any director or the entire
Alarmguard Board may be removed from office at any time with or without cause by
the holders of a majority of the outstanding shares of Alarmguard's capital
stock then entitled to vote at an election of directors.
TRITON. Under the DGCL, Triton directors may be removed with or without
cause by the holders of a majority of shares entitled to vote at an election of
directors.
HOLDINGS. The Restated Charter provides that no director or class of
directors of Holdings may be removed from office by a vote of the stockholders
at any time except for cause.
VACANCIES IN THE BOARD OF DIRECTORS
ALARMGUARD. The Alarmguard By-Laws provide that (i) in the event of a
vacancy on the Alarmguard Board caused by the removal, resignation or death of a
director appointed by a Large Institutional Stockholder, such Large
Institutional Stockholder shall have the sole right to name such director's
successor and (ii) in the event of a vacancy on the Alarmguard Board caused by
the removal, resignation or death of a director other than a director appointed
by a Large Institutional Stockholder, it will be filled (x) by the vote of
stockholders if due to the removal and if the vacancy is filled at the same
meeting (or by written consent as effects such removal) or (y) if not so filled
or if due to resignation or death, by the remaining directors.
TRITON. The Triton By-Laws provide that if the office of any director
becomes vacant by reason of death, resignation, disqualification, removal or
other cause, a majority of the directors remaining in office, although less than
a quorum, may elect a successor for the unexpired term and until his or her
successor is elected and qualified.
HOLDINGS. The Restated By-Laws provide that in the event of a vacancy on
the Holdings Board due to the removal for cause of a director by the
stockholders, then the stockholders of Holdings may fill such vacancy. In the
event that such vacancy is with respect to a director that was elected by the
holders of any class of stock of Holdings, voting separately as a class, such
vacancy may only be filled by the holders of such class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal was made, or any vacancy
caused by the death or resignation of any director or for any other reason, and
any newly created directorship resulting from any increase in the authorized
number of directors, may be filled by a majority vote of the directors then in
office, although less than a quorum, and such director will hold office until
his successor is elected or qualified or until his earlier resignation or
removal.
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INDEMNIFICATION
ALARMGUARD. The Alarmguard Charter provides for indemnification by
Alarmguard, to the fullest extent permitted by the DGCL, of officers, directors,
employees and agents for expenses, judgments, fines and amounts paid in
settlement by such person (including attorneys' fees).
TRITON. The Triton Charter provides for indemnification by Triton of
officers, directors, employees and agents, to the fullest extent permitted by
the DGCL.
HOLDINGS. The Restated Charter provides for indemnification of the officers
and directors of Holdings to the fullest extent permitted by the DGCL.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
ALARMGUARD. The Alarmguard Charter eliminates the personal liability of
Alarmguard directors for monetary damages resulting from breaches of their
fiduciary duty. It does not, however, eliminate liability for breaches of a
director's duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, violations under Section
174 of the DGCL concerning the unlawful payment of dividends or stock redemption
or repurchases, or any transaction from which the director derives an improper
benefit.
TRITON. The Triton Charter eliminates the personal liability of Triton
directors in the same way as the Alarmguard Charter.
HOLDINGS. The Restated Charter eliminates the personal liability of
Holdings directors in the same way as the Alarmguard Charter and the Triton
Charter.
AMENDMENT OF CHARTER DOCUMENTS
ALARMGUARD. Alarmguard will not, except by amendment of the Alarmguard
Charter or through any reorganization, transfer of capital stock or assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action with the vote of at least 66.7% of the outstanding shares of
the Alarmguard Voting Common Stock, avoid or seek to avoid the observance or
performance of any of the rights of the Alarmguard Voting Common Stock set forth
in the Alarmguard Charter, and Alarmguard will at all times carry out all of
such rights and take such action as may be necessary or appropriate in order to
protect such rights of the holders of the Alarmguard Voting Common Stock against
dilution or other impairment. The Alarmguard Charter provides that the amendment
of the Alarmguard Charter or the Alarmguard By-Laws so as to affect adversely
any of the preferences or other rights of the holders of Alarmguard Preferred
Stock requires the written consent or the affirmative vote, as a separate class,
of at least 66.7% of the outstanding shares of the Alarmguard Preferred Stock.
Under the DGCL, all other amendments to the Alarmguard Charter must be approved
by a majority of the total number of shares of capital stock outstanding and
entitled to vote thereon.
TRITON. Under the DGCL, the Triton Charter may be amended by the
affirmative vote of a majority of the total number of shares of capital stock
outstanding and entitled to vote thereon.
HOLDINGS. The Restated Charter provides that an affirmative vote of 66-2/3%
of the outstanding stock entitled to vote is required to amend or adopt a
provision inconsistent with the provisions of the Restated Charter that provide
for a classified board of directors. In the event that a majority of the full
Holdings Board has approved the repeal of, or the adoption of a provision
inconsistent with such provisions, only the affirmative vote of a majority of
the outstanding stock entitled to vote is required to authorize such action. The
Restated Charter further provides that the affirmative vote of 66-2/3% of the
stock entitled to vote is required to alter, amend or repeal the provisions of
the Restated Charter with respect to stockholder actions without a meeting and
the calling of special meetings of the stockholders.
AMENDMENT OF BY-LAWS
ALARMGUARD. The Alarmguard Charter provides that any amendment of the
Alarmguard By-Laws so as to affect adversely any of the preferences or other
rights of the holders of Alarmguard Preferred Stock
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requires the affirmative vote, as a separate class, of at least 66.7% of the
outstanding shares of the Alarmguard Preferred Stock. Pursuant to the Alarmguard
By-Laws, all other amendments of the Alarmguard By-Laws may be effected by a
majority vote of the Alarmguard Board, provided that the proposed action in
respect thereof shall be stated in the notice of the meeting, subject to the
power of the holders of a majority of the outstanding shares of Alarmguard
entitled to vote in respect thereof, by their vote given at an annual or special
meeting or taken by consent in writing as provided by the Alarmguard By-Laws, to
amend or repeal any Alarmguard By-Law made by the Alarmguard Board.
TRITON. The Triton By-Laws may be amended by the Triton Board or by
Triton's stockholders.
HOLDINGS. The Restated By-Laws may be amended, altered or repealed, or new
By-Laws may be adopted, by the Board of Directors of Holdings or by the holders
of 85% of the total outstanding stock of Holdings.
LEGAL MATTERS
The validity of the Triton Common Stock offered hereby will be passed upon
by Latham & Watkins, San Diego, California.
EXPERTS
The consolidated financial statements and financial statement schedule of
SSH (referred to herein as "Alarmguard") as of December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, included in
the Proxy Statement/Prospectus of Triton Group Ltd. which is referred to and
made part of this Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K/A, as filed on March 12, 1997, for the year ended
March 31, 1996, except as they relate to The Actava Group Inc., have been
audited by Price Waterhouse LLP, independent accountants, and, insofar as they
related to the Actava Group, Inc., by Ernst & Young LLP, independent
accountants, whose reports thereon appear herein. Such financial statements have
been so incorporated in reliance on the report (which, as it relates to Triton
Group Ltd., contains an explanatory paragraph relating to Triton Group Ltd.'s
emergence from bankruptcy as described in Notes 1 and 10 to the financial
statements) of such independent acocuntants given on the authority of such firms
as experts in auditing and accounting.
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K/A, as filed on March 12, 1997, relating to Mission
West Properties appearing on page 8 of item 14(a)(2)(ii) of Triton Group Ltd.
for the year ended March 31, 1996 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of such firm as experts in auditing and accounting.
OTHER BUSINESS
The Triton Board is aware of no other matter that will be presented for
action at the Annual Meeting. If any other matter requiring a vote of the
stockholders of Triton arising from the conduct of the meeting properly comes
before the Annual Meeting, the persons authorized under management proxies will
vote and act according to their best judgments in light of the conditions then
prevailing.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any Triton stockholder who meets the requirements of the proxy rules under
the Exchange Act may submit to the Triton Board proposals to be considered for
submission to the stockholders at the Triton 1998 Annual Meeting. Any such
proposal must comply with the requirements of Rule 14a-8 under the Exchange Act
and be submitted in writing by notice delivered or mailed by first-class United
States mail, postage prepaid, to the Corporate Secretary, Triton Group Ltd., 550
West "C" Street, Suite 1880, San Diego, California 92101 and must be received no
later than November 14, 1997. Any such notice shall set
156
<PAGE>
forth: (a) the name and address of the stockholder and the text of the proposal
(including the information required by the Triton By-Laws) to be introduced; (b)
the number of shares of stock held of record, owned beneficially and represented
by proxy by such stockholder as of the date of such notice; and (c) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to introduce the proposal specified in the notice. The chairman of
the meeting may refuse to acknowledge the introduction of any stockholder
proposal not made in compliance with the foregoing procedures.
157
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
SECURITY SYSTEMS HOLDINGS, INC.
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and
1996............................................................................... F-3
Consolidated Statements of Stockholders' Deficiency for the Years Ended December 31,
1994, 1995 and 1996................................................................ F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996............................................................................... F-5
Notes to Consolidated Financial Statements........................................... F-6
Financial Statement Schedule
Schedule I--Condensed Financial Information of Security Systems Holdings, Inc.
(Parent Company) S-1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Security Systems Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Security
Systems Holdings, Inc. (the "Company") as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index to
Consolidated Financial Statements and Financial Statement Schedule of this Proxy
Statement/Prospectus that is part of this Registration Statement. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Security Systems Holdings, Inc. at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
March 6, 1997
F-1
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1995 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................... $ 1,561 $ 230
Accounts receivable, less allowance for doubtful accounts of $118,000 and $298,000,
respectively.............................................................................. 3,686 3,791
Inventories................................................................................. 1,254 1,698
Prepaid expenses............................................................................ 427 332
Other current assets........................................................................ 119 250
--------- ---------
Total current assets.......................................................................... 7,047 6,301
Property and equipment, net................................................................... 3,144 2,478
Customer installation costs, net of accumulated amortization of $686,000 and $2,383,000,
respectively................................................................................ 3,416 7,531
Acquired customer contracts, net of accumulated amortization of $7,792,000 and $11,077,000,
respectively................................................................................ 17,822 16,443
Covenants not-to-compete, net of accumulated amortization of $2,944,000 and $4,341,000,
respectively 3,219 2,930
Goodwill, less accumulated amortization of $312,000 and $436,000.............................. 2,182 2,057
Other assets.................................................................................. 1,283 1,391
--------- ---------
Total assets.................................................................................. $ 38,113 $ 39,131
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable............................................................................ $ 1,487 $ 1,469
Accrued expenses............................................................................ 1,323 1,390
Current portion of notes payable............................................................ 222 696
Current portion of term loan................................................................ 1,907 4,169
Deferred revenue............................................................................ 4,018 4,621
Other current liabilities................................................................... 626 1,008
--------- ---------
Total current liabilities..................................................................... 9,583 13,353
Notes payable, less current portion........................................................... 1,973 2,563
Term loan, less current portion............................................................... 22,536 26,467
Subordinated debt............................................................................. 2,970 4,951
Other liabilities............................................................................. 727 422
Commitments and Contingencies--Note 11
Redeemable preferred stock, $100 par value; Series A, 5% cumulative dividends, 50,000 shares
authorized, issued and outstanding.......................................................... 5,744 5,994
Redeemable preferred stock, $120 par value; Series B, 5% cumulative dividends, 72,500 shares
authorized, issued and outstanding.......................................................... 9,844 10,279
Stockholders' deficiency:
Common stock, $1.00 par value; 256,500 shares authorized, 204,503 shares (including 20,249
shares of Class B non-voting shares) and 237,671 shares (including 33,748 of Class B non-
voting shares) issued and outstanding in 1995 and 1996, respectively........................ 204 237
Additional paid in capital.................................................................. 29 35
Accumulated deficit......................................................................... (15,462) (25,135)
Notes receivable from officers.............................................................. (35) (35)
--------- ---------
Total stockholders' deficiency................................................................ (15,264) (24,898)
--------- ---------
Total liabilities and stockholders' deficiency................................................ $ 38,113 $ 39,131
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-2
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Recurring revenue.............................................................. $ 10,928 $ 12,072 $ 15,011
Installation revenue........................................................... 5,217 6,885 7,613
Service revenue................................................................ 930 1,243 1,528
--------- --------- ---------
Total revenue.................................................................... 17,075 20,200 24,152
Monitoring expense............................................................. 1,688 1,691 2,258
Installation expense........................................................... 3,454 4,196 4,685
Service expense................................................................ 2,223 2,387 2,837
--------- --------- ---------
Total cost of revenue............................................................ 7,365 8,274 9,780
--------- --------- ---------
Gross profit..................................................................... 9,710 11,926 14,372
Sales and marketing expense.................................................... 2,163 3,020 3,732
General and administrative expense............................................. 5,037 6,467 8,435
Depreciation expense........................................................... 1,225 2,081 3,008
Amortization expense........................................................... 3,392 4,705 5,134
--------- --------- ---------
Total operating expenses......................................................... 11,817 16,273 20,309
--------- --------- ---------
Operating loss................................................................... (2,107) (4,347) (5,937)
Other income (expense):
Interest expense............................................................... (1,574) (2,305) (3,064)
Interest income................................................................ 62 27 50
Other income (expense), net.................................................... 2 (22) (37)
--------- --------- ---------
Loss before extraordinary items.................................................. (3,617) (6,647) (8,988)
Loss on refinancing of debt...................................................... (218) -- --
--------- --------- ---------
Net loss......................................................................... (3,835) (6,647) (8,988)
Dividend requirement on preferred stock.......................................... (685) (685) (685)
--------- --------- ---------
Loss applicable to common shares................................................. $ (4,520) $ (7,332) $ (9,673)
--------- --------- ---------
--------- --------- ---------
Pro forma loss per common share.................................................. $ (3.12)
---------
---------
Shares used in computing pro forma loss per common share......................... 2,877
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED NOTES
DEFICIT RECEIVABLE TOTAL
COMMON PAID IN -------------- FROM STOCKHOLDERS'
STOCK CAPITAL OFFICERS DEFICIENCY
----------- ----------- (IN THOUSANDS) ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994......................... $ 123 $ 15 $ (3,610) $ -- $ (3,472)
Exercise of stock options.......................... 31 3 -- (34) --
Preferred stock dividends.......................... -- -- (685) -- (685)
Net loss........................................... -- -- (3,835) -- (3,835)
----- --- -------------- --- ------------
Balance at December 31, 1994....................... 154 18 (8,130) (34) (7,992)
Issuance of 49,753 shares of common stock
(including 20,249 shares of Class B non-voting
shares), $1.00 par value......................... 49 11 -- -- 60
Exercise of stock options.......................... 1 -- -- (1) --
Preferred stock dividends.......................... -- -- (685) -- (685)
Net loss........................................... -- -- (6,647) -- (6,647)
----- --- -------------- --- ------------
Balance at December 31, 1995....................... 204 29 (15,462) (35) (15,264)
Issuance of 33,168 shares of common stock
(including 13,499 shares of Class B non-voting
shares), $1.00 par value......................... 33 6 -- -- 39
Preferred stock dividends.......................... -- -- (685) -- (685)
Net loss........................................... -- -- (8,988) -- (8,988)
----- --- -------------- --- ------------
Balance at December 31, 1996....................... $ 237 $ 35 $ (25,135) $ (35) $ (24,898)
----- --- -------------- --- ------------
----- --- -------------- --- ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................................... $ (3,835) $ (6,647) $ (8,988)
Adjustments to reconcile net loss to net cash used in operating
activities:...............................................................
Loss on refinancing of debt............................................... 218 -- --
Depreciation and amortization............................................. 4,617 6,786 8,142
Customer installation costs incurred...................................... (657) (3,445) (5,812)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable..................................................... (973) (284) 7
Inventories............................................................. (363) (377) (444)
Prepaid expenses........................................................ (298) 48 94
Other current assets.................................................... (90) (8) (131)
Other assets............................................................ (902) (610) (432)
Accounts payable........................................................ (25) 149 (18)
Accrued expenses........................................................ 311 (736) 286
Deferred revenue........................................................ (28) 235 307
Other current liabilities............................................... 80 (36) (326)
Other liabilities....................................................... (52) (76) 54
---------- ------- ---------
Net cash used in operating activities....................................... (1,997) (5,001) (7,261)
INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired............................ (2,833) (2,229) (1,221)
Purchases of property and equipment......................................... (314) (650) (402)
---------- ------- ---------
Net cash used in investing activities....................................... (3,147) (2,879) (1,623)
FINANCING ACTIVITIES:
Proceeds from issuances of common stock..................................... -- 60 39
Proceeds from term loan..................................................... 20,250 7,400 8,100
Proceeds from issuance of subordinated debt................................. -- 2,970 1,981
Payments of notes payable................................................... (12,418) (36) (170)
Payments of term loan....................................................... (4,996) (1,357) (1,907)
Payments of capital leases.................................................. (298) (397) (490)
---------- ------- ---------
Net cash provided by financing activities................................... 2,538 8,640 7,553
---------- ------- ---------
Increase (decrease) in cash and cash equivalents............................ (2,606) 760 (1,331)
Cash and cash equivalents at beginning of period............................ 3,407 801 1,561
---------- ------- ---------
Cash and cash equivalents at end of period.................................. $ 801 $ 1,561 $ 230
---------- ------- ---------
---------- ------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Security Systems Holdings, Inc. (the "Company" or "SSH") was formed on
December 4, 1991 to acquire and manage companies in the security alarm
installation and monitoring business. The Company, through its wholly-owned
subsidiaries, sells and installs burglar and fire alarm systems and provides
monitoring and security system repair and maintenance services to homeowners and
businesses, principally in the Northeast and Mid-Atlantic regions of the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries (AG Holdings Inc. and Alarmguard Inc.) which are
wholly-owned. All intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers financial instruments with original maturities of
three months or less from the date of purchase to be cash equivalents.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from customers in the
New York, Connecticut, New Jersey, Pennsylvania, Delaware, Maryland, Virginia,
Massachusetts and Rhode Island. Credit is extended based on an evaluation of the
customer's financial condition; collateral is not required. The Company
maintains an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential losses.
INVENTORIES
Inventories consist principally of alarm components and supplies.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Costs of maintenance and repairs
are charged to expense when incurred and costs of improvements are capitalized.
Depreciation is computed using the straight-line method based on estimated
useful lives of the respective assets.
F-6
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER INSTALLATION COSTS
Customer installation costs consist of materials, labor and direct sales
commissions incurred in connection with installing and activating new subscriber
accounts under the Company's direct marketing program. Amortization is provided
on a straight-line basis over the term of the initial monitoring/ equipment
lease contract (5 years), adjusted to reflect estimated subscriber attrition.
When an installation is identified for disconnection, the remaining net book
value of the installation costs are fully written-off and charged to
amortization expense.
INTANGIBLE ASSETS
Intangible assets, recorded at cost, represent the value assigned to
acquired customer contracts and covenants not-to-compete. Acquired customer
contracts are being amortized over their estimated useful lives (6 to 10 years)
using the straight-line method. Covenants not-to-compete are being amortized
over the lives (5 years) of the respective agreements using the straight-line
method. The cost in excess of fair value of the net assets of companies acquired
in purchase business combinations (goodwill) is being amortized using the
straight-line method over its estimated useful life (20 years). The Company
periodically reviews its intangible assets to assess recoverability. Assets in
excess of associated expected cash flows are considered impaired and
accordingly, a charge to operating results would be recognized.
DEFERRED FINANCING COSTS
Deferred financing costs, included in other assets, consisting primarily of
bank and legal fees, are being amortized on a straight-line basis over the term
of the underlying debt instrument. In conjunction with the refinancing during
1994 (see Note 7), approximately $80,000 of unamortized financing costs were
written off as part of the loss on refinancing as an extraordinary item.
REVENUE RECOGNITION
Revenue from installations relating to new subscriber accounts generated
under the Company's direct marketing program is recognized at the time the
installation is completed to the extent of direct selling costs which are
charged to expense. Any excess installation revenue is deferred and amortized to
income over the initial term of the related noncancellable monitoring/equipment
lease contract (5 years), adjusted to reflect estimated subscriber attrition.
F-7
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
The Company recognizes revenue, together with related costs, from
traditional installation contracts and the sale of additional equipment to
existing customers, when the installation is completed. Recurring fees are
generally billed to customers in advance of the period for which the services
are to be provided. Deferred revenue is recorded when billed and is recognized
ratably over the period the service is performed.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred. Amounts charged to
expense for advertising were approximately $258,000, $414,000 and $623,000 in
1994, 1995 and 1996, respectively.
INCOME TAXES
Income taxes are determined under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred taxes
result from temporary differences in the recognition of revenues and expenses
for tax and financial reporting purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable, and accrued expenses are
carried at cost, which approximates fair value, due to the short-term maturity
of these instruments. As of December 31, 1995 and 1996, the fair value of the
Company's long-term debt approximates its carrying value, as such debt generally
bears interest at floating rates or its rate does not differ significantly from
the rate the Company would have to pay for similar debt on each respective
balance sheet date.
STOCK BASED COMPENSATION
The Company generally grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value on the date of grant.
The Company has elected to continue to account for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees"
and accordingly, recognizes no compensation expense for stock option grants.
ADOPTION OF RECENT ACCOUNTING STANDARDS
During 1996, the Company adopted Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The adoption of this statement did not
have a material impact on the Company's consolidated financial statements.
RECLASSIFICATIONS
Certain amounts from the prior years have been reclassified to conform with
the current year's financial statement presentation.
F-8
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. ACQUISITIONS
During 1994, the Company acquired certain operating assets of ten companies
in the security alarm installation and monitoring business for $2,833,000 in
cash. In the aggregate, the acquisitions added approximately $101,000 of Monthly
Recurring Revenue ("MRR") and 4,600 customers. The acquisitions were accounted
for under the purchase method of accounting and, accordingly, the purchase price
has been allocated to the assets acquired and liabilities assumed based on their
estimated fair values at their respective dates of acquisition. In connection
with the acquisitions, the Company received current assets ($113,000), property
and equipment ($25,000), customer contracts ($2,667,000), and other assets
($911,000) and assumed current liabilities ($883,000).
During 1995, the Company acquired certain operating assets of seven
companies in the security alarm installation and monitoring business for
$2,229,000 in cash and $534,000 in notes. In the aggregate, the acquisitions
added approximately $95,000 of MRR and 3,800 customers. The acquisitions were
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the respective dates of acquisition. In
connection with the acquisitions, the Company received current assets ($67,000),
property and equipment ($90,000), customer contracts ($2,457,000), and other
assets ($1,752,000) and assumed current liabilities ($1,603,000).
During 1996, the Company acquired certain operating assets of four companies
in the security alarm installation and monitoring business for $1,221,000 in
cash and $1,234,000 in notes. In the aggregate, the acquisitions added
approximately $80,000 of MRR and 3,800 customers. The acquisitions were
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the respective dates of acquisition. In
connection with the acquisitions, the Company received current assets
($112,000), customer contracts ($1,912,000), and other assets ($1,082,000) and
assumed current liabilities ($651,000).
The results of operations of the acquired companies have been included in
the consolidated statements of operations from the respective dates of
acquisition.
The following unaudited pro forma information shows the results of the
Company's operations as though the 1994 acquisitions had been made as of January
1, 1994, the 1995 acquisitions had been made as of January 1, 1994 and 1995 and
the 1996 acquisitions has been made as of January 1, 1995 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Pro forma revenue.......................................................... $ 20,272 $ 23,106 $ 24,863
--------- --------- ---------
--------- --------- ---------
Pro forma net loss......................................................... $ (4,105) $ (6,720) $ (8,963)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per common share $ (3.12)
---------
---------
Shares used in computing pro forma net loss per common share............... 2,877
---------
---------
</TABLE>
The pro forma results are not necessarily indicative of the actual results
of operations that would have been obtained had the acquisitions taken place at
the beginning of the respective periods or the results that
F-9
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. ACQUISITIONS (CONTINUED)
may occur in the future and do not give effect to cost savings which may occur
as a result of the consolidation of the acquired companies.
The pro forma loss per common share gives effect to the conversion of all
preferred and common stock into Triton Common Stock (see Note 13).
4. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Leasehold improvements...................................................... 5 to 10 years $ 869 $ 876
(lease terms )
Furniture, fixtures and equipment........................................... 3 to 7 years 5,399 6,027
Less accumulated depreciation............................................... (3,124) (4,425)
--------- ---------
$ 3,144 $ 2,478
--------- ---------
--------- ---------
</TABLE>
Equipment additions of $977,000 and $264,000 were financed through capital
leases or notes payable during 1995 and 1996, respectively. The related
accumulated depreciation on total financed assets is $838,000 and $1,476,000 as
of December 31, 1995 and 1996, respectively.
5. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1995 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Various notes, each collateralized by a vehicle (aggregate net book value of approximately
$453,000 and $178,000 at December 31, 1995 and 1996, respectively), with interest rates
varying from 8.25% to 12% and final payment dates ranging from March 1997 to December 1999... $ 481 $ 330
Various notes issued in connection with acquisitions made in 1994, 1995 and 1996. The notes
bear interest at rates varying from 5.86% to 10% per annum with maturities ranging from
January 1997 to February 2004................................................................ 1,714 2,929
--------- ---------
Total notes payable............................................................................ 2,195 3,259
Less current portion........................................................................... 222 696
--------- ---------
Long term portion.............................................................................. $ 1,973 $ 2,563
--------- ---------
--------- ---------
</TABLE>
On March 5, 1997, certain notes with an aggregate principal amount of
approximately $1.6 million due in 1997 were extended to March 31, 1998.
F-10
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. NOTES PAYABLE (CONTINUED)
Maturities of notes payable subsequent to December 31, 1996 are as follows
(in thousands): $696 in 1997, $1,983 in 1998, $80 in 1999, $39 in 2000 and $14
in 2001 and $447 thereafter.
During the years ended December 31, 1994, 1995 and 1996 the company paid
interest aggregating (in thousands) $766, $71 and $166, respectively, in
connection with these notes.
6. SUBORDINATED DEBT
On November 17, 1995, the Company entered into a Subscription Agreement
("the Agreement") with various existing stockholders and a third party ("the
Purchasers"). The Agreement called for the sale of 41,254 shares of common stock
at $1.20 a share, and the issuance of $4,951,000 of subordinated debt. The stock
and debt were offered in tandem with each share of stock purchased requiring a
loan of $120 to the Company. At the closing of the transaction, the Purchasers
had acquired stock and debt of 24,753 shares and $2,970,000, respectively,
representing 60% of the total amount offered by the Company. On April 16, 1996
and May 1, 1996, the purchasers acquired, in the aggregate, stock and debt of
16,501 shares and $1,981,000, respectively, representing the remaining 40% of
the Agreement. The debt is subordinated to certain senior obligations of the
Company and was originally payable in four equal installments commencing on
September 30, 1996, with final payment on June 30, 1997. On March 1, 1996, the
principal repayment schedule was renegotiated such that 75% of the principal
balance was due on March 31, 1997 and the remaining 25% was due on June 30,
1997. On March 5, 1997, the Agreement was further amended such that all
principal is due on March 31, 1998. Prior to September 30, 1996 interest accrued
at 8% per annum on the unpaid balance and beginning on October 1, 1996 interest
accrues at 10% per annum in accordance with the Agreement. Interest is due and
payable in arrears, on each February 1, May 1, August 1 and November 1, and with
each payment of principal.
During the year ended December 31, 1996, the Company made interest payments
of $310,000 in connection with this debt. No interest payments were made during
1995.
7. TERM LOAN
On September 29, 1994, Alarmguard, Inc. entered into a new term loan
agreement (the "New Agreement") which refinanced all existing indebtedness under
one agreement, with the debt guaranteed by Security Systems Holdings, Inc. and
the stock of both AG Holding and Alarmguard Inc. pledged as security. The debt
was structured to include a term loan facility ("Term Loan") and an acquisition
loan facility ("Acquisition Loan"). Under the Term Loan facility, Alarmguard
Inc. received $18,300,000. Interest is payable monthly in arrears at prime plus
1 1/2% or LIBOR plus 3% at the option of the Company on a monthly basis
(approximately 8.5% at December 31, 1996). The Term Loan is payable in 84
monthly principal installments which began at $100,000 per month in 1994 and
increase to $400,000 per month in the seventh year with the last installment a
balloon payment for the remainder of the debt. The Acquisition Loan facility
allowed Alarmguard, Inc. to make acquisitions utilizing bank financing in
conjunction with cash provided by SSH. Interest on the Acquisition Loan is
payable monthly in arrears at prime plus 1 3/4% or at LIBOR plus 3 1/4% at the
option of the Company (approximately 8.7% at December 31, 1996). The Acquisition
Loan is payable in 72 monthly payments, which commenced in September 1996 at
$36,000 per month and increases to a maximum of $56,000 in month 73 of the loan.
As of December 31, 1995 and 1996, the Term Loan balance was $16,750,000 and
$15,300,000 and the Acquisition Loan balance was $3,493,000 and $3,036,000,
respectively.
F-11
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. TERM LOAN (CONTINUED)
On April 6, 1995, the New Agreement was amended and restated, to among other
items, add a $5,000,000 facility to fund the Company's direct marketing program
("Program Line"). Interest on the Program Line is payable monthly in arrears at
prime plus 1 3/4% or LIBOR plus 3 1/4% at the option of the Company
(approximately 8.7% at December 31, 1996). On March 1, 1996, the Company amended
the New Agreement to increase the Program Line from $5,000,000 to $10,062,000
and to adjust the payment terms of the loan such that the Program Line is
payable in 60 monthly payments. On August 29, 1996, the Company amended the New
Agreement to increase the Program Line to $13,062,000. The amount of monthly
principal payments is determined by taking the principal balance of the Program
Line outstanding at the end of the first payment date multiplied by a monthly
amortization percentage. Therefore, the maximum monthly payments could be
$173,000 beginning in March 1997 and increasing to $260,000 by month 49, with a
final payment of $1,040,000 in month 57, assuming the line was fully utilized.
As of December 31, 1995 and 1996, the outstanding balance under the Program Line
was $4,200,000 and $12,300,000, respectively.
The New Agreement, as amended, contains covenants which, among other
matters; i) limit indebtedness, ii) limit capital expenditures, iii) require
Alarmguard Inc. to satisfy certain financial ratios and, iv) limit the
declaration of dividends by Alarmguard Inc. As of December 31, 1995 and 1996,
the restricted net assets of Alarmguard, Inc., were $1,491,000 and $1,068,000,
respectively.
The amounts to be repaid under the New Agreement for the five years ended
December 31 are as follows (in thousands):
<TABLE>
<S> <C>
1997................ $ 4,169
1998................ 4,693
1999................ 5,893
2000................ 8,204
2001................ 7,677
---------
$ 30,636
---------
---------
</TABLE>
During the years ended December 31, 1994, 1995 and 1996, the Company paid
interest aggregating $688,000, $1,987,000 and $2,386,000, respectively, in
connection with the term loan.
On January 15, 1997, subject to the execution of the Bridge Loan agreement
with Triton, the Company amended the New Agreement whereby the Program Line has
been increased to $14,562,000 from $13,062,000. In addition the principal
repayment schedules of the Term Loan, Acquisition Loan and Program Line have
been adjusted whereby the January and February 1997 principal payments have been
deferred and will be paid in conjunction with the Company's March 31, 1997
principal payment on or before April 15, 1997.
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY
Dividends on the redeemable preferred stock are cumulative, accrue 5%
annually (noncompounded) and are payable upon liquidation, redemption or a
public offering. Liquidation preferences include the cost of the preferred stock
plus accrued but unpaid dividends at the redemption date. The Company must
redeem the preferred stock at the earlier of an initial public offering or March
31, 1998 (as extended from
F-12
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIENCY (CONTINUED)
March 31, 1997). If the Company cannot redeem the preferred stock, a majority of
the holders of the preferred stock have other remedies available to them, as
more fully described in the agreement, which may include a merger, consolidation
of the Corporation with or into another corporation or the sale of all or
substantially all of the Company's capital stock. Based on the terms of the New
Agreement, preferred stockholders cannot exercise their rights under the
preferred stock agreement until a stay period of 180 days has transpired. Common
stockholders cannot participate in any public offering unless proceeds are
sufficient to fully redeem the preferred stock plus accrued dividends. As of
December 31, 1995 and 1996, accrued but unpaid dividends aggregated $1,993,000
and $2,678,000, respectively. Such amounts are included in their respective
redeemable preferred stock accounts in the financial statements.
Each preferred and common stockholder, with the exception of the holders of
the non-voting common stock, has the right to one vote per share. All
stockholders have antidilution rights and the right of first refusal on all
subsequent equity offerings. The Company must obtain the approval of the common
and preferred stockholders prior to issuing additional common stock until the
preferred stock has been redeemed and all accrued dividends have been paid.
In connection with the issuance of the subordinated debt (see Note 6) during
1995, the Company issued 14,679 shares of voting and 10,074 shares of non-voting
common stock, each $1.00 par value, for total proceeds of $18,000 and $12,000,
respectively. During 1996, in connection with the remaining portion of the
subordinated debt, the Company issued 9,785 shares of voting and 6,716 shares of
non-voting common stock, each $1.00 par value, for total proceeds of $12,000 and
$8,000, respectively. In addition, the Purchasers received 25,000 (including
10,175 non-voting) and 16,667 (including 6,783 non-voting) shares of common
stock in 1995 and 1996, respectively, (valued at $1.20 a share) as a fee for
their participation in the transaction which has been treated as a deferred
financing fee.
The Company sponsors a Stock Option Plan, which provides for the issuance of
options to purchase up to 51,000 shares of common stock. Stock option activity
is shown below.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
----------- -------------
<S> <C> <C>
Outstanding at January 1, 1994..................................... 31,250 $ 1.00--1.20
Granted............................................................ 7,200 1.00
Exercised.......................................................... (31,250) 1.00--1.20
----------- -------------
Outstanding at December 31, 1994................................... 7,200 1.00
Granted............................................................ 6,300 1.20
Exercised.......................................................... (1,000) 1.00--1.20
----------- -------------
Outstanding at December 31, 1995 and 1996.......................... 12,500 $ 1.00--1.20
----------- -------------
----------- -------------
Exercisable at December 31, 1996................................... 3,737 $ 1.00--1.20
----------- -------------
----------- -------------
Available for grant at December 31, 1996........................... 6,250
-----------
-----------
</TABLE>
Officers of the Company issued promissory notes to the Company aggregating
$35,000 for options exercised in 1994 and 1995 which bear interest at 4.01% per
annum and are due August 1, 1997. Pro forma information related to stock option
grants in 1995 has not been presented as the impact of the fair value of the
stock option grants was insignificant to the results of operations and the pro
forma loss per common share.
F-13
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
9. EMPLOYEE SAVINGS PLAN
SSH established a voluntary 401(k) Savings Plan ("the Plan") effective
January 1, 1994. Employees working a minimum of 20 hours per week who are 21
years of age with one year of service are eligible to participate in the Plan.
The Company matches 25% of the first 6% of each employee's contributions.
Contributions to the Plan are invested in a wide range of traditional 401(k)
investment funds, as directed solely by the participants. The Company's
contributions to the Plan were approximately $37,000, $41,000 and $55,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
10. INCOME TAXES
Deferred tax assets of approximately $7,900,000 and $8,600,000 at December
31, 1995 and 1996, respectively, have been offset in full by valuation
allowances as the Company has continually generated net losses from its
inception and is expected to continue to do so.
Differences between the tax basis of assets and liabilities and their
financial reporting amounts that give rise to significant portions of deferred
income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Deferred tax assets:
Net operating losses.................................................... $ 4,273 $ 7,133
Intangible Assets....................................................... 2,435 880
Charitable contributions and capital losses............................. 107 107
Property and equipment.................................................. 967 267
Accounts receivable..................................................... 50 125
Other................................................................... 76 79
--------- ---------
Gross deferred tax assets............................................... 7,908 8,591
Valuation allowances.................................................... (7,908) (8,591)
--------- ---------
Net deferred tax assets................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has net operating loss carryforwards, subject to certain
limitations, for federal income tax purposes of approximately $10,200,000 and
$17,000,000 at December 31, 1995 and 1996, respectively, which begin to expire
in 2007 and continue to expire through 2011. Utilization of the net operating
losses may be subject to a substantial annual limitation due to the ownership
change provisions of Internal Revenue Code Section 382. The valuation allowances
have been established until it is more likely than not that the deferred tax
assets will be realized.
11. COMMITMENTS AND CONTINGENCIES
In connection with various acquisitions, the Company assumed noncancellable
operating leases for the operating facilities of its wholly-owned subsidiaries,
as well as various operating and capital leases for office and central station
equipment and agreements for wholesale monitoring services. The lessor of the
Company's Connecticut central station facility and the owner of a wholesale
monitoring company used by the Company are corporations whose principal
stockholder is also a stockholder and an officer of the
F-14
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company, or his spouse. During 1995 and 1996, the Company paid approximately
$109,000 and $127,000, respectively, for these monitoring services on terms no
less favorable than are available from unaffiliated third parties. In addition,
the Company entered into various noncancellable capital and operating leases for
its office and central station and for service vehicles. At December 31, 1996,
the minimum annual rental payments under the terms of these lease agreements
(including approximately $300,000 per annum payable to a corporation whose
principal stockholder is also a stockholder and officer of the Company on terms
no less favorable than are available from an unaffiliated third party) are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
1997 $ 576 $ 678
1998 315 593
1999 140 528
2000 12 466
2001 -- 362
Thereafter.................... -- 615
----- -----------
1,043 $ 3,242
-----------
-----------
Less interest portion......... 108
-----
Present value of net minimum
rentals..................... $ 935
-----
-----
</TABLE>
Rent expense was $507,000, $608,000 and $710,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
In conjunction with an acquisition, the Company entered into an employment
agreement ("Employment Agreement") with the former owner. Under the Agreement,
the employee is entitled to a minimum annual salary of $150,000 for a term of
six years expiring on September 10, 1998. The employee was granted 1,000 options
at $1.20 per share in conjunction with the refinancing and reorganization of the
Companies on September 29, 1994 and the redeemable common stock issued to the
former owner was converted to a promissory note with a face value of $1,250,000
due September 29, 1997. The difference between the accreted value of the stock
and the note has been treated as an extraordinary loss on refinancing for the
year ended December 31, 1994.
The Company also has an employment agreement with a key executive requiring
an annual salary of not less than $200,000 per year for a period of five years,
subject to annual increases, as approved by the compensation committee of the
Board of Directors. In addition, the Board of Directors approved a one year
severance provision and one time salary death benefit.
Also, the Company has entered into agreements with two other key executives
which provide for one year's annual salary in the event of termination or death.
For 1996, the annual salaries were approximately $335,000 in the aggregate.
F-15
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company experiences routine litigation in the normal course of its
business. Management does not believe that any pending or threatened litigation
will have a material adverse effect on the financial condition or results of
operations of the Company.
12. LICENSING AGREEMENTS
On August 7, 1995, the Company entered into regional and national licensing
agreements ("the SNET Agreements") with Southern New England Telephone ("SNET")
for the exclusive right to market security systems and monitoring services
utilizing the SNET, Bell Equipment Security Systems and Southern New England
Bell ("Bell") tradenames and trademarks. The Company is required to pay a
monthly royalty based on a percentage of the total net MRR generated under the
SNET and Bell tradenames and trademarks. In addition, annual minimum royalty
payments must be paid to SNET on a per region basis, as defined, to maintain the
exclusivity of the SNET Agreements. In 1995, royalties incurred were
insignificant. During 1996, royalties incurred pursuant to these Agreements were
approximately $180,000.
As of January 31, 1997, the Company elected to terminate the SNET regional
licensing agreement.
13. PROPOSED MERGER AND MANAGEMENT'S PLANS
On September 23, 1996 the Company signed a letter of intent to merge with
Triton Group, Ltd. ("Triton"), a Delaware Corporation. Subject to the terms and
conditions of the merger agreement, the holders of all of SSH's common and
redeemable preferred stock will receive approximately 2,877,368 shares
(excluding approximately 46,003 shares reserved for stock options) of Triton
common stock. The merger will be accounted for as a reverse acquisition whereby
the net assets of Triton (principally cash) will be recorded at net book value
and the pre-merger financial statements of SSH will become the historical
financial statements of Triton and SSH. The merger is expected to be consummated
during the second quarter of 1997. Under certain circumstances, failure to
consummate the merger will result in the payment of a $1.0 million "break-up"
fee. In addition, the Merger Agreement allows the Company to borrow up to $1.5
million (the "Bridge Loan") at an interest rate of 11% per annum through June
30, 1997. On February 10, 1997, the Company borrowed $500,000 under the Bridge
Loan.
In connection with the proposed merger, the Company will refinance its
existing subordinated debt (see Note 6) with new subordinated debt with an
aggregate principal amount of approximately $4,600,000 and a stated interest
rate of 15%. Upon consummation of the refinancing, two officers of the Company
will be holders of an aggregate amount of $200,000 of the newly issued
subordinated debt. In addition, the Company will issue warrants to purchase
approximately 216,000 shares of Triton Common Stock at an exercise price of
$11.11 per share which will be accounted for as a discount to the new
subordinated debt. In addition, the Company expects to refinance the New
Agreement with a two year $60 million non-amortizing revolving loan agreement
which converts to a five year term loan.
If the Merger and related transactions are not consummated, management
intends to curtail the direct marketing program and to implement a cost
reduction strategy to the extent necessary to meet its obligations. Based on
these plans, and in light of the previously discussed extensions of the
company's redeemable preferred stock (see note 8), subordinated debt (see note
6) and certain other notes (see
F-16
<PAGE>
SECURITY SYSTEMS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
13. PROPOSED MERGER AND MANAGEMENT'S PLANS (CONTINUED)
note 5) with an aggregate principal amount of $23,546,000 previously due in
1997, it is management's opinion that the company will be able to meet its
obligations as they come due for at least one year from January 1, 1997.
The pro forma loss per common share for the year ended December 31, 1996
gives effect to the conversion of all preferred and common stock into Triton
common stock as noted above. Such conversion excludes shares issuable upon
exercise of outstanding stock options.
14. PROPOSED ACQUISITION
On December 20, 1996, the Company entered into a stock purchase agreement
pursuant to which the Company will purchase all of the issued and outstanding
shares of capital stock of Protective Alarms, Inc. for an initial purchase price
of approximately $17.1 million (including approximately $.1 million of
expenses). Up to $1.6 million in additional consideration will be paid to the
sellers of Protective Alarms, Inc. upon the installation of national account
contracts pending on the closing date during the year following the closing of
the proposed acquisition. Protective Alarms, Inc. is a security alarm system
company doing business primarily in Connecticut and Westchester County, New
York, that provides security equipment and monitoring services to homeowners and
businesses. In addition, Protective Alarms, Inc. specializes in chain account
sales under the name "Pro National," primarily in the Northeastern United
States. The acquisition will be accounted for under the purchase method of
accounting and is expected to be consummated during the second quarter of 1997.
F-17
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
SECURITY SYSTEMS HOLDINGS, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1995 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 1,455 $ 147
Accounts receivable........................................................ 186 1,348
Other current assets....................................................... 185 907
---------- ----------
Total current assets......................................................... 1,826 2,402
Property and equipment, net.................................................. 797 818
Customer installation costs, net............................................. 2,928 6,728
Other assets (principally investment in and amounts due from wholly-owned
subsidiaries).............................................................. 2,289 1,707
---------- ----------
Total assets................................................................. $ 7,840 $ 11,655
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Due to affiliate........................................................... $ 2,695 $ 11,945
Other current liabilities.................................................. 1,017 2,009
---------- ----------
Total current liabilities.................................................... 3,712 13,954
Subordinated debt............................................................ 2,970 4,951
Other liabilities............................................................ 834 1,375
Redeemable preferred stock, series A......................................... 5,744 5,994
Redeemable preferred stock, series B......................................... 9,844 10,279
Stockholders' deficiency:
Other stockholders' equity................................................. 198 237
Accumulated deficit........................................................ (15,462) (25,135)
---------- ----------
Total stockholders' deficiency............................................... (15,264) (24,898)
---------- ----------
Total liabilities and stockholders' deficiency............................... $ 7,840 $ 11,655
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
SECURITY SYSTEMS HOLDINGS, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues.......................................................................... $ 279 $ 1,249 $ 3,376
Cost of sales..................................................................... (62) (190) (1,584)
Selling, general and administrative expense....................................... (1,873) (3,390) (5,664)
Depreciation and amortization expense............................................. (110) (672) (2,007)
Interest income (expense)......................................................... 59 (85) (536)
Other income (expense)............................................................ 354 724 (573)
Share of subsidiaries loss........................................................ (2,482) (4,283) (2,000)
--------- --------- ---------
Net loss.......................................................................... (3,835) (6,647) (8,998)
Dividend requirement on preferred stock........................................... (685) (685) (685)
--------- --------- ---------
Loss applicable to common shares.................................................. $ (4,520) $ (7,332) $ (9,673)
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
S-2
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
SECURITY SYSTEMS HOLDINGS, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash used in operating activities................................................. $ (1,459) $ (1,259) $ (2,569)
INVESTING ACTIVITIES:
Capital contributed to subsidiaries............................................... -- -- (1,577)
Acquisition of businesses, net of cash acquired................................... (782) (205) --
Purchases of property and equipment............................................... -- (333) (153)
--------- --------- ---------
Net cash used in investing activities............................................. (782) (538) (1,730)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................................ -- 60 39
Proceeds from issuance of subordinated debt....................................... -- 2,970 1,981
Proceeds from issuance to notes payable........................................... -- -- 1,235
Financing fees paid............................................................... -- (230) (25)
Other financing activities........................................................ -- (177) (239)
--------- --------- ---------
Net cash provided by financing activities......................................... -- 2,623 2,991
Increase (decrease) in cash and cash equivalents.................................. (2,241) 826 (1,308)
Cash and cash equivalents at beginning of period.................................. 2,870 629 1,455
--------- --------- ---------
Cash and cash equivalents at end of period........................................ $ 629 $ 1,455 $ 147
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
S-3
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF
SECURITY SYSTEMS HOLDINGS, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A--BASIS OF PRESENTATION
In the parent company only financial statements, the Company's investment in
subsidiaries is stated at cost plus its share of the undistributed
earnings/losses of subsidiaries since the respective dates of acquisition. The
parent-company only financial statements should be read in conjunction with the
Company's consolidated financial statements.
NOTE B--GUARANTEE OF DEBT
Alarmguard, Inc. has $24,443,000 and $30,636,000 of debt outstanding at
December 31, 1995 and 1996, respectively. Under the terms of the debt agreement,
the Company has guaranteed the payment of all principal and interest.
S-4
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TRITON GROUP LTD.,
TRITON ACQUISITION CORP.
AND
SECURITY SYSTEMS HOLDINGS, INC.
Dated as of December 23, 1996*
*As amended by Amendment No. 1 to
Agreement and Plan of Merger dated
as of March 6, 1997.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. THE MERGER.................................................. 1
SECTION 1.01. The Merger................................................ 1
SECTION 1.02. Effective Time............................................ 2
SECTION 1.03. Effect of the Merger...................................... 2
SECTION 1.04. Certificate of Incorporation; By-Laws..................... 2
SECTION 1.05. Directors and Officers.................................... 2
SECTION 1.06. Effect on Capital Stock................................... 2
SECTION 1.07. Stock Transfer Books...................................... 4
SECTION 1.08. Tax and Accounting Consequences........................... 4
SECTION 1.09. Dissenting Shares......................................... 4
SECTION 1.10. Taking of Necessary Action; Further Action................ 4
SECTION 1.11. Material Adverse Effect................................... 5
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 5
SECTION 2.01. Organization and Qualification; Subsidiaries.............. 5
SECTION 2.02. Certificate of Incorporation and By-Laws.................. 5
SECTION 2.03. Capitalization............................................ 5
SECTION 2.04. Authority Relative to this Agreement...................... 6
SECTION 2.05. No Conflict; Required Filings and Consents................ 6
SECTION 2.06. Compliance; Permits....................................... 7
SECTION 2.07. Financial Statements...................................... 7
SECTION 2.08. Absence of Certain Changes or Events...................... 7
SECTION 2.09. No Undisclosed Liabilities................................ 8
SECTION 2.10. Absence of Litigation..................................... 8
SECTION 2.11. Benefit Plans............................................. 8
SECTION 2.12. Transactions with Certain Persons......................... 9
SECTION 2.13. Labor Matters............................................. 10
SECTION 2.14. Registration Statement; Proxy Statement/Prospectus........ 10
SECTION 2.15. Restrictions on Business Activities....................... 10
SECTION 2.16. Title to Property......................................... 10
SECTION 2.17. Taxes..................................................... 11
SECTION 2.18. Environmental Matters..................................... 12
SECTION 2.19. Brokers................................................... 13
SECTION 2.20. Full Disclosure........................................... 13
SECTION 2.21. Intellectual Property..................................... 13
SECTION 2.22. Insurance................................................. 14
SECTION 2.23. Accounts Receivable....................................... 14
SECTION 2.24. Intangible Assets......................................... 14
i
<PAGE>
Page
----
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... 14
SECTION 3.01. Organization and Qualification; Subsidiaries.............. 14
SECTION 3.02. Certificate of Incorporation and By-Laws.................. 15
SECTION 3.03. Capitalization............................................ 15
SECTION 3.04. Authority Relative to this Agreement...................... 15
SECTION 3.05. No Conflict; Required Filings and Consents................ 16
SECTION 3.06. Compliance; Permits....................................... 16
SECTION 3.07. SEC Filings; Financial Statements......................... 17
SECTION 3.08. Absence of Certain Changes or Events...................... 17
SECTION 3.09. No Undisclosed Liabilities................................ 17
SECTION 3.10. Absence of Litigation..................................... 17
SECTION 3.11. Benefit Plans. .......................................... 18
SECTION 3.12. Transactions with Certain Persons......................... 19
SECTION 3.13. Labor Matters............................................. 19
SECTION 3.14. Registration Statement; Proxy Statement/Prospectus........ 19
SECTION 3.15. Restrictions on Business Activities....................... 20
SECTION 3.16. Title to Property......................................... 20
SECTION 3.17. Taxes..................................................... 20
SECTION 3.18. Environmental Matters..................................... 21
SECTION 3.19. Brokers................................................... 22
SECTION 3.20. Full Disclosure........................................... 22
SECTION 3.21. Intellectual Property..................................... 22
SECTION 3.22. Insurance................................................. 22
SECTION 3.23. Fairness Opinion.......................................... 23
SECTION 3.24. Ownership of Merger Sub; No Prior Activities.............. 23
ARTICLE IV. CONDUCT OF BUSINESS PENDING THE MERGER...................... 23
SECTION 4.01. Conduct of Business by the Company Pending the Merger..... 23
SECTION 4.02. No Solicitation........................................... 25
SECTION 4.03. Conduct of Business by Parent Pending the Merger.......... 26
ARTICLE V. ADDITIONAL AGREEMENTS....................................... 27
SECTION 5.01. Proxy Statement/Prospectus; Registration Statement........ 27
SECTION 5.02. Stockholders Meeting...................................... 28
SECTION 5.03. Access to Information; Confidentiality.................... 28
SECTION 5.04. Consents; Approvals....................................... 29
SECTION 5.05. Agreements with Respect to Affiliates..................... 29
SECTION 5.06. Notification of Certain Matters........................... 29
SECTION 5.07. Further Action/Tax Treatment.............................. 29
SECTION 5.08. Public Announcements...................................... 30
SECTION 5.09. Listing of Parent Shares.................................. 30
SECTION 5.10. Reverse Stock Split....................................... 30
ii
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SECTION 5.11. Conveyance Taxes.......................................... 30
SECTION 5.12. Lines of Credit........................................... 30
SECTION 5.13. Board Representation...................................... 30
SECTION 5.14. Management Agreement...................................... 30
SECTION 5.15. Registration Rights Agreement............................. 30
SECTION 5.16. Dissolution of Subsidiaries............................... 30
SECTION 5.17. Stock Incentive Plan...................................... 30
SECTION 5.18. Amendment of Parent's Certificate of Incorporation and
By-laws................................................... 31
SECTION 5.19. Restructuring of Company's Subordinated Indebtedness...... 31
SECTION 5.20. Severance Agreements...................................... 31
SECTION 5.21. Indemnification........................................... 31
iii
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Page
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ARTICLE VI. CONDITIONS TO THE MERGER.................................... 32
SECTION 6.01. Conditions to Obligations of Each Party to Effect the
Merger.................................................... 32
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger
Sub....................................................... 33
SECTION 6.03. Additional Conditions to Obligations of the Company....... 34
ARTICLE VII. TERMINATION................................................. 35
SECTION 7.01. Termination............................................... 35
SECTION 7.02. Effect of Termination..................................... 36
SECTION 7.03. Fees and Expenses......................................... 36
ARTICLE VIII. GENERAL PROVISIONS.......................................... 37
SECTION 8.01. Effectiveness of Representations, Warranties and
Agreements................................................ 37
SECTION 8.02. Notices................................................... 37
SECTION 8.03. Certain Definitions....................................... 38
SECTION 8.04. Amendment................................................. 39
SECTION 8.05. Waiver.................................................... 39
SECTION 8.06. Headings.................................................. 39
SECTION 8.07. Severability.............................................. 39
SECTION 8.08. Entire Agreement.......................................... 39
SECTION 8.09. Assignment................................................ 39
SECTION 8.10. Failure or Indulgence Not Waiver; Remedies Cumulative..... 39
SECTION 8.11. Governing Law............................................. 39
SECTION 8.12. Counterparts.............................................. 39
SECTION 8.13. Attorneys' Fees........................................... 40
TABLE OF EXHIBITS
EXHIBIT A-1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
THE COMPANY
EXHIBIT A-2 AMENDED AND RESTATED BY-LAWS OF THE COMPANY
EXHIBIT B STOCK OPTION AND CONVERSION AGREEMENT
EXHIBIT C AFFILIATE AGREEMENT
EXHIBIT D MANAGEMENT AGREEMENT
EXHIBIT E REGISTRATION RIGHTS AGREEMENT
EXHIBIT F STOCK INCENTIVE PLAN
EXHIBIT G-1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
PARENT
EXHIBIT G-2 AMENDED AND RESTATED BY-LAWS OF PARENT
EXHIBIT H TERM SHEET FOR RESTRUCTURING SUBORDINATED INDEBTEDNESS
iv
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Page
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EXHIBIT I SEVERANCE AGREEMENT
EXHIBIT J FORM OF OPINION OF MORGAN, LEWIS & BOCKIUS LLP
EXHIBIT K FORM OF OPINION OF LATHAM & WATKINS
EXHIBIT L FORM OF OPINION OF ERNST & YOUNG LLP
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 23, 1996 (the
"Agreement"), by and among TRITON GROUP LTD., a Delaware corporation ("Parent"),
TRITON ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary
of Parent ("Merger Sub"), and SECURITY SYSTEMS HOLDINGS, INC., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL"), and upon the
terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder;
and
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to Parent to enter into this Agreement, certain stockholders of the
Company have entered into a Lock-up Agreement (the "Lock-up Agreement") with the
Company and Parent, pursuant to which such stockholders have agreed, among other
things, to vote all voting securities of the Company beneficially owned by them
in favor of approval and adoption of this Agreement and the Merger;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE 1.
THE MERGER
SECTION 1.01. The Merger. (a) Effective Time. At the Effective Time (as
defined in Section 1.02 hereof), and subject to and upon the
terms and conditions of this Agreement and the DGCL, Merger
Sub shall be merged with and into the Company, the separate
corporate
<PAGE>
existence of Merger Sub shall cease, and the Company shall
continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned
pursuant to Section 7.01 and subject to the satisfaction or
waiver of the conditions set forth in Article VI, the closing
of the Merger (the "Closing") shall take place at the offices
of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New
York, on the next business day following satisfaction of the
last of the conditions precedent specified in Article VI (the
"Closing Date"), unless another date, time or place is agreed
to in writing by the parties hereto.
SECTION 1.02. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article
VI, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger as contemplated
by the DGCL (the "Certificate of Merger"), together with any
required related certificates, with the Secretary of State of
the State of Delaware, in such form as required by, and
executed in accordance with the relevant provisions of, the
DGCL (the time of such filing being the "Effective Time").
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate
of Merger and the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. The form of Amended and
Restated Certificate of Incorporation of the Company, as set
forth on Exhibit A-1 hereto, and the form of By-laws of the
Company, as set forth on Exhibit A-2 hereto, from and after
the Effective Time, shall be the certificate of incorporation
and the by-laws of the Surviving Corporation until thereafter
amended as provided therein and under the DGCL.
SECTION 1.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time (who shall include (a)
<PAGE>
Russell MacDonnell, Chief Executive Officer of the Company,
(b) David Heidecorn, Chief Financial Officer of the Company,
(c) Michael Earley, Chief Executive Officer of Parent, (d) one
additional director designated by Parent, (e) Stuart L. Bell,
(f) Stephen L. Green, and (g) one additional director
designated by the Company) shall be the initial directors of
the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and By-Laws of the
Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and
qualified.
SECTION 1.06. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent,
Merger Sub, the Company or the holders of any of the following
securities:
(a). Conversion of Securities. The shares (the "Shares") of (i)
Class A Voting Common Stock, $1.00 par value per share (the
"Voting Common Stock"), (ii) Class B Non-Voting Common
Stock, $1.00 par value per share (the "Non-Voting Common
Stock" and, together with the Voting Common Stock, the
"Company Common Stock"), (iii) Series A Preferred Stock,
$100.00 par value per share (the "Series A Preferred
Stock"), and Series B Preferred Stock, $120.00 par value per
share (the "Series B Preferred Stock" and, together with the
Series A Preferred Stock, the "Company Preferred Stock"),
issued and outstanding immediately prior to the Effective Time
(other than shares held by holders who have properly
perfected their appraisal rights in accordance with
the DGCL), together with all dividends on the Company
Preferred Stock that have accrued and remain unpaid through
January 31, 1997, shall be converted into an aggregate of
2,923,371 validly issued, fully paid and nonassessable shares
(the "Parent Shares") of common stock, $0.0001 par value per
share, of Parent ("Parent Common Stock") (which includes the
46,003 shares of Parent Common Stock issuable to the Optionees
(as defined below) pursuant to the Stock Options (as defined
below) and assumed by Parent in accordance with subsection (c)
of this Section 1.06 upon the exercise thereof) after giving
effect to Parent's one-for-ten reverse stock split as
provided in Section 5.10. The Parent Shares shall be allocated
among the Company's stockholders as follows: (i) the shares of
Company Common Stock shall be converted into 920,686 shares of
Parent Common Stock at a conversion ratio of 3.68023 per Share
(the "Common Stock Conversion Ratio"); (ii) the shares of
Series A Preferred Stock, together with all dividends thereon
that have accrued and remain unpaid through January 31, 1997,
shall be converted into 752,649 shares of Parent Common Stock
at a conversion ration of 15.05297 per Share (the "Series A
Preferred Stock Conversion Ratio"); and (iii) the shares of
<PAGE>
Series B Preferred Stock, together with all dividends thereon
that have accrued and remain unpaid through January 31, 1997,
shall be converted into 1,250,036 shares of Parent Common
Stock at a conversion ratio of 17.24188 per Share (the "Series
B Preferred Stock Conversion Ratio"). Dividends on the Company
Preferred Stock that have accrued and remain unpaid from
February 1, 1997 through the Closing Date shall be paid at the
consummation of the Merger in cash by Parent to the holders of
the Company Preferred Stock as of the Closing Date; provided,
however, that in no event shall Parent be obligated to pay any
amount in excess of $140,000 of such accrued and unpaid
dividends. No fractional shares of Parent Common Stock shall
be issued in the Merger. In lieu of any such fractional
shares, each holder of Company Common Stock or Company
Preferred Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock shall be paid an
amount in cash, rounded to the nearest cent, determined by
multiplying (x) the average closing price per share of Parent
Common Stock on the American Stock Exchange ("AMEX") for the
ten trading days immediately preceding the second business day
prior to the Effective Time, by (y) the fractional interest to
which such holder otherwise would be entitled.
(b) Cancellation. Each Share owned by Parent, Merger Sub or any
direct or indirect wholly owned subsidiary of the Company or
Parent immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the
holder thereof, cease to be outstanding, be canceled and
retired without payment of any consideration therefore and
case to exist.
(c) Assumption and Conversion of Stock Options.
(i) At the Effective Time, each outstanding option to
purchase Company Common Stock (a "Stock Option") granted
under the agreements (the "Company Stock Option
Agreements") to acquire an aggregate of 12,500 shares of
Company Common Stock to the individuals set forth on the
Company Disclosure Schedule (such individuals, the
"Optionees"), whether vested or unvested, and all
obligations of the Company with respect to the Stock
Options, shall be assumed by Parent, and shall
constitute an option to acquire Parent Shares on the
same terms and conditions that were applicable under the
Company Stock Option Agreements prior to the Effective
Time as amended by the provisions of this Section
1.06(c). Prior to the Effective Time, Parent and the
Company shall enter into a Stock Option and Conversion
Agreement substantially in the form of Exhibit B hereto
with each of the Optionees.
<PAGE>
(ii) Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of Parent
Shares for delivery pursuant to the terms set forth in
this Section 1.06(c) effective as of the Closing Date.
(iii) Subject to any applicable limitations under the
Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), Parent
shall file a Registration Statement on Form S-8 (or any
successor form), effective as soon as practicable
following the Effective Time, with respect to the shares
of Parent Common Stock issuable upon exercise of the
Stock Options, and shall use all reasonable efforts to
maintain the effectiveness of such registration
statement (and maintain the current status of the
prospectus or prospectuses contained therein) for so
long as such options shall remain outstanding.
(d). Capital Stock of Merger Sub. Each share of common stock, $0.01
par value, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable
share of common stock, $0.01 par value, of the Surviving
Corporation.
SECTION 1.07. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall
be no further registration of transfers of the Company Common
Stock thereafter on the records of the Company.
SECTION 1.08. Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall constitute a reorganization
within the meaning of Section 368 of the Code. The parties
hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
SECTION 1.09. Dissenting Shares. (a) Notwithstanding any other provision
of this Agreement to the contrary, Shares that are outstanding
immediately prior to the Effective Time and which are held by
stockholders who shall not have voted in favor of the Merger
or consented thereto in writing and who shall have properly
delivered a written demand for appraisal of such Shares in
accordance with Section 262 of the DGCL and shall not have
failed to perfect or shall not have effectively withdrawn such
demand or otherwise lost their appraisal rights (the
"Dissenting Shares") shall not be converted into or represent
the right to receive any Parent Shares. Such stockholders
shall be entitled to have such Dissenting Shares
<PAGE>
held by them appraised in accordance with the provisions of
Section 262 of the DGCL, except that all Dissenting Shares
held by stockholders who shall have failed to perfect or shall
have effectively withdrawn or otherwise lost their right to
appraisal of such Shares under such Section 262 shall
thereupon be deemed to have been converted into and to have
become exchangeable for, as of the Effective Time, the right
to receive Parent Shares pursuant to Section 1.06(a).
(b). The Company shall give Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of demand
for appraisal, and any other instruments served pursuant to
the DGCL and received by the Company in connection with the
appraisal of the Dissenting Shares and (ii) the opportunity to
participate in all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company will not,
except with the prior written consent of Parent, make any
payment with respect to any demands for appraisal, or offer to
settle, or settle, any such demands for appraisal.
SECTION 1.10. Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and
lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as
promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to
all assets, property, rights, privileges, powers and
franchises of the Company and Merger Sub, the officers and
directors of the Company and Merger Sub immediately prior to
the Effective Time are fully authorized in the name of their
respective corporations or otherwise to take, and will take,
all such lawful and necessary action.
SECTION 1.11. Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its
subsidiaries, as the case may be, the term "Material Adverse
Effect" means any change, effect or circumstance that,
individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to
the date of determination of the occurrence of the Material
Adverse Effect, is or is reasonably likely to be materially
adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company
and its subsidiaries or Parent and its subsidiaries, as the
case may be, in each case taken as a whole.
<PAGE>
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered hereunder by
the Company to Parent (the "Company Disclosure Schedule"):
SECTION 2.01. Organization and Qualification; Subsidiaries. Each of the
Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession
of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders
("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry
on its business as it is now being conducted and as proposed
to be conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority
and Approvals could not reasonably be expected to have a
Material Adverse Effect. Each of the Company and each of its
subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes
such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good
standing that could not reasonably be expected to have a
Material Adverse Effect. A true and complete list of all of
the Company's subsidiaries, together with the jurisdiction of
incorporation of each subsidiary and the percentage of each
subsidiary's outstanding capital stock owned by the Company or
another subsidiary, is set forth in the Company Disclosure
Schedule.
SECTION 2.02. Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of
its Certificate of Incorporation and By-Laws, and has
furnished or made available to Parent the Certificate of
Incorporation and By-Laws (or equivalent organizational
documents) of each of its subsidiaries (the "Subsidiary
Documents"). Such Certificate of Incorporation, By-Laws and
Subsidiary Documents are in full force and effect. Neither the
Company nor any of its subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or By-Laws
or Subsidiary Documents.
<PAGE>
SECTION 2.03. Capitalization. The authorized capital stock of the Company
consists of 222,700 shares of Voting Common Stock, 33,800
shares of Non-Voting Common Stock, 50,000 shares of Series A
Preferred Stock and 72,500 shares of Series B Preferred Stock.
As of the date of this Agreement, 203,923 shares of Voting
Common Stock, 33,748 shares of Non-Voting Common Stock, 50,000
shares of Series A Preferred Stock and 72,500 shares of Series
B Preferred Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and no shares
are held in treasury, no shares of Company Common Stock or
Company Preferred Stock are held by subsidiaries of the
Company, and 12,500 shares of Company Common Stock are
reserved for future issuance pursuant to outstanding stock
options granted under the Company Stock Option Agreements.
Except as set forth in the Company Disclosure Schedule, there
are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or any of its
subsidiaries or obligating the Company or any of its
subsidiaries to issue or sell any shares of capital stock of,
or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they
are issuable, shall be duly authorized, validly issued, fully
paid and nonassessable. Except as disclosed in the Company
Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries or to provide
funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any such subsidiary or
any other entity other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business.
Except as set forth in the Company Disclosure Schedule, all of
the outstanding shares of capital stock of each of the
Company's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable, and all such shares are owned by
the Company or another subsidiary free and clear of all
security interests, liens, claims, pledges, agreements,
limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever.
SECTION 2.04. Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the
<PAGE>
consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated (other than
the adoption of the Merger Agreement by the holders of at
least a majority of the outstanding shares of Company Common
Stock and Company Preferred Stock entitled to vote in
accordance with the DGCL and the Company's Certificate of
Incorporation and By-Laws). The Board of Directors of the
Company has determined that it is advisable and in the best
interests of the Company's stockholders for the Company to
enter into a business combination with Parent upon the terms
and subject to the conditions of this Agreement. This
Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, as applicable, constitutes
a legal, valid and binding obligation of the Company.
SECTION 2.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in the Company Disclosure Schedule, the execution and
delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i)
conflict with or violate the Certificate of Incorporation or
By-Laws of the Company, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the
Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a
default) under, or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or any of its subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties is
bound or affected, except in any such case for any such
conflicts, violations, breaches, defaults, or other
occurrences that could not reasonably be expected to have a
Material Adverse Effect.
(b). Except as disclosed in the Company Disclosure Schedule, the
execution and delivery of this Agreement by the Company does
not, and the
<PAGE>
performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) the filing and
recordation of appropriate merger or other documents as
required by the DGCL, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent or delay the
Company from performing its obligations under this Agreement,
or would not otherwise have a Material Adverse Effect.
SECTION 2.06. Compliance; Permits. (a) Except as disclosed in the Company
Disclosure Schedule, neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation
of, (i) any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by
which its or any of their respective properties is bound or
affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of
its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties
is bound or affected, except for any such conflicts, defaults
or violations which have been waived or which could not
reasonably be expected to have a Material Adverse Effect.
(b). Except as disclosed in the Company Disclosure Schedule, the
Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates,
orders and approvals from governmental authorities which are
material to the operation of the business of the Company and
its subsidiaries taken as a whole as it is now being conducted
and as proposed to be conducted (collectively, the "Company
Permits"). The Company and its subsidiaries are in compliance
with the terms of the Company Permits, except where the
failure to so comply could not reasonably be expected to have
a Material Adverse Effect.
SECTION 2.07. Financial Statements. The Company has made available to Parent
its audited financial statements for the fiscal year ended
December 31, 1995 and its unaudited financial statements for
the interim period ended September 30, 1996. Each of such
financial statements (including, in each case, any related
notes thereto) was prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in
the notes thereto), and each fairly presented in all material
respects the consolidated
<PAGE>
financial position of the Company and its subsidiaries as at
the respective dates thereof and the consolidated results of
its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments.
SECTION 2.08. Absence of Certain Changes or Events. Except as set forth in
the Company Disclosure Schedule, since December 31, 1995 the
Company has conducted its business in the ordinary course and
there has not occurred: any Material Adverse Effect; any
amendments or changes in the Certificate of Incorporation or
By-Laws of the Company; any damage to, destruction or loss of
any asset of the Company (whether or not covered by insurance)
that could reasonably be expected to have a Material Adverse
Effect; any material change by the Company in its accounting
methods; any material revaluation by the Company of any of its
assets, including without limitation, writing down the value
of inventory or writing off notes or accounts receivable other
than in the ordinary course of business; or any sale of a
material amount of property of the Company, except in the
ordinary course of business.
SECTION 2.09. No Undisclosed Liabilities. Except as set forth in the Company
Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) except liabilities in the aggregate
adequately provided for in the Company's audited balance sheet
(including any related notes thereto) as of December 31, 1995
(the "1995 Balance Sheet") or the Company's unaudited interim
balance sheet (including any related notes thereto) as of
September 30, 1996 (the "Interim Balance Sheet"), each of
which has been previously provided to Parent, incurred in the
ordinary course of business and not required under GAAP to be
reflected on the 1995 Balance Sheet, incurred since September
30, 1996 in the ordinary course of business, incurred in
connection with this Agreement, or which could not reasonably
be expected to have a Material Adverse Effect.
SECTION 2.10. Absence of Litigation. Except as set forth in the Company
Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of
the Company, overtly threatened against the Company or any of
its subsidiaries, or any properties or rights of the Company
or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body,
domestic or foreign,
<PAGE>
that could reasonably be expected to have a Material Adverse
Effect.
SECTION 2.11. Benefit Plans. (a) With respect to each (i) "employee benefit
plan," as such term is defined in Section 3(3) of ERISA,
pursuant to which the Company or any of its subsidiaries has
any liability in respect of current or former employees,
agents, directors, or independent contractors or any
beneficiaries or dependents of any such current or former
employees, agents, directors, or independent contractors, and
(ii) each other plan, program, policy, contract or arrangement
providing for bonuses, pensions, deferred pay, stock or stock
related awards, severance pay, salary continuation or similar
benefits, hospitalization, medical, dental or disability
benefits, life insurance or other employee benefits, or
compensation to or for any current or former employees,
agents, directors, or independent contractors or any
beneficiaries or dependents of any such current or former
employees, agents, directors, or independent contractors
(other than directors' and officers' liability policies),
whether or not insured or funded, or constituting an
employment or severance agreement or arrangement with any
officer or director of the Company or any subsidiary (each, a
"Company Benefit Plan"), the Company has made available to
Parent, where applicable, a true, correct and complete copy of
the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), such Company Benefit
Plan, each trust agreement and group annuity contract, if any,
relating to such Company Benefit Plan, and the most recent
actuarial report or valuation relating to a Company Benefit
Plan subject to Title IV of ERISA. Set forth on the Company
Disclosure Schedule is a list of each such Company Benefit
Plan.
(b). With respect to each Company Benefit Plan, individually and in
the aggregate, there exists no material condition or set of
circumstances, in connection with which the Company or any of
its subsidiaries would be subject to any material liability
(except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any
other applicable law.
(c). Except as set forth in the Company Disclosure Schedule, with
respect to all Company Benefit Plans, individually and in the
aggregate, there are no material funded benefit obligations
for which contributions have not been made or properly accrued
and there are no material unfunded obligations which have not
been accounted for by reserves (including, but not limited to,
any liability to any multiemployer plan as that term is
defined in Section 4001(a)(3) of ERISA (a "Multiemployer
Plan") or to the Pension
<PAGE>
Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA
or to the IRS for any excise tax or penalty, or being subject
to any statutory lien to secure payment of any such
liability).
(d). Except as set forth in the Company Disclosure Schedule, all
Company Benefit Plans have been operated in compliance in all
material respects with the applicable provisions of ERISA and
the Code and all reports and returns required to be filed
thereunder have been duly and timely filed. No prohibited
transactions within the meaning of Title I of ERISA or Section
4975(c)(1) of the Code have occurred with respect to said
plans. Each of the Company and its subsidiaries has complied
in all material respects with the continuation of coverage and
notification requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 and former Section 162(k) and
Section 4980B of the Code and Sections 601 through 608 of
ERISA.
(e). No circumstances exist pursuant to which the Company or any
subsidiary could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to
any Multiemployer Plan or to the PBGC under Title IV of ERISA
or to the IRS for any excise tax or penalty, or being subject
to any statutory lien to secure payment of any such liability)
with respect to any plan now or heretofore maintained or
contributed to by any entity that is, or at any time was, a
member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes or included the
Company or any predecessor to the Company, or any subsidiary
thereof.
(f). Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated hereby (either
alone or together with any additional or subsequent events),
constitutes an event under any Company Benefit Plan that may
result in any payment (whether of severance pay or otherwise),
restriction or limitation upon the assets of any Company
Benefit Plan, acceleration of payment or vesting, increase in
benefits or compensation, or required funding, with respect to
any current or former employees, agents, directors, or
independent contractors of the Company or its subsidiaries, or
the forgiveness of any loan or other commitment of any such
person, and no benefit will be established by reason of any
transaction contemplated under this Agreement, other than as
specifically set forth in this Agreement.
(g). There are no actions, suits, arbitrations, inquiries,
investigations or other proceedings (other than routine claims
for benefits) pending or, to the Company's knowledge,
threatened, with respect to any Company Benefit Plan.
<PAGE>
(h). No Company Benefit Plan provides for post-employment or
retired welfare benefits of any kind, including without
limitation death or medical benefits, other than coverage
mandated by Part 6 of Title I of ERISA or Section 4980B of the
Code or other applicable law.
SECTION 2.12. Transactions with Certain Persons. Except as set forth in the
Company Disclosure Schedule, no officer, director or employee
of the Company nor any member of any such person's immediate
family is presently, or within the past two years has been, a
party to any transaction with the Company relating to the
Company's business where the fair market value of the amount
involved in such transaction exceeded $60,000, including
without limitation, any contract, agreement or other
arrangement (a) providing for the furnishing of services by,
(b) providing for the rental of real or personal property
from, or (c) otherwise requiring payments to (other than for
services as officers, directors or employees of the Company)
any such person or corporation, partnership, trust or other
entity in which any such person has a material interest as a
stockholder, or as an officer, director, trustee or partner.
SECTION 2.13. Labor Matters. Except as set forth in the Company Disclosure
Schedule, there are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries,
threatened, between the Company or any of its subsidiaries and
any of their respective employees, which controversies have or
could reasonably be expected to have a Material Adverse
Effect; neither the Company nor any of its subsidiaries is a
party to any material collective bargaining agreement or other
labor union contract applicable to persons employed by the
Company or its subsidiaries, nor does the Company or any of
its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees; and neither the
Company nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company or
any of its subsidiaries which could reasonably be expected to
have a Material Adverse Effect.
SECTION 2.14. Registration Statement; Proxy Statement/Prospectus. Subject
to the accuracy of the representations of Parent set forth in
Section 3.14 hereof, the information supplied by the Company
for inclusion in the Registration Statement (as defined in
Section 3.14) shall not at the time the Registration Statement
(including amendments or supplements thereto) is declared
effective by the Securities and Exchange Commission (the
"SEC") contain any untrue statement of a material fact or omit
to state any material fact
<PAGE>
required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading. The information
supplied by the Company for inclusion in the proxy
statement/prospectus to be sent to the stockholders of Parent
in connection with the meeting of the stockholders of Parent
to consider the merger (the "Stockholders Meeting") (such
proxy statement/prospectus, as amended or supplemented, is
referred to herein as the "Proxy Statement/Prospectus"), will
not, on the date the Proxy Statement/Prospectus (or any
amendment thereof or supplement thereto) is first mailed to
stockholders, at the time of the Stockholders Meeting or at
the Effective Time, contain any statement which, at such time
and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material
fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or
misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with
respect to the solicitation of proxies for the Stockholders
Meeting which has become false or misleading. Notwithstanding
the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger
Sub which is contained in any of the foregoing documents.
SECTION 2.15. Restrictions on Business Activities. Except for this Agreement
or as set forth in the Company Disclosure Schedule, there is
no agreement, judgment, injunction, order or decree binding
upon the Company or any of its subsidiaries which has or could
reasonably be expected to have the effect of prohibiting or
impairing any business practice of the Company or any of its
subsidiaries, any acquisition of property by the Company or
any of its subsidiaries or the conduct of the business by the
Company or any of its subsidiaries as currently conducted or
as proposed to be conducted by the Company, except for any
prohibition or impairment as could not reasonably be expected
to have a Material Adverse Effect.
SECTION 2.16. Title to Property. Except as set forth in the Company
Disclosure Schedule, the Company and each of its subsidiaries
have good and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances,
except liens for taxes not yet due and payable and such liens
or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of
the property affected thereby or which could not reasonably be
expected to have a Material Adverse Effect; and, to the
knowledge of the Company, all leases pursuant to which the
<PAGE>
Company or any of its subsidiaries lease from others material
amounts of real or personal property are in good standing, and
are valid and effective in accordance with their respective
terms, and there is not, to the knowledge of the Company,
under any of such leases, any existing material default or
event of default (or event which with notice or lapse of time,
or both, would constitute a material default), except where
the lack of such good standing, validity and effectiveness or
the existence of such default or event of default could not
reasonably be expected to have a Material Adverse Effect.
SECTION 2.17. Taxes. (a) For purposes of this Agreement, "Tax" or "Taxes"
shall mean taxes, fees, levies, duties, tariffs, imposts and
governmental impositions or charges of any kind in the nature
of (or similar to) taxes, payable to any federal, state, local
or foreign taxing authority, including (without limitation)
(i) income, franchise, profits, gross receipts, ad valorem,
net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license,
payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, and other taxes, duties or
assessments of any nature whatsoever, and (ii) interest,
penalties, additional taxes and additions to tax imposed
with respect thereto; and "Tax Returns" shall mean returns,
reports and information statements with respect to Taxes
required to be filed with the IRS or any other taxing
authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns.
(b). The Company on behalf of itself and all of its subsidiaries
hereby represents that, other than as disclosed in the Company
Disclosure Schedule: The Company and its subsidiaries have
timely filed or will timely file all United States federal
income Tax Returns and all other material Tax Returns required
to be filed by them or requests for extensions to file such
Tax Returns have been timely filed and granted and have not
expired, and all Tax Returns are complete and accurate in all
material respects, and the Company and its subsidiaries have
paid and discharged all Taxes due in connection with or with
respect to the periods or transactions covered by and shown as
due on such Tax Returns and have paid all other Taxes as are
due, except such as are being contested in good faith by
appropriate proceedings (to the extent that any such
proceedings are required). The accruals and reserves for Taxes
(including deferred taxes) reflected in the 1995 Balance Sheet
are in all material respects adequate to cover all Taxes
accruable through the date thereof (including interest and
penalties, if any, thereon and Taxes being
<PAGE>
contested) in accordance with generally accepted accounting
principles. There are no other Taxes that are due and payable
or would be due if asserted by a taxing authority for any
taxable period or portions thereof accrued through the date of
the most recent financial statements, and there are no
deficiencies for any Taxes that have been proposed, asserted
or assessed against the Company or its subsidiaries by a
taxing authority, except with respect to which the Company is
maintaining adequate reserves on such financial statements,
unless the failure to do so could not reasonably be expected
in the aggregate to have a Material Adverse Effect. Except as
does not involve or would not result in liability to the
Company or any of its subsidiaries that could reasonably be
expected to have a Material Adverse Effect, there are no tax
liens on any assets of the Company or any subsidiary thereof;
and neither the Company nor any of its subsidiaries has
granted any waiver of any statute of limitations with respect
to, or any extension of a period for the assessment of, any
Tax. The consolidated federal income Tax Returns of the
Company have been audited by the IRS (or closed by applicable
statute of limitations), and all liabilities in respect
thereof have been finally determined, for all taxable years up
to and including the taxable year ended December 31, 1992.
Neither the Company nor any of its subsidiaries is a party to
any pending or has knowledge of any threatened action or
proceeding by any taxing authority for the determination,
assessment or collection of any of the Taxes of the Company or
any of its subsidiaries or relating to their respective
businesses and operations. Neither the Company nor any of its
subsidiaries is a party to or bound by any agreement providing
for the allocation or sharing of Taxes. Neither the Company
nor any of its subsidiaries has filed a consent pursuant to or
agreed to the application of Section 341(f) of the Code. Each
of the Company and its subsidiaries has disclosed on its
federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662 of the Code. All
Taxes that are required by the laws of the United States, any
state or political subdivision thereof, or any foreign country
to be withheld or collected by the Company or any of its
subsidiaries have been duly withheld or collected and, to the
extent required, have been paid to the proper governmental
authorities or properly deposited as required by applicable
laws. None of the Company and its subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of
which was the Company), or (ii) has any liability for the
Taxes of any person (other than any of the Company and its
subsidiaries) under Treas. Reg. ss. 1.1502-6 (or any similar
provision of state, local or foreign law), as the transferee
or successor, by contract or otherwise. Neither the Company
nor any of its subsidiaries will be required, as a result of a
change in method of accounting for a taxable year beginning on
or before the Closing Date, to include any adjustment under
<PAGE>
Section 481(a) of the Code in its taxable income for any
taxable year beginning after the Closing Date.
(c). The Company on behalf of itself and all of its subsidiaries
hereby represents that, other than as disclosed in the Company
Disclosure Schedule and other than with respect to items the
inaccuracy of which could not reasonably be expected to have a
Material Adverse Effect: Neither the Company nor any its
subsidiaries is obligated under any agreements with respect to
industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder for
federal or state income tax purposes could be affected by the
transactions contemplated hereunder, and no outstanding claim
has been made by a Taxing Authority in a jurisdiction where
the Company or its subsidiaries does not pay sales or use tax
that the Company or its subsidiaries may be subject to a
requirement to remit such taxes in that jurisdiction. To the
best knowledge of the Company, neither the Company nor any of
its subsidiaries owns any property of a character, the
indirect transfer of which, pursuant to this Agreement, would
give rise to any material documentary, stamp or other transfer
tax.
SECTION 2.18. Environmental Matters. Except as set forth in the Company
Disclosure Schedule, and except in all cases as, in the
aggregate, have not had and could not reasonably be expected
to have a Material Adverse Effect, the Company and each of its
subsidiaries have obtained all applicable permits, licenses
and other authorizations which are required to be obtained
under all applicable federal, state or local laws or any
regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved
thereunder relating to pollution or protection of the
environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants,
or hazardous or toxic wastes into ambient air, surface water,
ground water, or land or otherwise relating to the
manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials or wastes
("Environmental Laws") by the Company or its subsidiaries (or
their respective agents); are in compliance with all terms and
conditions of such required permits, licenses and
authorizations, and also are in compliance with all other
limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws; are not
aware of nor have received notice of any past or present
violations of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with
<PAGE>
or prevent continued compliance with or which could give rise
to any common law or statutory liability, or otherwise form
the basis of any claim, action, suit or proceeding, against
the Company or any of its subsidiaries based on or resulting
from the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any
pollutant, contaminant or hazardous or toxic material or
waste; and have taken all actions necessary under applicable
Environmental Laws to register any products or materials
required to be registered by the Company or its subsidiaries
(or any of their respective agents) thereunder.
SECTION 2.19. Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this
Agreement based upon arrangements with such broker, finder or
investment banker made by or at the direction of the Company.
SECTION 2.20. Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by the Company or its
subsidiaries to Parent or Merger Sub in, or pursuant to the
provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to
state any material fact necessary, in the light of the
circumstances under which it was made, in order to make
statements herein or therein not misleading.
SECTION 2.21. Intellectual Property. (a) The Company and/or each of its
subsidiaries 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, know-how, computer software programs or
applications, and tangible or intangible proprietary
information or material that are used in the business of the
Company and its subsidiaries as currently conducted and as
proposed to be conducted, except as could not reasonably be
expected to have a Material Adverse Effect.
(b). Except as disclosed in the Company Disclosure Schedule, or as
could not reasonably be expected to have a Material Adverse
Effect: The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of
its obligations hereunder, in violation of any licenses,
sublicenses and other agreements as to which the Company is a
party and pursuant to which the Company is authorized to use
any third- party patents, trademarks, service marks and
copyrights ("Third
<PAGE>
Party Intellectual Property Rights"); no claims with respect
to the patents, registered and material unregistered
trademarks and service marks, registered copyrights, trade
names and any applications therefor owned by the Company or
any of its subsidiaries (the "Company Intellectual Property
Rights") are currently pending or, to the knowledge of the
Company, are overtly threatened by any person; the Company
does not know of any valid grounds for any bona fide claims to
the effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use,
sale or license by Company or any of its subsidiaries,
infringes on any copyright, patent, trademark, service mark or
trade secret, against the use by the Company or any of its
subsidiaries of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software
programs and applications used in the business of the Company
or any of its subsidiaries as currently conducted or as
proposed to be conducted, challenging the ownership, validity
or effectiveness of any of the Company Intellectual Property
Rights or other trade secret material to the Company, or
challenging the license or legally enforceable right to use of
the Third Party Intellectual Rights by the Company or any of
its subsidiaries.
(c). To the Company's knowledge, all patents, registered
trademarks, service marks and copyrights held by the Company
are valid and subsisting. Except as set forth in the Company
Disclosure Schedule, to the Company's knowledge, there is no
material unauthorized use, infringement or misappropriation of
any of the Company Intellectual Property Rights by any third
party, including any employee or former employee of the
Company or any of its subsidiaries.
SECTION 2.22. Insurance. All material fire and casualty, general
liability, business interruption, product liability and
sprinkler and water damage insurance policies maintained by
the Company or any of its subsidiaries are with reputable
insurance carriers and are in character and amount
substantially equivalent to that carried by persons engaged in
similar businesses and subject to the same or similar perils
or hazards, except as could not reasonably be expected to have
a Material Adverse Effect.
SECTION 2.23. Accounts Receivable. The accounts receivable of the Company
and its subsidiaries as reflected in the Interim Balance
Sheet, to the extent uncollected on the date hereof, and the
accounts receivable reflected on the books of its subsidiaries
are valid and existing and represent monies due, except as
could not reasonably be expected to have an adverse effect on
the business, financial condition or results of operations of
the Company totalling in excess of $100,000, and the Company
has made reserves reasonably
<PAGE>
considered adequate for receivables not collectible in the
ordinary course of business, and (subject to the aforesaid
reserves) are subject to no refunds or other adjustments and
to no defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions enforceable by third parties on or
affecting any thereof, except for (i) such refunds,
adjustments, defenses, rights of setoff, restrictions or
conditions as could not reasonably be expected to have a
Material Adverse Effect and (ii) such collateral assignments
as may have been granted for the benefit of secured lenders of
the Company or its subsidiaries under existing credit
facilities.
SECTION 2.24. Intangible Assets. The intangible assets of the Company and
its subsidiaries as reflected in the Interim Balance Sheet
represent the value assigned to acquired customer contracts
and noncompetition agreements by the Company in a manner
consistent with past practice. Such contracts and agreements
are valid and existing, and the Company is not (and, to the
knowledge of the Company, no other party is) in material
breach or violation of, or default under, any of such
contracts or agreements, except for such breaches or
violations as could not reasonably be expected to have a
Material Adverse Effect.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered hereunder by Parent to the Company (the "Parent Disclosure Schedule"):
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of Parent
and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite
corporate power and authority and is in possession of all
Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its
business as it is now being conducted and as proposed to be
conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority
and Approvals could not reasonably be expected to have a
Material Adverse Effect. Each of Parent and each of its
subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes
such qualification or licensing
<PAGE>
necessary, except for such failures to be so duly qualified or
licensed and in good standing that could not reasonably be
expected to have a Material Adverse Effect. A true and
complete list of all of Parent's subsidiaries, together with
the jurisdiction of incorporation of each subsidiary and the
percentage of each subsidiary's outstanding capital stock
owned by Parent or another subsidiary, is set forth in the
Parent Disclosure Schedule.
SECTION 3.02. Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company a complete and correct
copy of its Certificate of Incorporation and By-Laws and has
furnished or made available to the Company the Certificate of
Incorporation and By-Laws (or equivalent organizational
documents) of each of its subsidiaries (the "Subsidiary
Documents"). Such Certificate of Incorporation, By-Laws and
Subsidiary Documents are in full force and effect. Neither
Parent nor any of its subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or By- Laws
or Subsidiary Documents.
SECTION 3.03. Capitalization. (a) The authorized capital stock of Parent
consists of 40,000,000 shares of Parent Common Stock, of
which: 21,553,502 shares are issued and outstanding as of the
date hereof, all of which are validly issued, fully paid and
nonassessable and are listed for trading on the AMEX,
1,939,590 shares are reserved for future issuance pursuant to
outstanding stock options and warrants, and after giving
effect to the transactions contemplated by Section 5.10,
approximately 2,155,350 shares will be issued and outstanding,
all of which will be validly issued, fully paid and
nonassessable. Except as set forth in the Parent Disclosure
Schedule or the Parent SEC Reports (as defined below), there
are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the
issued or unissued capital stock of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries
to issue or sell any shares of capital stock of, or other
equity interests in, Parent or any of its subsidiaries. Except
as set forth in the Parent Disclosure Schedule or the Parent
SEC Reports, there are no obligations, contingent or
otherwise, of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of
Parent or any of its subsidiaries or to provide funds to or
make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary other than
guarantees of bank obligations of subsidiaries entered into in
the ordinary course of business. Except as set forth in the
Parent Disclosure Schedule, all of the outstanding shares of
capital stock of each of Parent's subsidiaries
<PAGE>
is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or
another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations in Parent's
voting rights, charges or other encumbrances of any nature
whatsoever.
(b). The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and
nonassessable and will be listed, upon official notice of
issuance, for trading on the AMEX.
SECTION 3.04. Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary
corporate action on the part of Parent and Merger Sub, and no
other corporate proceedings on the part of Parent or Merger
Sub (other than approval by a majority of the outstanding
shares of Parent Common Stock entitled to vote on the issuance
of Parent Shares in the Merger) are necessary to authorize
this Agreement or to consummate the transactions contemplated
hereby. The Board of Directors of Parent has determined that
it is advisable and in the best interests of Parent's
stockholders for Parent to enter into a business combination
with the Company upon the terms and subject to the conditions
of this Agreement. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming
the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Parent
and Merger Sub.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) Except as set
forth in the Parent Disclosure Schedule, the execution and
delivery of this Agreement by Parent and Merger Sub do not,
and the performance of this Agreement by Parent and Merger Sub
will not, (i) conflict with or violate the Certificate of
Incorporation or By-Laws of Parent or Merger Sub, (ii)
conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its
subsidiaries or by which its or their respective properties
are bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or impair
Parent's or any of its subsidiaries' rights or alter the
rights or obligations of any third party under, or give to
others any rights of termination,
<PAGE>
amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or
assets of Parent or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by
which Parent or any of its subsidiaries or its or any of their
respective properties are bound or affected, except in any
such case for any such conflicts, violations, breaches,
defaults or other occurrences that could not reasonably be
expected to have a Material Adverse Effect.
(b). Except as disclosed in the Parent Disclosure Schedule, the
execution and delivery of this Agreement by Parent and Merger
Sub does not, and the performance of this Agreement by Parent
and Merger Sub will not, require any consent, approval,
authorization or permit of, or filing with or notification to,
any governmental or regulatory authority, domestic or foreign,
except for applicable requirements, if any, of the Securities
Act, the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"), the
AMEX, state securities laws and the filing and recordation of
appropriate merger or other documents as required by the DGCL,
and where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the
Merger, or otherwise prevent Parent or Merger Sub from
performing their respective obligations under this Agreement,
and would not have a Material Adverse Effect.
SECTION 3.06. Compliance; Permits. (a) Except as disclosed in the Parent
Disclosure Schedule, neither Parent nor any of its
subsidiaries is in conflict with, or in default or violation
of, any law, rule, regulation, order, judgment or decree
applicable to Parent or any of its subsidiaries or by which
its or any of their respective properties is bound or
affected, any rule, regulation or requirement of the AMEX or
any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or
any of their respective properties is bound or affected,
except for any such conflicts, defaults or violations which
have been waived or which could not reasonably be expected to
have a Material Adverse Effect.
(b). Except as disclosed in the Parent Disclosure Schedule, Parent
and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and
approvals from governmental authorities
<PAGE>
which are material to the operation of the business of Parent
and its subsidiaries taken as a whole as it is now being
conducted and as proposed to be conducted (collectively, the
"Parent Permits"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where
the failure to so comply could not reasonably be expected to
have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) Parent has filed all
forms, reports and documents required to be filed with the
SEC and has heretofore delivered to the Company, in the form
filed with the SEC, its (i) Annual Report on Form 10-K for
the fiscal year ended March 31, 1996, (ii) its Quarterly
Reports on Form 10-Q for the periods ended June 30, 1996 and
September 30, 1996, its proxy statement relating to Parent's
meeting of stockholders held on September 27, 1994, (iv) all
other reports or registration statements filed by Parent
with the SEC since March 31, 1996, and all amendments and
supplements to all such reports and registration statements
filed by Parent with the SEC (collectively, the "Parent SEC
Reports"). The Parent SEC Reports (i) were prepared in all
material aspects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b). Each of the financial statements (including, in each case, any
related notes thereto) contained in the Parent SEC Reports has
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes
thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries
as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring
year-end adjustments.
SECTION 3.08. Absence of Certain Changes or Events. Except as set forth in
the Parent Disclosure Schedule or the Parent SEC Reports,
since March 31, 1996 Parent has conducted its business in the
ordinary course and there has not occurred (a) any Material
Adverse Effect; (b) any amendments or changes in the
Certificate of Incorporation or By-Laws of Parent; (c) any
damage to, destruction or loss of any
<PAGE>
assets of Parent (whether or not covered by insurance) that
could have a Material Adverse Effect; (d) any material change
by Parent in its accounting methods; (e) any material
revaluation by Parent of any of its assets, including
without limitation, writing down the value of inventory or
writing off notes or accounts receivable other than in the
ordinary course of business; or (f) any sale of a material
amount of assets of Parent, except in the ordinary course of
business.
SECTION 3.09. No Undisclosed Liabilities. Except as set forth in the Parent
Disclosure Schedule or the Parent SEC Reports, neither Parent
nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise), except liabilities (a) in
the aggregate adequately provided for in Parent's balance
sheet (including any related notes thereto) as of
March 31, 1996 included in Parent's Annual Report on Form
10-K for the fiscal year ended March 31, 1996 (the
"March 1996 Balance Sheet"), (b) incurred in the ordinary
course of business and not required under GAAP to be
reflected on the March 1996 Balance Sheet, (c) incurred
since March 31, 1996 in the ordinary course of business, (d)
incurred in connection with this Agreement, or (e) which
could not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.10. Absence of Litigation. Except as set forth in the Parent
Disclosure Schedule or the Parent SEC Reports, there are no
claims, actions, suits, proceedings or investigations pending
or, to the knowledge of Parent, threatened against Parent or
any of its subsidiaries, or any properties or rights of Parent
or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body,
domestic or foreign, that could reasonably be expected to have
a Material Adverse Effect.
SECTION 3.11. Benefit Plans. (a) With respect to each (i) "employee benefit
plan," as such term is defined in Section 3(3) of ERISA,
pursuant to which Parent or any of its subsidiaries has any
liability in respect of current or former employees, agents,
directors, or independent contractors or any beneficiaries or
dependents of any such current or former employees, agents,
directors, or independent contractors, and (ii) each other
plan, program, policy, contract or arrangement providing for
bonuses, pensions, deferred pay, stock or stock related
awards, severance pay, salary continuation or similar
benefits, hospitalization, medical, dental or disability
benefits, life insurance or other employee benefits, or
compensation to or for any current or former employees,
agents, directors, or independent
<PAGE>
contractors (other than directors' and officers' liability
policies), whether or not insured or funded, or constituting
an employment or severance agreement or arrangement with any
officer or director of Parent or any subsidiary (each, a
"Parent Benefit Plan"). Parent has made available to the
Company, where applicable, a true, correct and complete copy
of (a) the most recent annual report (Form 5500) filed with
the IRS, such Parent Benefit Plan, each trust agreement and
group annuity contract, if any, relating to (b) such Parent
Benefit Plan, and the most recent actuarial report or
valuation relating to a Parent Benefit Plan subject to
Title IV of ERISA. Set forth on the Parent Disclosure
Schedule is a list of each such Parent Benefit Plan.
(b). With respect to each Parent Benefit Plan, individually and in
the aggregate, there exists no material condition or set of
circumstances, in connection with which Parent or any of its
subsidiaries would be subject to any material liability
(except liability for benefits claims and funding obligations
payable in the ordinary course) under ERISA, the Code or any
other applicable law.
(c). Except as set forth in the Parent Disclosure Schedule or the
Parent SEC Reports, with respect to all Parent Benefit Plans,
individually and in the aggregate, there are no material
funded benefit obligations for which contributions have not
been made or properly accrued and there are no material
unfunded obligations which have not been accounted for by
reserves (including, but not limited to, any liability to any
Multiemployer Plan or to the PBGC under Title IV of ERISA or
to the IRS for any excise tax or penalty, or being subject to
any statutory lien to secure payment of any such liability).
(d). Except as set forth in the Parent Disclosure Schedule or the
Parent SEC Reports, all Parent Benefit Plans have been
operated in compliance in all material respects with the
applicable provisions of ERISA and the Code and all reports
and returns required to be filed thereunder have been duly and
timely filed. No prohibited transactions within the meaning of
Title I of ERISA or Section 4975(c)(1) of the Code have
occurred with respect to said plans. Each of Parent and its
subsidiaries has complied in all material respects with the
continuation of coverage and notification requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985 and
former Section 162(k) and Section 4980B of the Code and
Sections 601 through 608 of ERISA.
(e). No circumstances exist pursuant to which Parent or any
subsidiary could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to
any Multiemployer Plan or to the PBGC under Title IV
<PAGE>
of ERISA or to the IRS for any excise tax or penalty, or being
subject to any statutory lien to secure payment of any such
liability) with respect to any plan now or heretofore
maintained or contributed to by any entity that is, or at any
time was, a member of a "controlled group" (as defined in
Section 412(n)(6)(B) of the Code) that includes or included
Parent or any predecessor to Parent, or any subsidiary
thereof.
(f). Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated hereby (either
alone or together with any additional or subsequent events),
constitutes an event under any Parent Benefit Plan that may
result in any payment (whether of severance pay or otherwise),
restriction or limitation upon the assets of any Parent
Benefit Plan, acceleration of payment or vesting, increase in
benefits or compensation, or required funding, with respect to
any current or former employees, agents, directors, or
independent contractors of Parent or its subsidiaries, or the
forgiveness of any loan or other commitment of any such
person, and no benefit will be established by reason of any
transaction contemplated under this Agreement, other than as
specifically set forth in this Agreement.
(g). There are no actions, suits, arbitrations, inquiries,
investigations or other proceedings (other than routine claims
for benefits) pending or, to Parent's knowledge, threatened,
with respect to any Parent Benefit Plan.
(h). No Parent Benefit Plan provides for post-employment or retired
welfare benefits of any kind, including without limitation
death or medical benefits, other than coverage mandated by
Part 6 of Title I of ERISA or Section 4980B of the Code or
other applicable law.
SECTION 3.12. Transactions with Certain Persons. Except as set forth in the
Parent Disclosure Schedule or the Parent SEC Reports, no
officer, director or employee of Parent nor any member of any
such person's immediate family is presently, or within the
past two years has been, a party to any transaction with
Parent relating to Parent's business where the fair market
value of the amount involved in such transaction exceeded
$60,000, including without limitation, any contract, agreement
or other arrangement (a) providing for the furnishing of
services by, (b) providing for the rental of real or personal
property from, or (c) otherwise requiring payments to (other
than for services as officers, directors or employees of
Parent) any such person or corporation, partnership, trust or
other entity in which any such person has a material interest
as a stockholder, or as an officer, director, trustee or
partner.
<PAGE>
SECTION 3.13. Labor Matters. Except as set forth in the Parent Disclosure
Schedule or the Parent SEC Reports, there are no controversies
pending or, to the knowledge of Parent or any of its
subsidiaries, threatened, between Parent or any of its
subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to have a
Material Adverse Effect; neither Parent nor any of its
subsidiaries is a party to any material collective bargaining
agreement or other labor union contract applicable to persons
employed by Parent or its subsidiaries, nor does Parent or any
of its subsidiaries know of any activities or proceedings of
any labor union to organize any such employees; and neither
Parent nor any of its subsidiaries has any knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of Parent or any
of its subsidiaries which could reasonably be expected to have
a Material Adverse Effect.
SECTION 3.14. Registration Statement; Proxy Statement/Prospectus. Subject to
the accuracy of the representations of the Company set forth
in Section 2.14 hereof, the registration statement (the
"Registration Statement") pursuant to which the Parent Common
Stock to be issued in the Merger will be registered with the
SEC shall not, at the time the Registration Statement
(including amendments or supplements thereto) is declared
effective by the SEC, contain any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements included therein, in light of the
circumstances under which they were made, not misleading. The
information supplied by Parent for inclusion in the Proxy
Statement/Prospectus will not, on the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement
thereto) is first mailed to stockholders, at the time of the
Stockholders Meeting and at the Effective Time, contain any
statement which, at such time and in light of the
circumstances under which it shall be made, is false or
misleading with respect to any material fact, or will omit to
state any material fact necessary in order to make the
statements made therein not false or misleading; or omit to
state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting which has become false or
misleading. Notwithstanding the foregoing, Parent and Merger
Sub make no representation or warranty with respect to any
information supplied by the Company which is contained in any
of the foregoing documents.
<PAGE>
SECTION 3.15. Restrictions on Business Activities. Except for this
Agreement or as set forth in the Parent Disclosure Schedule or
the Parent SEC Reports, there is no agreement, judgment,
injunction, order or decree binding upon Parent or any of its
subsidiaries which has or could reasonably be expected to have
the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition
of property by Parent or any of its subsidiaries or the
conduct of business by Parent or any of its subsidiaries as
currently conducted or as proposed to be conducted by Parent,
except for any prohibition or impairment as could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.16. Title to Property. Except as set forth in the Parent
Disclosure Schedule, Parent and each of its subsidiaries have
good and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances,
except liens for taxes not yet due and payable and such liens
or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of
the property affected thereby or which could not reasonably be
expected to have a Material Adverse Effect; and, to Parent's
knowledge, all leases pursuant to which Parent or any of its
subsidiaries lease from others material amounts of real or
personal property are in good standing, and are valid and
effective in accordance with their respective terms, and there
is not, to the knowledge of Parent, under any of such leases,
any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute
a material default), except where the lack of such good
standing, validity and effectiveness or the existence of such
default or event of default could not reasonably be expected
to have a Material Adverse Effect.
SECTION 3.17. Taxes. (a) Parent on behalf of itself and all of its
subsidiaries hereby represents that, other than as
disclosed in the Parent Disclosure Schedule: Parent and its
subsidiaries have timely filed or will timely file all United
States federal income Tax Returns and all other material Tax
Returns required to be filed by them or requests for
extensions to file such Tax Returns have been timely filed
and granted and have not expired, and all Tax Returns are
complete and accurate in all material respects, and Parent
and its subsidiaries have paid and discharged all Taxes due
in connection with or with respect to the periods or
transactions covered by and shown as due on such Tax Returns
and have paid all other Taxes as are due, except such as are
being contested in good faith by appropriate proceedings (to
the extent that any such proceedings are required). The
accruals and reserves for Taxes (including
<PAGE>
deferred taxes) reflected in the March 1996 Balance Sheet are
in all material respects adequate to cover all Taxes accruable
through the date thereof (including interest and penalties, if
any, thereon and Taxes being contested) in accordance with
generally accepted accounting principles. There are no other
Taxes that are due and payable or would be due if asserted by
a taxing authority for any taxable period or portions thereof
accrued through the date of the most recent financial
statements, and there are no deficiencies for any Taxes that
have been proposed, asserted or assessed against Parent or its
subsidiaries by a taxing authority, except with respect to
which Parent is maintaining adequate reserves on such
financial statements unless the failure to do so could not
reasonably be expected in the aggregate to have a Material
Adverse Effect. Except as does not involve or would not result
in liability to Parent or any of its subsidiaries that could
reasonably be expected to have a Material Adverse Effect,
there are no tax liens on any assets of Parent or any
subsidiary thereof; and neither Parent nor any of its
subsidiaries has granted any waiver of any statute of
limitations with respect to, or any extension of a period for
the assessment of, any Tax. The consolidated federal income
Tax Returns of Parent have been audited by the IRS (or closed
by applicable statute of limitations), and all liabilities in
respect thereof have been finally determined, for all taxable
years up to and including the taxable year ended March 31,
1992. Neither Parent nor any of its subsidiaries is a party to
any pending or has knowledge of any threatened action or
proceeding by any taxing authority for the determination,
assessment or collection of any of the Taxes of Parent or any
of its subsidiaries or relating to their respective businesses
and operations. Neither Parent nor any of its subsidiaries is
a party to or bound by any agreement providing for the
allocation or sharing of Taxes. Neither Parent nor any of its
subsidiaries has filed a consent pursuant to or agreed to the
application of Section 341(f) of the Code. All Taxes that are
required by the laws of the United States, any state or
political subdivision thereof, or any foreign country to be
withheld or collected by Parent or any of its subsidiaries
have been duly withheld or collected and, to the extent
required, have been paid to the proper governmental
authorities or properly deposited as required by applicable
laws. None of Parent and its subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of
which was Parent), or (ii) has any liability for the Taxes of
any person (other than any of Parent and its subsidiaries)
under Treas. Reg. ss. 1.1502-6 (or any similar provision of
state, local or foreign law), as the transferee or successor,
by contract or otherwise.
<PAGE>
Neither Parent nor any of its subsidiaries will be required,
as a result of a change in method of accounting for a taxable
year beginning on or before the Closing Date, to include any
adjustment under Section 481(a) of the Code in its taxable
income for any taxable year beginning after the Closing Date.
(b) Parent on behalf of itself and all of its subsidiaries hereby
represents that, other than as disclosed in the Parent
Disclosure Schedule and other than with respect to items the
inaccuracy of which could not reasonably be expected to have a
Material Adverse Effect: (i) Neither Parent nor any its
subsidiaries is obligated under any agreements with respect to
industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder for
federal or state income tax purposes could be affected by the
transactions contemplated hereunder, and (ii) no outstanding
claim has been made by a Taxing Authority in a jurisdiction
where Parent or its subsidiaries does not pay sales or use
tax that Parent or its subsidiaries may be subject to a
requirement to remit such taxes in that jurisdiction. To the
best knowledge of Parent, neither Parent nor any of its
subsidiaries owns any property of a character, the indirect
transfer of which, pursuant to this Agreement, would give
rise to any material documentary, stamp or other transfer tax.
SECTION 3.18. Environmental Matters. Except as set forth in the Parent
Disclosure Schedule or the Parent SEC Reports or as otherwise
disclosed in the documents and other written information
previously provided to the Company, and except in all cases
as, in the aggregate, have not had and could not reasonably be
expected to have a Material Adverse Effect, Parent and each of
its subsidiaries (a) have obtained all applicable permits,
licenses and other authorizations which are required to be
obtained under all applicable Environmental Laws by Parent or
its subsidiaries (or their respective agents); (b) are in
compliance with all terms and conditions of such required
permits, licenses and authorizations, and also are in
compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable
Environmental Laws; (c) are not aware of nor have received
notice of any past or present violations of Environmental
Laws, or any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance
with or which would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action,
suit or proceeding, against Parent or any of its subsidiaries
based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport,
or handling, or the emission,
<PAGE>
discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and have
taken all actions necessary under applicable Environmental
Laws to register any products or materials required to be
registered by Parent or its subsidiaries (or any of their
respective agents) thereunder.
SECTION 3.19. Brokers. No broker, finder or investment banker (other than
Patricof & Co. Capital Corp., the fees and expenses of which
will be paid by Parent) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements with
such broker, finder or investment banker made by or at the
direction of Parent or Merger Sub.
SECTION 3.20. Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by Parent or Merger Sub
to the Company in, or pursuant to the provisions of, this
Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact
necessary, in the light of the circumstances under which it
was made, in order to make the statement herein or therein not
misleading.
SECTION 3.21. Intellectual Property. (a) Parent and/or each of its
subsidiaries owns, or is licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or
applications, and tangible or intangible proprietary
information or material that are used in the business of
Parent and its subsidiaries as currently conducted and as
proposed to be conducted, except as could not reasonably be
expected to have a Material Adverse Effect.
(b) Except as disclosed in the Parent Disclosure Schedule or the
Parent SEC Reports or as could not reasonably be expected to
have a Material Adverse Effect: (i) Parent is not, nor will
it be as a result of the execution and delivery of this
Agreement or the performance of its obligations hereunder,
in violation of any licenses, sublicenses and other
agreements as to which Parent is a party and pursuant to
which Parent is authorized to use any third-party patents,
trademarks, service marks and copyrights ("Third-Party
Intellectual Property Rights"); (ii) no claims with respect
to the patents, registered and material unregistered
trademarks and service marks, registered copyrights, trade
names and any applications therefor owned by Parent or any
of its subsidiaries (the "Parent Intellectual Property
Rights") are currently pending or, to the knowledge of
Parent, are
<PAGE>
overtly threatened by any person; (iii) Parent does not know
of any valid grounds for any bona fide claims (a) to the
effect that the manufacture, sale, licensing or use of any
product as now used, sold or licensed or proposed for use,
sale or license by Parent or any of its subsidiaries
infringes on any copyright, patent, trademark, service mark
or trade secret; (b) against the use by Parent or any of its
subsidiaries of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer
software programs and applications used in the business of
Parent or any of its subsidiaries as currently conducted or
as proposed to be conducted; (c) challenging the ownership,
validity or effectiveness of any part of the Parent
Intellectual Property Rights or other trade secret material
to Parent; or (d) challenging the license or legally
enforceable right to use of the Third-Party Intellectual
Rights by Parent or any of its subsidiaries.
(c) To Parent's knowledge, all patents, registered trademarks and
copyrights held by Parent are valid and subsisting. Except as
set forth in the Parent Disclosure Schedule or the Parent SEC
Reports, to Parent's knowledge, there is no material
unauthorized use, infringement or misappropriation of any of
the Parent Intellectual Property by any third party, including
any employee or former employee of Parent or any of its
subsidiaries.
SECTION 3.22. Insurance. All material fire and casualty, general liability,
business interruption, product liability and sprinkler and
water damage insurance policies maintained by Parent or any of
its subsidiaries are with reputable insurance carriers and are
in character and amount substantially equivalent to that
carried by entities engaged in similar business and subject to
the same or similar perils or hazards, except as could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.23. Fairness Opinion. The Board of Directors of Parent has
received the written opinion (the "Fairness Opinion") of
Patricof & Co. Capital Corp. ("Patricof") to the effect that,
as of the date of this Agreement, the Merger is fair, from a
financial point of view, to Parent's stockholders.
SECTION 3.24. Ownership of Merger Sub; (a) No Prior Activities. Merger Sub
was formed solely for the purpose of engaging in the
transaction contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with the
transactions contemplated by this Agreement and except for
this Agreement and any other agreement or arrangements
contemplated by this Agreement, Merger Sub has not and will
not have incurred, directly or indirectly, through any
subsidiary or
<PAGE>
affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person.
ARTICLE 4.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by the Company Pending the Merger. During
the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement and the
Effective Time, the Company covenants and agrees that, unless
Parent shall otherwise agree in writing, the Company shall
conduct its business, and cause the businesses of its
subsidiaries to be conducted, in the ordinary course of
business and consistent with past practice, other than (i) any
actions taken by the Company or its subsidiaries in
contemplation of the Merger including, without limitation, any
actions to enable the Company to satisfy the covenants
applicable to it set forth in Article V and the conditions
precedent set forth in Article VI, (ii) any actions taken by
the Company or its subsidiaries in connection with the
Company's compliance with the covenants applicable to it set
forth in Article V or the satisfaction of the conditions
precedent set forth in Article VI (iii) any actions taken by
the Company or its subsidiaries in connection with soliciting
and obtaining bridge financing from one or more sources up to
an aggregate amount of $1,500,000 ("Bridge Financing")
(provided that the terms of such Bridge Financing shall
include no equity component, shall provide for a customary
bridge-loan rate of interest and other customary bridge-loan
terms, and the proceeds of such Bridge Financing shall be
used solely for working capital and general corporate
purposes in the ordinary course of business), and (iv) any
actions to amend or otherwise change the Company's
Certificate of Incorporation so as to change the mandatory
redemption date of the Company's Preferred Stock from
June 30, 1997 to March 31, 1998, the Company shall not
directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change the Company's Certificate of
Incorporation or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any
shares of capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other ownership
interest (including, without limitation, any phantom interest)
in the Company, any of its subsidiaries or affiliates (except
for the issuance of shares of Company Common Stock issuable
pursuant to Stock Options
<PAGE>
under the Company Stock Option Agreements which options are
outstanding on the date hereof);
(c) sell, pledge, dispose of or encumber any assets of the Company
or any of its subsidiaries (other than sales of assets in the
ordinary course of business and in a manner consistent with
past practice, dispositions of obsolete or worthless assets,
and sales of assets not in the excess of $100,000);
(d) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of any of its capital stock,
split, combine or reclassify any of its capital stock 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, or amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise
acquire, or permit any subsidiary to purchase, repurchase,
redeem or otherwise acquire, any of its securities or any
securities of its subsidiaries, including, without limitation,
shares of Company Common Stock or Company Preferred Stock or
any option, warrant or right, directly or indirectly, to
acquire shares of Company Common Stock or Company Preferred
Stock, or propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other
business organization or division thereof; (ii) incur any
indebtedness for borrowed money (other than pursuant to
existing credit facilities) or issue any debt securities or
assume, guarantee (other than guarantees of bank debt of the
Company's subsidiaries entered into in the ordinary course of
business) or endorse or otherwise as an accommodation become
responsible for, the obligations of any person, or make any
loans or advances, except in the ordinary course of business
consistent with past practice; (iii) enter into or amend any
material contract or agreement other than in the ordinary
course of business; (iv) authorize any capital expenditures
or purchase of fixed assets which are, in the aggregate, in
excess of $100,000 for the Company and its subsidiaries taken
as a whole; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the
matters prohibited by this Section 4.01(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages
of, or the granting of bonuses in the aggregate amount of
$200,000 to, employees of the Company or its subsidiaries in
accordance with past practices, or grant any severance or
termination pay to, or enter into any employment or severance
agreement with, any director, officer (except for officers who
<PAGE>
are terminated on an involuntary basis) or other employee of
the Company or any of its subsidiaries, or establish, adopt,
enter into or amend in any material respect any collective
bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the
benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(g) take any action to change, in any material respect, any
accounting policies or procedures;
(h) make any material tax election inconsistent with past practice
or settle or compromise any material federal, state, local or
foreign tax liability or agree to an extension of a statute of
limitations, except to the extent the amount of any such
settlement has been reserved for in the financial statements
previously provided to Parent;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent
with past practice of liabilities of the Company; or
(j) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.01(a) through (i) above, or
any action which would make any of the representations or
warranties of the Company contained in this Agreement untrue
or incorrect in any material respect or prevent the Company in
any material respect from performing or cause the Company not
to perform in any material respect its covenants hereunder.
SECTION 4.02. No Solicitation. (a) Neither Parent nor the Company shall,
directly or indirectly, through any of their respective
officers, directors, employees, representatives or agents,
solicit or encourage the initiation of any inquiries or
proposals regarding any merger, financing (other than, in the
case of the Company, an extension or modification of an
existing senior credit facility of the Company or any of its
subsidiaries or any actions specified in clauses (i), (ii) or
(iii) of the first paragraph of Section 4.01), consolidation,
sale of substantial assets, sale of shares of capital stock
(including without limitation by way of a tender offer) or
similar transaction involving Parent or any of its
subsidiaries, or the Company or any of its subsidiaries, as
the case may be (any of the foregoing inquiries or proposals
being referred to herein as an "Acquisition Proposal").
Nothing contained in this Section 4.02(a) shall prevent the
Board of Directors of Parent or the Company from considering,
<PAGE>
negotiating, approving and recommending to their respective
stockholders a bona fide Acquisition Proposal not solicited in
violation of this Agreement, provided the Board of Directors
determines in good faith (upon advice of independent counsel)
that it is required to do so in order to discharge properly
its fiduciary duties. No action by the Board of Directors of
Parent or the Company permitted by the preceding sentence
(each, a "Permitted Action") shall constitute a breach of this
Agreement, provided that such Permitted Action shall give rise
to the rights set forth in Section 7.03.
(b) Parent and the Company each agree to immediately notify the
other party after receipt of any Acquisition Proposal, or any
modification of or amendment to any Acquisition Proposal, or
any request for nonpublic information relating to Parent or
the Company, as the case may be, in connection with an
Acquisition Proposal or for access to the properties, books or
records of Parent or the Company, as the case may be, by any
person or entity that informs the Board of Directors of such
party that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally and in
writing, shall indicate whether Parent or the Company, as the
case may be, is providing or intends to provide the person
making the Acquisition Proposal with access to information
regarding such party as provided in Section 4.02(c), and shall
include a summary of terms and identity of the parties
involved.
(c) If the Board of Directors of Parent or the Company, as the
case may be, receives a request for material nonpublic
information by a person who makes a bona fide Acquisition
Proposal, and the Board of Directors determines in good faith
and upon the advice of independent counsel that it is required
to cause Parent or the Company, as the case may be, to act as
provided in this Section 4.02(c) in order to discharge
properly the directors' fiduciary duties, then, provided the
person making the Acquisition Proposal has executed a
confidentiality agreement substantially similar to the
confidentiality agreement dated September 23, 1996 between the
Company and Parent (the "Confidentiality Agreement"), Parent
or the Company, as the case may be, may provide such person
with access to information regarding such party.
(d) Parent and the Company shall immediately cease and cause to be
terminated any existing discussions or negotiations with any
persons (other than the other party hereto) conducted
heretofore with respect to any Acquisition Proposal. Parent
and the Company agree not to release any third party from the
confidentiality provisions of any confidentiality agreement to
which Parent or the Company is a party.
<PAGE>
(e) Parent and the Company shall ensure that their respective
officers, directors and employees and any investment banker or
other advisor or representative retained by them are aware of
the restrictions described in this Section 4.02.
SECTION 4.03 Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement and the
Effective Time, Parent covenants and agrees that, unless the
Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its subsidiaries to
be conducted, in the ordinary course of business and
consistent with past practice, other than (i) any actions
taken by Parent or its subsidiaries in contemplation of the
Merger including, without limitation, any actions to enable
Parent to satisfy the covenants applicable to it set forth in
Article V and the conditions precedent set forth in Article
VI, and (ii) any actions taken by Parent or its subsidiaries
in connection with Parent's compliance with the covenants
applicable to it set forth in Article V or its satisfaction
of the conditions precedent set forth in Article VI, Parent
shall not directly or indirectly do, or propose to do, any
of the following without the prior written consent of the
Company:
(a) amend or otherwise change Parent's Certificate of
Incorporation or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any
shares of capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other ownership
interest (including, without limitation, any phantom interest)
in Parent, any of its subsidiaries or affiliates (except for
the issuance of shares of Parent Common Stock issuable
pursuant to stock options and warrants which are outstanding
on the date hereof);
(c) sell, pledge, dispose of or encumber any assets of Parent or
any of its subsidiaries (other than (i) sales of assets in the
ordinary course of business and in a manner consistent with
past practice, (ii) dispositions of obsolete or worthless
assets, (iii) sales of assets not in the excess of $100,000,
and (iv) as disclosed in the Parent SEC Reports);
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of any of its capital
stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any
other securities
<PAGE>
in respect of, in lieu of or in substitution for shares of its
capital stock (except in connection with the one-for-ten
reverse stock split of the Parent Common Stock contemplated in
Section 5.10 hereof), or (iii) amend the terms or change the
period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, or permit any subsidiary to purchase,
repurchase, redeem or otherwise acquire, any of its securities
or any securities of its subsidiaries, including, without
limitation, shares of Parent Common Stock or any option,
warrant or right, directly or indirectly, to acquire shares of
Parent Common Stock, or propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business
organization or division thereof; (ii) incur any indebtedness
for borrowed money (other than pursuant to existing credit
facilities) or issue any debt securities or assume, guarantee
(other than guarantees of bank debt of Parent's subsidiaries
entered into in the ordinary course of business) or endorse or
otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans or advances,
except in the ordinary course of business consistent with past
practice; (iii) enter into or amend any material contract or
agreement other than in the ordinary course of business;
(iv) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $100,000 for
Parent and its subsidiaries taken as a whole; or (v) enter
into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this
Section 4.03(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages
of, or the granting of bonuses in the aggregate amount of
$50,000 to, employees of Parent or its subsidiaries in
accordance with past practices, or grant any severance or
termination pay to, or enter into any employment or severance
agreement with, any director, officer (except for officers who
are terminated on an involuntary basis) or other employee of
Parent or any of its subsidiaries, or establish, adopt, enter
into or amend in any material respect any collective
bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the
benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(g) take any action to change, in any material respect, any
accounting policies or procedures;
(h) make any material tax election inconsistent with past practice
or settle or compromise any material federal, state, local or
foreign tax liability or agree to an extension of a statute of
limitations, except to the extent the
<PAGE>
amount of any such settlement has been reserved for in the
financial statements contained in the Parent SEC Reports filed
prior to the date of this Agreement;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent
with past practice of liabilities of Parent; or
(j) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.03(a) through (i) above, or
any action which would make any of the representations or
warranties of Parent contained in this Agreement untrue or
incorrect in any material respect or prevent Parent in any
material respect from performing in any material respect or
cause Parent not to perform in any material respect its
covenants hereunder.
ARTICLE 5.
ADDITIONAL AGREEMENTS
SECTION 5.01. Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement,
the Company and Parent shall prepare and file with the SEC on
a confidential basis preliminary proxy materials which shall
constitute the Proxy Statement/Prospectus and the Registration
Statement of Parent with respect to this Agreement, the
Merger, the Parent Common Stock to be issued in connection
with the Merger and the Stock Incentive Plan (as defined
below). As promptly as practicable after comments are received
from the SEC thereon and after the furnishing by the Company
and Parent of all information required to be contained
therein, the Company and Parent shall file with the SEC a
combined proxy and Registration Statement on Form S-4 (or on
such other form as shall be appropriate) relating to the
approval and adoption by the stockholders of Parent of this
Agreement, the Merger, the issuance of the Parent Common Stock
in the Merger pursuant to this Agreement and the Stock
Incentive Plan, and shall use all reasonable efforts to cause
the Registration Statement to become effective as soon
thereafter as practicable. Parent shall, as promptly as
practicable, provide copies of any written comments, and
advise the Company of any oral comments, received from the SEC
with respect to the Registration Statement. Parent shall use
its reasonable best efforts to obtain, prior to the effective
date of the Registration Statement, all necessary state
securities law or "blue sky" permits or approvals required to
carry out the
<PAGE>
transactions contemplated by this Agreement and will pay all
expenses incident thereto. Parent shall not amend or
supplement the Proxy Statement/Prospectus without obtaining
the prior written approval of the Company, which approval
shall not be unreasonably withheld. Parent will advise the
Company, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective or
any supplement or amendment has been filed, the issuance of
any stop order, the suspension of a qualification of the
Parent Common Stock issuable in connection with the Merger for
offer and sale in any jurisdiction, or any request by the SEC
for amendment of the Proxy Statement/Prospectus or the
Registration Statement or comments thereon and responses
thereto or any request by the SEC for additional information.
If at any time prior to the Effective Time any event relating
to Parent, Merger Sub or any of their respective affiliates,
officers or directors should be discovered by Parent or Merger
Sub which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly
inform the Company. The Proxy Statement/Prospectus shall
include the recommendation of the Board of Directors of the
Company and Parent in favor of approval and adoption of this
Agreement, the Merger, the issuance of the Parent Common Stock
in the Merger, the Stock Incentive Plan and the amendments to
Parent's Certificate of Incorporation and By-Laws contemplated
by Section 5.18, subject to the last sentence of Section
5.02(a).
SECTION 5.02 Stockholders Meeting. (a) Parent shall call and hold the
Stockholders Meeting as promptly as practicable for the
purpose of voting upon the approval and adoption of this
Agreement, the Merger, the issuance of Parent Common Stock in
the Merger, the amendment and restatement of Parent's
Certifcate of Incorporation substantially in the form of
Exhibit G-1 hereto and the Stock Incentive Plan, and Parent
shall use all reasonable efforts to hold the Stockholders
Meeting as soon as practicable after the date on which the
Registration Statement becomes effective. Unless otherwise
required under the applicable fiduciary duties of the
directors of the Parent, as determined by such directors in
good faith after consultation with and based upon the advice
of independent legal counsel, Parent shall solicit from its
stockholders proxies in favor of adoption of this Agreement,
the Merger, the issuance of Parent Common Stock in the Merger
pursuant to this Agreement, the amendment and restatement of
Parent's Certificate of Incorporation substantially in the
form of Exhibit G-1 hereto and the Stock Incentive Plan, and
shall take all other action
<PAGE>
necessary or advisable to secure the vote or consent of
stockholders to obtain such approvals.
(b) On or prior to the date of the Parent's Stockholders Meeting
described in Section 5.02(a), the Company shall hold a
stockholders meeting for the purpose of approving and
adopting this Agreement and the Merger. The Board of
Directors of the Company shall recommend and declare
advisable such approval and adoption. The Company shall
promptly provide to Parent copies of all notices, letters
and other materials delivered to the stockholders of the
Company (other than the Proxy Statement/Prospectus) in
connection with such stockholders meeting, and shall
promptly inform Parent of the results of such stockholders
meeting.
SECTION 5.03. Access to Information; Confidentiality. Upon reasonable
notice, the Company and Parent shall each (and shall cause
each of their subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of
the other, reasonable access, during the period prior to the
Effective Time, to all of its properties, books, contracts,
commitments and records and, during such period, the Company
and Parent each shall (and shall cause each of their
subsidiaries to) furnish promptly to the other all information
concerning its business, properties and personnel as such
other party may reasonably request, and each shall make
available to the other appropriate individuals (including
attorneys, accountants and other professionals) for discussion
of the other's business, properties and personnel as either
Parent or the Company may reasonably request. Each party shall
keep such information confidential in accordance with the
terms of the Confidentiality Agreement between Parent and the
Company.
SECTION 5.04. Consents; Approvals. The Company and Parent shall each use all
reasonable efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all
United States and foreign governmental and regulatory rulings
and approvals), and the Company and Parent shall make all
filings (including, without limitation, all filings with
United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and
delivery of this
<PAGE>
Agreement by the Company and Parent and the consummation by
them of the transactions contemplated hereby. The Company and
Parent shall furnish all information required to be included
in the Proxy Statement/Prospectus and the Registration
Statement, or for any application or other filing to be made
pursuant to the rules and regulations of any United States or
foreign governmental body in connection with the transactions
contemplated by this Agreement.
SECTION 5.05. Agreements with Respect to Affiliates. The Company shall
deliver to Parent, prior to the date the Registration
Statement becomes effective under the Securities Act, a letter
(the "Affiliate Letter") identifying all persons who are, at
the time of the Stockholders Meeting, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act
("Rule 145"). The Company shall use its best efforts to cause
each person who is identified as an "affiliate" in the
Affiliate Letter to deliver to Parent, prior to the Effective
Time, a written agreement substantially in the form of Exhibit
C hereto (an "Affiliate Agreement") in connection with
restrictions on affiliates under Rule 145.
SECTION 5.06. Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the
Company, of the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause
any representation or warranty contained in this Agreement to
be materially untrue or inaccurate, or any failure of the
Company, Parent or Merger Sub, as the case may be, materially
to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 5.07. Further Action/Tax Treatment. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use
all reasonable efforts to take or cause to be taken, all
actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner
all necessary waivers, consents and approvals and to effect
all necessary registrations and filings, and otherwise to
satisfy or cause to be satisfied all conditions precedent to
its obligations under this Agreement. The foregoing covenant
shall not include any obligation by Parent or the Company to
agree to divest, abandon, license or take similar action with
respect to
<PAGE>
any assets (tangible or intangible) of Parent or the Company,
as the case may be. Each of Parent, Merger Sub and the Company
shall use all reasonable efforts to cause the Merger to
qualify, and will not (both before and after consummation of
the Merger) take any actions which to its knowledge could
reasonably be expected to prevent the Merger from qualifying
as a reorganization under the provisions of Section 368 of the
Code.
SECTION 5.08. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect
to the Merger or this Agreement and shall not issue any such
press release or make any such public statement without the
prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that in the case of
announcements which either party is required by law to make,
issue or release, the making, issuing or releasing of any such
announcement by the party so required to do so by law shall
not constitute a breach of this Agreement.
SECTION 5.09. Listing of Parent Shares. Parent shall cause the Parent Shares
to be issued in the Merger to be listed, upon official notice
of issuance, on the AMEX prior to the Effective Time.
SECTION 5.10. Reverse Stock Split. Parent shall effect a one-for-ten reverse
stock split of the Parent Common Stock prior to the Effective
Time.
SECTION 5.11. Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any
real property transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes
which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed
on or before the Effective Time.
SECTION 5.12. Lines of Credit. Parent and the Company shall use all
reasonable efforts to establish, prior to the Effective Time,
bank lines of credit for the Surviving Corporation or a
subsidiary thereof totalling at least $55 million.
SECTION 5.13. Board Representation. Parent shall take such action as is
necessary to cause each of (a) Russell MacDonnell, (b) David
Heidecorn, (c) Michael Earley, (d) one additional director
designated by Parent, (e) Stuart L. Bell, (f) Stephen L.
Green, and
<PAGE>
(g) one additional director designated by the Company, to be
elected to serve as a director of Parent effective as of the
Effective Time or as soon as practicable thereafter. In the
event that the amendments to Parent's Certificate of
Incorporation contemplated by Section 5.18 with respect to
instituting a classified board of directors are approved by
Parent's stockholders, the parties hereto agree that (i) each
of Russell MacDonnell and Michael Earley shall be placed in
the class of directors with the longest term of office.
SECTION 5.14. Management Agreement. Prior to the Effective Time, Parent
shall enter into a one-year management agreement with Triton
Group Management LLC, a management company to be formed by
Michael Earley and Mark Foletta, substantially in the form
attached as Exhibit D hereto.
SECTION 5.15. Registration Rights Agreement. Prior to the Effective Time,
Parent shall enter into a Registration Rights Agreement in
substantially the form attached as Exhibit E hereto with each
of the parties named therein.
SECTION 5.16. Dissolution of Subsidiaries. Prior to the Effective Time,
Parent shall use all reasonable efforts to wind up and
dissolve each of IMI Financial Corporation and Tenn
Properties, Inc.
SECTION 5.17. Stock Incentive Plan. Prior to the Stockholders Meeting
described in Section 5.02, Parent shall take all action
necessary to approve and submit to Parent's stockholders a
stock incentive plan substantially in the form of Exhibit F
hereto (the "Stock Incentive Plan").
SECTION 5.18. Amendment of Parent's Certificate of Incorporation and
By-Laws Prior to the Stockholders Meeting described in Section
5.02(a), Parent shall take all action necessary to (a)
approve and submit to Parent's stockholders the amendment
and restatement of Parent's Certificate of Incorporation
substantially in the form of Exhibit G-1 hereto and (b)
effect, subject to the consummation of the Merger, the
adoption and approval of the amendment and restatement of
Parent's By-Laws substantially in the form of Exhibit G-2
hereto.
SECTION 5.19. Restructuring of Company's Subordinated Indebtedness. The
Company shall use all reasonable efforts to restructure, prior
to the Effective Time, its existing subordinated indebtedness
substantially in accordance with the terms set forth on
Exhibit H hereto or on terms more favorable to the Company.
SECTION 5.20. Severance Agreements. Prior to the Effective Time, Parent
shall enter into Severance Agreements substantially in the
form of
<PAGE>
Exhibit I hereto with each of the following individuals:
Russell R. MacDonnell, David Heidecorn and Gregory J.
Westhoff.
SECTION 5.21. Indemnification.
(a). From and after the Effective Time, Parent shall indemnify and
hold harmless each person who is now, or has been at any time
prior to the date hereof, an officer or director of Parent or
any of its subsidiaries (the "Indemnified Parties") against
any losses, claims, damages, judgments, settlements,
liabilities, costs or expenses (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses)
incurred in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to
acts or omissions, or alleged acts or omissions, by them in
their capacities as such occurring at or prior to the
Effective Time (including, without limitation, in connection
with the Merger and the other transactions contemplated by
this Agreement), to the fullest extent that Parent or such
subsidiaries would have been permitted, under applicable law
and the Certificate of Incorporation or By-Laws of Parent or
the organizational documents of such subsidiaries each as in
effect on the date of this Agreement, to indemnify such person
(and Parent shall also advance expenses as incurred to the
fullest extent permitted under applicable law upon receipt
from the Indemnified Party to whom expenses are advanced of a
written undertaking to repay such advances as contemplated by
Section 145(e) of the DGCL). Parent shall pay all reasonable
expenses, including reasonable attorneys' fees, that may be
incurred by any Indemnified Party in enforcing this
Section 5.21. If the indemnity provided by this Section
5.21(a) is not available with respect to any Indemnified
Party, then Parent, on the one hand, and the Indemnified
Party, on the other hand, shall contribute to the amount
payable in such proportion as is appropriate to reflect
relative faults and benefits.
(b). In the event of any such claim, action, suit, proceeding or
investigation, any Indemnified Party wishing to claim
indemnification under this Section 5.21 shall, upon becoming
aware of any such claim, action, suit, proceeding or
investigation, promptly notify Parent thereof (provided that
the failure to provide such notice shall not relieve Parent of
any liability or obligation it may have to such Indemnified
Party under this Section unless such failure materially
prejudices Parent), and shall deliver to Parent the
undertaking contemplated by Section 145(e) of the DGCL, Parent
shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably
acceptable to Parent, Parent shall cooperate in the defense of
any such matter; provided, however, that Parent shall not be
liable for any settlement effected without its prior written
consent (not to be unreasonably withheld); and provided,
<PAGE>
further, that Parent shall not be liable under this Section
5.21 for the fees and expenses of more than one counsel for
all Indemnified Parties in any single claim, action, suit,
proceeding or investigation, except to the extent that, in the
opinion of counsel for the Indemnified Parties, two or more of
such Indemnified Parties have conflicting interests in the
outcome of such claim, action, suit, proceeding or
investigation such that additional counsel is required to be
retained by such Indemnified Parties under applicable
standards of professional conduct.
(c). From and after the Effective Time until the fifth anniversary
thereof, Parent shall maintain, without any gaps or lapses in
coverage, directors' and officers' liability insurance
covering the Indemnified Parties who are covered, in their
capacities as directors and officers of Parent, by the
existing directors' and officers' liability insurance of
Parent in force on the date of this Agreement, with respect to
losses or claims arising out of acts or omissions, or alleged
acts or omissions, by them in their capacities as such
occurring at or prior to the Effective Time, and upon terms no
less favorable to the Indemnified Parties than such existing
directors' and officers' liability insurance.
(d). This covenant is intended to be for the benefit of, and shall
be enforceable by, each of the Indemnified Parties and their
respective heirs and legal representatives.
ARTICLE 6.
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger
shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a). Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under
the Securities Act. No stop order suspending the effectiveness
of the Registration Statement shall have been issued by the
SEC and no proceedings for that purpose and no similar
proceeding in respect of the Proxy Statement/Prospectus shall
have been initiated or threatened by the SEC and all necessary
approvals under state securities laws or under the Securities
Act or the Exchange Act relating to the Parent Common Stock to
be issued in the Merger shall have been received;
(b). Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the
stockholders of the
<PAGE>
Company, and this Agreement, the Merger and the issuance of
Parent Common Stock in the Merger pursuant to this Agreement
shall have been approved and adopted by the requisite vote of
the stockholders of Parent;
(c). Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been authorized for listing on the AMEX upon
official notice of issuance;
(d). Lines of Credit. There shall have been established bank lines
of credit for the Surviving Corporation or a subsidiary
thereof totalling at least $55 million;
(e). No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission
or other governmental authority or instrumentality, domestic
or foreign, seeking any of the foregoing be pending; and there
shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the
Merger illegal; and
(f). Governmental Actions. There shall not have been instituted,
pending or threatened any action or proceeding (or any
investigation or other inquiry that might result in such an
action or proceeding) by any governmental authority or
administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, nor
shall there be in effect any judgment, decree or order of any
governmental authority, administrative agency or court of
competent jurisdiction, in either case, seeking to prohibit or
limit Parent from exercising all material rights and
privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Parent or any of
its subsidiaries of all or a material portion of the business
or assets of the Company or any of its subsidiaries.
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger
are also subject to the following conditions:
(a). Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be
true and correct in all respects on and as of the Effective
Time, except for (i) changes contemplated by this Agreement,
(ii) those representations and warranties which address
matters only as of a particular date (which shall have been
true and correct
<PAGE>
as of such date, subject to clause (iii)), and where the
failure to be true and correct could not reasonably be
expected to have a Material Adverse Effect, with the same
force and effect as if made on and as of the Effective Time,
and Parent and Merger Sub shall have received a certificate to
such effect signed by the President and the Chief Financial
Officer of the Company;
(b). Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and
covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and
Parent and Merger Sub shall have received a certificate to
such effect signed by the President and the Chief Financial
Officer of the Company;
(c). Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all
filings required to be made, by the Company for the
authorization, execution and delivery of this Agreement and
the consummation by it of the transactions contemplated hereby
shall have been obtained and made by the Company, except where
the failure to receive such consents, etc. could not
reasonably be expected to have a Material Adverse Effect on
the Company or Parent;
(d). Opinion of Counsel. Parent shall have received from the
Company an opinion of counsel to the Company containing the
opinions set forth on Exhibit J hereto;
(e). Fairness Opinion. Since the date of this Agreement, there
shall not have been any change in the facts or circumstances
that would prevent Parent from receiving an update to the
Fairness Opinion dated on the date the Proxy
Statement/Prospectus is mailed to Parent's stockholders or on
the Closing Date to the effect that, as of such dates, the
Merger is fair, from a financial point of view, to the
stockholders of Parent;
(f). Company Acquisitions. The Company shall have entered into
letters of intent or other agreements providing for
acquisitions for cash or stock by the Company of assets or
stock of corporations having an aggregate of $500,000 of
recurring monthly revenue, with closings scheduled for no
later than January 30, 1997;
(g). Company Revenues. The Company shall have achieved recurring
monthly revenue of an average of at least $1.37 million for
the two months prior to the Closing;
(h). Restructuring of Company Indebtedness. The Company shall have
restructured its existing subordinated indebtedness
substantially in
<PAGE>
accordance with the terms set forth on Exhibit H hereto or on
terms more favorable to the Company;
(i). Material Changes. Since the date of this Agreement, there
shall not have been any material adverse change with respect
to the business, financial condition or results of operations
of the Company;
(j). Lock-up Agreement. The Lock-up Agreement shall be in full
force and effect in accordance with its terms. Each
stockholder of the Company that is a party to the Lock-up
Agreement shall have performed and complied with all covenants
and agreements required to be performed or complied with by
such party thereunder; and
(k). Dissenting Stockholders. Holders of not more than 5.0% of the
outstanding shares of voting securities of the Company shall
have demanded appraisal rights for their shares in accordance
with the DGCL.
SECTION 6.03. Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are also
subject to the following conditions:
(a). Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this
Agreement shall be true and correct in all respects on and as
of the Effective Time, except for (i) changes contemplated by
this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which
shall have been true and correct as of such date, subject to
clause (iii)), and where the failure to be true and correct
could not reasonably be expected to have a Material Adverse
Effect, with the same force and effect as if made on and as of
the Effective Time, and the Company shall have received a
certificate to such effect signed by the President and the
Chief Financial Officer of Parent;
(b). Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all
agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the
Effective Time, and the Company shall have received a
certificate to such effect signed by the President and the
Chief Financial Officer of Parent;
(c). Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all
filings required to be made, by Parent and Merger Sub for the
authorization, execution and delivery of this Agreement and
the consummation by them of the transactions contemplated
hereby shall have been obtained and made by
<PAGE>
Parent and Merger Sub, except where the failure to receive
such consents, etc. could not reasonably be expected to have a
Material Adverse Effect on the Company or Parent;
(d). Opinion of Counsel. The Company shall have received from
Parent an opinion of counsel to Parent and Merger Sub
containing the opinions set forth on Exhibit K hereto;
(e). Opinion of Ernst & Young LLP. On or prior to the date on which
the Registration Statement is declared effective by the SEC,
the Company shall have received from Ernst & Young LLP, tax
advisor to the Company, an opinion substantially in the form
set forth on Exhibit L hereto; and since the date of this
Agreement, there shall not have been any change in the facts,
circumstances, or applicable federal tax laws that would cause
the withdrawal of such opinion on or prior to the Closing
Date;
(f). Parent Cash Balance. Parent shall have established a cash
balance of at least $16 million, net of accrued income taxes
for the fiscal year ending March 31, 1997;
(g). Material Changes. Since the date of this Agreement, there
shall not have been any material adverse change with respect
to the business, financial condition or results of operations
of Parent;
(h). Severance Agreements. Parent shall have entered into severance
agreements substantially in the form of Exhibit I hereto and
effective as of the Effective Time with each of the following
individuals: Russell R. MacDonnell, as Chairman, Chief
Executive Officer and President of Parent; David Heidecorn, as
Executive Vice President and Chief Financial Officer of
Parent; and Gregory J. Westhoff, as Vice President of Parent;
(i). Stock Option and Conversion Agreement. Parent shall have
entered into a Stock Option and Conversion Agreement
substantially in the form of Exhibit B hereto with each of the
Optionees; and
(j). Registration Rights Agreement. Parent shall have entered into
a Registration Rights Agreement substantially in the form of
Exhibit E hereto with each of the parties named therein.
(k). Oral Consulting Agreements. Parent shall have terminated the
oral consulting agreements with Michael Earley and Mark
Foletta disclosed on the Parent Disclosure Schedule.
<PAGE>
(l). Patricof Registration Rights. Parent shall have terminated the
Patricof Registration Rights provided under (a) that certain
warrant, dated January 1, 1996, issued by Parent to Patricof
for the purchase of an aggregate of 500,000 shares of Parent
Common Stock, and (b) that certain warrant, dated October 13,
1993, issued by Parent to Patricof for the purchase of an
aggregate of 150,000 shares of Parent Common Stock.
ARTICLE 7.
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof
by the stockholders of the Company or Parent:
(a). by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b). by either Parent or the Company, if the Merger shall not have
been consummated by April 15, 1997 (provided that the right to
terminate this Agreement under this Section 7.01(b) 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 Merger to occur on or before
such date); or
(c). by either Parent or the Company, if a court of competent
jurisdiction or governmental, regulatory or administrative
agency or commission shall have issued a nonappealable final
order, decree or ruling or taken any other action having the
effect of permanently restraining, enjoining or otherwise
prohibiting the Merger (provided that the right to terminate
this Agreement under this Section 7.01(c) shall not be
available to any party who has not complied with its
obligations under Section 5.07 and such noncompliance
materially contributed to the issuance of any such order,
decree or ruling or the taking of such action); or
(d). by either Parent or the Company, if (i) the Board of Directors
of the Company shall withdraw, modify or change its approval
or recommendation of this Agreement or the Merger in a manner
adverse to Parent or shall have resolved to do so; (ii) the
Board of Directors of the Company shall have recommended to
the stockholders of the Company an Acquisition Proposal; or
(iii) the Company shall enter into an agreement providing for
the implementation of an Acquisition Proposal; or
(e). by either the Company or Parent, if (i) the Board of Directors
of Parent shall withdraw, modify or change its approval or
recommendation of this
<PAGE>
Agreement or the Merger in a manner adverse to the Company or
shall have resolved to do so; (ii) the Board of Directors of
Parent shall have recommended to the stockholders of Parent an
Acquisition Proposal; or (iii) Parent shall enter into an
agreement providing for the implementation of an Acquisition
Proposal; or
(f). by Parent, if any representation, warranty, agreement or
covenant of the Company shall have become untrue such that the
condition set forth in Section 6.02(a) or 6.02(b) would not be
satisfied, or by the Company, if any representation, warranty,
agreement or covenant of Parent or Merger Sub shall have
become untrue such that the condition set forth in Section
6.03(a) or 6.03(b) would not be satisfied.
SECTION 7.02. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.01, this Agreement shall
forthwith become void and there shall be no liability on the
part of any party hereto or any of its affiliates, directors,
officers or stockholders except as set forth in Sections 7.03
and 8.01 hereof, and nothing herein shall relieve any party
from liability for any breach hereof.
SECTION 7.03. Fees and Expenses.
(a). Except as set forth in this Section 7.03, all fees and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such expenses, whether or not the Merger is
consummated; provided, however, that Parent and the Company
shall share equally all fees and expenses, other than
attorneys' fees, incurred in connection with the printing and
filing of the Proxy Statement/Prospectus (including any
preliminary materials related thereto) and the Registration
Statement (including financial statements and exhibits) and
any amendments or supplements thereto.
(b). The Company shall pay Parent a fee of $1.0 million (the
"Fee"), upon the first to occur of any of the following
events:
(i) the termination of this Agreement by Parent or the
Company pursuant to Section 7.01(d); or
(ii) the termination of this Agreement by Parent pursuant to
Section 7.01(f); or
(iii) an Acquisition Proposal with respect to the Company is
commenced, proposed or disclosed after the date of this
Agreement, and (A) the Board of Directors of the Company
takes
<PAGE>
any Permitted Action under Section 4.02, (B) this
Agreement is terminated by Parent or the Company
pursuant to Section 7.01(b), and (C) on or prior to June
30, 1997, such Acquisition Proposal is consummated or
the Company enters into an agreement with respect
thereto.
(c). Parent shall pay the Company a fee of $1.0 million (the
"Fee"), upon the first to occur of any of the following
events:
(i) the termination of this Agreement by the Company or
Parent pursuant to Section 7.01(e); or
(ii) the termination of this Agreement by the Company
pursuant to Section 7.01(f); or
(iii) an Acquisition Proposal with respect to Parent is
commenced, proposed or disclosed after the date of this
Agreement, and (A) the Board of Directors of Parent
takes any Permitted Action under Section 4.02, (B) this
Agreement is terminated by the Company or Parent
pursuant to Section 7.01(b), and (C) on or prior to June
30, 1997, such Acquisition Proposal is consummated or
Parent enters into an agreement with respect thereto.
(d). The Fee payable pursuant to Sections 7.03(b) and 7.03(c) shall
be paid within five business days after the first to occur of
any of the events described in Section 7.03(b)(i), (ii) or
(iii), or Section 7.03(c)(i), (ii) or (iii); provided that, in
no event shall Parent or the Company, as the case may be, be
required to pay such Fee to the other if, immediately prior to
the termination of this Agreement, the party to receive the
Fee was in material breach of its obligations under this
Agreement.
ARTICLE 8.
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements.
Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party
hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any
other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after
the execution of this Agreement. The representations,
warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be,
<PAGE>
except that the agreements set forth in Section 7.03 and
Article VIII shall survive termination indefinitely. The
Confidentiality Agreement shall survive termination of this
Agreement as provided therein.
SECTION 8.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to
have been duly given or made if and when delivered personally
or by overnight courier to the parties at the following
addresses or sent by electronic transmission, with
confirmation received, to the telecopy numbers specified below
(or at such other address or telecopy number for a party as
shall be specified by like notice):
(a). If to Parent or Merger Sub:
Triton Group Ltd.
550 West "C" Street, Suite 1880
San Diego, California 92101
Telecopier No.: (619) 231-9170
Telephone No.: (619) 231-1818
Attention: President
With a copy to:
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Telecopier No.: (619) 696-7419
Telephone No.: (619) 236-1234
Attention: Scott N. Wolfe, Esq.
(b). If to the Company:
Security Systems Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
Telecopier No.: (203) 799-9636
Telephone No.: (203) 795-9000
Attention: Chairman
<PAGE>
With a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Telecopier No.: (212) 309-6273
Telephone No.: (212) 309-6000
Attention: Philip Werner, Esq.
SECTION 8.03. Certain Definitions. For purposes of this Agreement, the term:
(a). "affiliate" means, with respect to a person, another person
that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b). "business day" means any day other than a day on which banks
in New York, New York are required or authorized to be closed;
(c). "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct
or cause the direction of the management or policies of a
person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d). "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity
or group (as defined in Section 13(d)(3) of the Exchange Act);
and
(e). "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation,
partnership, joint venture or other legal entity of which the
Company, the Surviving Corporation, Parent or such other
person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote
for the election of the board of directors or other legal
entity.
SECTION 8.04. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided,
however, that after approval of the Merger by the stockholders
of the Company, no amendment may be made which by law requires
further approval by such stockholders without such further
<PAGE>
approval. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto
(a). extend the time for the performance of any of the obligations
or other acts,
(b). waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto,
or
(c). waive compliance with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid
if set forth in an instrument in writing signed by the party
or parties to be bound thereby.
SECTION 8.06. Headings. 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.
SECTION 8.07. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions
of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to
the extent possible.
SECTION 8.08. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings
(other than the Confidentiality Agreement), both written and
oral, among the parties, or any of them, with respect to the
subject matter hereof and, except as otherwise expressly
provided herein.
SECTION 8.09. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the
prior written consent of the other parties. Subject to the
foregoing, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall
have any right, benefit or obligation under this Agreement as
a third party beneficiary or otherwise.
<PAGE>
SECTION 8.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall
any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All
rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies
otherwise available.
SECTION 8.11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Delaware, without regard to any applicable conflicts of law.
SECTION 8.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to
be an original but all of which taken together shall
constitute one and the same agreement.
SECTION 8.13. Attorneys' Fees. If any party to this Agreement brings an
action to enforce its rights under this Agreement, the
prevailing party shall be entitled to recover its costs and
expenses, including without limitation reasonable attorneys'
fees, incurred in connection with such action, including any
appeal of such action, which shall be set by the judge and not
a jury.
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
TRITON GROUP LTD.
By: /s/ Michael M. Earley
------------------------------------
Name: Michael M. Earley
----------------------------------
Title: President & CEO
--------------------------------
TRITON ACQUISITION CORP.
By: /s/ Michael M. Earley
------------------------------------
Name: Michael M. Earley
----------------------------------
Title: President
--------------------------------
SECURITY SYSTEMS HOLDINGS, INC.
By: /s/ Russell R. MacDonnell
------------------------------------
Name: Russell R. MacDonnell
----------------------------------
Title: Chairman & CEO
---------------------------------
<PAGE>
APPENDIX B
Patricof & Co.
March 14, 1997
Board of Directors
Triton Group Ltd.
550 West C Street, Suite 1880
San Diego, California 92101
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of shares of Common Stock, par value $0.0001
per share (the "Triton Common Stock") of Triton Group Ltd., a Delaware
Corporation ("Triton"), of the merger with Security Systems Holdings, Inc.
("SSH") (the "Merger") as described in the Agreement and Plan of Merger dated
as of December 23, 1996 (the "Merger Agreement").
The Merger Agreement provides that holders of all issued and
outstanding preferred and common stock of SSH will receive an aggregate amount
of 2,877,368 shares of Triton Common Stock (excluding 46,003 shares of Triton
Common Stock issuable to holders of SSH stock options to be assumed by Triton),
which represents approximately 57% of the shares of Triton Common Stock that
will be outstanding upon consummation of the Merger (giving effect to a
one-for-ten reverse stock split of the Triton Common Stock to be effected prior
to the Merger).
In connection with our opinion, we have reviewed the Merger
Agreement and related documents and Triton's Proxy Statement/Prospectus,
dated March 14, 1997 describing the Merger. We also have reviewed certain
financial and other information concerning Triton and SSH that is publicly
available or was furnished to us by Triton or SSH, including certain internal
financial analyses, reports and other information prepared by the respective
managements of Triton and SSH. We have held discussions with various members
of senior management of Triton and SSH concerning each company's historical
and current operations, financial condition and prospects. We have also held
discussions with senior management of Triton and SSH concerning the
strategic, operating and financial benefits anticipated to result from the
Merger. In addition, we have (i) reviewed the prices and trading history of
Triton Common Stock; (ii) considered the value of Triton's assets and
liabilities in a liquidation scenario; (iii) compared the financial positions
and operating results of SSH with those publicly traded companies we deemed
relevant, and considered the value of SSH based on investor appraisal ratios
exhibited by those publicly traded companies (as adjusted to reflect SSH's
status as a private company and the comparative financial position and
operating results of SSH); (iv) performed a discounted cash flow analysis
using projections for SSH pro forma for
<PAGE>
Board of Directors
Triton Group Ltd.
March 14, 1997
Page 2
the consummation of the Merger ("Newco") based on those prepared by SSH
management (who will be management of Newco); and (v) conducted such other
financial studies, analyses and investigations and reviewed such other factors
as we deemed appropriate for purposes of this opinion.
We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of
Triton and SSH (including on a pro forma and projected basis) we have assumed
that such information reflects the best currently available estimates and
judgments of the respective managements of Triton and SSH as to the likely
future financial performance of the two companies. With respect to information
relating to the prospects of Newco (including a pro forma and projected basis)
we have assumed that such information reflects the best currently available
estimates and judgments of the management of SSH (who will be management of
Newco) as to the likely future financial performance of Newco. In addition, we
have not made an independent evaluation or appraisal of the assets of Triton or
SSH nor have we been furnished with any such evaluation or appraisal. Our
opinion is based on the financial markets, economic and other conditions as they
exist and can be evaluated as of the date of this letter. Furthermore, we
express no opinion as to the price or trading range at which shares of Newco
will trade following the Merger.
Patricof & Co. Capital Corp., as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to Triton in connection with the Merger and will receive a fee for our
services which, in part, is contingent upon the consummation of the Merger.
<PAGE>
Board of Directors
Triton Group Ltd.
March 14, 1997
Page 3
It is understood that this letter is for the information of the Board
of Directors of Triton only and may not be used for any other purpose without
our prior written consent; provided, however, that this letter may be reproduced
in full as part of Triton's Proxy Statement/ Prospectus describing the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of
the date of this letter, the Merger is fair, from a financial point of view, to
the holders of Triton Common Stock.
Very truly yours,
/s/ Patricof & Co. Capital Corp.
Patricof & Co. Capital Corp.
<PAGE>
APPENDIX C
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders
thereof are required by the terms of an
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agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this
title is not owned by the parent corporation immediately prior to the
merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all of the
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shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand
the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written
demand for appraisal of his shares. Such demand will be sufficient if
it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been
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given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the
notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The
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Court may require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
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however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX D-1
FORM OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TRITON GROUP LTD.
Triton Group Ltd., a Delaware corporation, hereby certifies as follows:
1. The name of this Corporation is Triton Group Ltd. (the
"Corporation"). The Corporation was originally incorporated under the name of
"MSG Acquisition Corp.," and the original Certificate or Incorporation of the
Corporation was filed with the Secretary of State of Delaware (the
"Secretary") on August 15, 1996. An amended and Restated Certificate of
Incorporation of the Corporation was filed with the Secretary on ____ ___,
199__ under the name of Triton Group Ltd.
2. The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street, Wilmington, Delaware 19801. The registered agent
at that address is CT Corporation System.
3. This Second Amended and Restated Certificate of Incorporation of the
Corporation was duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware (the "DGCL"),
the Board of Directors having duly adopted resolutions setting forth and
declaring advisable this Second Amended and Restated Certificate of
Incorporation of the Corporation.
4. This Second Amended and Restated Certificate of Incorporation of the
Corporation is being filed pursuant to Sections 242 and 245 of the DGCL and
includes amendments to Articles FIRST, SECOND, FOURTH, FIFTH, SIXTH, SEVENTH,
EIGHTH, NINTH and TENTH.
5. The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended and restated in its entirety as follows:
FIRST:The name of the Corporation is Alarmguard Holdings, Inc.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street, Wilmington, Delaware 19801. The registered
agent at that address is CT Corporation System.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 30,000,000 shares, of which 5,000,000 shares
shall be designated as Preferred Stock, par value $0.0001 per share (the
"Preferred Stock"), and 25,000,000 shares shall be designated as Common Stock,
par value $0.0001 per share (the "Common Stock").
The following is a statement of the powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, in respect of each
class of stock of the Corporation.
Section 1. Preferred Stock. The Board of Directors is expressly authorized
to provide for the issuance of all or any shares of the Preferred Stock in one
or more classes or series, to increase or decrease the number of shares of
Preferred Stock designated for any class or series, and to fix for each such
class or series such voting powers, full or limited, or no voting powers, and
such distinctive designations, preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class or
series and as may be permitted by the DGCL, including, without limitation, the
authority to provide that any such class or series may be (i) subject to
redemption at such time or times and at such price or prices; (ii) entitled to
receive dividends (which may be cumulative or non-cumulative and may be payable
in cash, stock or other property) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any other
class or classes of stock, or indebtedness or other property, of the Corporation
at such price or prices or at such rates of exchange and with such adjustments;
all as may be stated in such resolution or resolutions.
Section 2. Common Stock.
(A) Dividends. Subject to the preferred rights of the holders of
shares of any class or series of Preferred Stock as provided by the Board of
Directors with respect to any such class or series of Preferred Stock, the
holders of the Common Stock shall be entitled to receive, as and when declared
by the Board of Directors out of the funds of the Corporation legally available
therefor, such dividends (payable in cash, stock or otherwise) as the Board of
Directors may from time to time determine, payable to stockholders of record on
such dates, not exceeding 60 days preceding the dividend payment dates, as shall
be fixed for such purpose by the Board of Directors in advance of payment of
each particular dividend.
(B) Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after the
distribution or payment to the holders of
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shares of any class or series of Preferred Stock as provided by the Board of
Directors with respect to any such class or series of Preferred Stock, the
remaining assets of the Corporation available for distribution to stockholders
shall be distributed among and paid to the holders of Common Stock ratably in
proportion to the number of shares of Common Stock held by them respectively.
(C) Voting Rights. Except as otherwise required by law or as
provided by the Board of Directors with respect to any class or series of
Preferred Stock, the entire voting power and all voting rights shall be vested
exclusively in the Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share standing in such holder's name on the books
of the Corporation.
Section 3. Reverse Stock Split. Simultaneously with the effective date of
this Second Amended and Restated Certificate of Incorporation (the "Effective
Date"), each share of Common Stock issued and outstanding immediately prior to
the Effective Date and each such share held in the Corporation's treasury (the
"Old Common Stock") shall automatically and without any action on the part of
the holder thereof be reclassified as and changed into [one-tenth (1/10)] of a
share of Common Stock. Each holder of a certificate or certificates which
immediately prior to the Effective Date represented outstanding shares of the
Old Common Stock (the "Old Common Certificates," whether one or more) shall be
entitled to receive upon surrender of the Old Common Certificates to the
Corporation's Transfer Agent for cancellation a certificate or certificates
representing the number of whole shares of Common Stock (The "Common
Certificates," whether one or more) into which and for which the shares of Old
Common Stock formerly represented by the Old Common Certificates so surrendered
are reclassified under the terms hereof. From and after the Effective Date, the
Old Common Certificates shall represent only the right to receive the Common
Certificates (and, where applicable, cash in lieu of fractional shares, as
provided below). No certificate or scrip representing fractional share interests
in the Common Stock will be issued, and no such fractional share interest will
entitle the holder thereof to vote or to any rights of a stockholder of the
Corporation. A holder of the Old Common Certificates shall receive, in lieu of
any fraction of a share of Common Stock to which such holder otherwise would be
entitled, a cash payment equal to the product of the number of shares of Old
Common Stock which have not been reclassified into a whole share of Common
Stock, multiplied by the average closing price of Old Common Stock on the
American Stock Exchange, Inc. on the five most recent business days preceding
the Effective Date that the Old Common Stock was traded. If more than one Old
Common Certificate shall be surrendered at one time for the account of the same
stockholder, the number of full shares of Common Stock for which Common
Certificates shall be issued shall be computed on the basis of the aggregate
number of shares represented by the Old Common Certificates so surrendered. In
the event that the Corporation's Transfer Agent determines that a holder of Old
Common Certificates has not tendered all of his or her certificates for
exchange, the Transfer Agent shall carry forward any fractional share until all
certificates of such holder have been presented for exchange so that payment for
fractional shares to such holder shall not exceed the value of one (1) whole
share of Common Stock as a
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result of the rounding up of fractional shares. If any Common Certificate is to
be issued in a name other than that in which the Old Common Certificates
surrendered for exchange are issued, the Old Common Certificates so surrendered
shall be properly endorsed and otherwise in proper form for transfer, and the
person or persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Old Common Certificates surrendered, or provide funds
for their purchase, or establish to the satisfaction of the Transfer Agent that
such taxes are not payable.
FIFTH: Section 1. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. The number of
directors of the Corporation shall be as from time to time fixed by, or in the
manner provided in, the By-Laws of the Corporation. Election of directors of the
Corporation need not be by written ballot unless the By-Laws of the Corporation
so provide.
Section 2. The directors of the Corporation shall be classified with
respect to the time for which they severally hold office into three classes, as
nearly equal in number as possible, designated Class I, Class II and Class III.
The directors first appointed to Class I will hold office for the term expiring
at the annual meeting of the stockholders to be held during the calendar year
1998; and the directors first appointed to Class II will hold office for the
term expiring at the annual meeting of the stockholders to be held during the
calendar year 1999; and the directors first appointed to Class III will hold
office for the term expiring at the annual meeting of the stockholders to be
held during the calendar year 2000, with the members of each class to hold
office until their successors are elected and qualified. At each succeeding
annual meeting of the stockholders of the Corporation, the successors of the
class of directors whose term shall have expired at that meeting will be elected
by plurality vote of all votes cast at such meeting to hold office for a term
expiring at the annual meeting of the stockholders held during the third
calendar year following the year of their election. If the number of directors
is increased, the additional directors shall be divided as evenly as possible
among the three classes. No director or class of directors may be removed from
office by a vote of the stockholders at any time except for cause.
Section 3. Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other cause,
as well as any vacancy resulting from an increase in the number of directors
which occurs between annual meetings of the stockholders at which directors are
elected, shall be filled only by a majority vote of the remaining directors then
in office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
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<PAGE>
Section 4. Notwithstanding the foregoing, whenever the holders of one or
more classes or series of Preferred Stock shall have the right, voting
separately, as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted by the
Board of Directors pursuant to ARTICLE FOURTH applicable thereto, and each
director so elected shall not be subject to the provisions of this ARTICLE FIFTH
unless otherwise provided therein.
Section 5. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter and
repeal the By-laws of the Corporation. The By-laws and any amendments thereof
may be altered, amended or repealed or new By-laws may be adopted by the holders
of 85% of the total outstanding stock of the Corporation entitled to vote at any
annual meeting or at any special meeting of the stockholders.
Section 6. Notwithstanding any provision of this Second Amended and
Restated Certificate of Incorporation and of the By-Laws, and notwithstanding
the fact that a lesser percentage may be specified by Delaware law, unless such
action has been approved by a majority vote of the full Board of Directors, the
affirmative vote of 66-2/3% of the votes which all stockholders of the then
outstanding shares of capital stock of the Corporation would be entitled to cast
thereon, voting together as a single class, shall be required to amend or repeal
any provisions of this ARTICLE FIFTH or to adopt any provision inconsistent with
this ARTICLE FIFTH. In the event such action has been previously approved by a
majority vote of the full Board of Directors, the affirmative vote of a majority
of the outstanding stock entitled to vote thereon shall be sufficient to amend
or repeal any provision of this ARTICLE FIFTH or adopt any provision
inconsistent with this ARTICLE FIFTH.
SIXTH: Except as provided in Section 6 of ARTICLE FIFTH and the last
sentence of ARTICLE TENTH, the Corporation reserves the right to amend and
repeal any provision contained in this Second Amended and Restated Certificate
of Incorporation in the manner from time to time prescribed by the laws of the
State of Delaware. All rights herein conferred are granted subject to this
reservation.
SEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended. Any repeal or modification of the foregoing provisions of this
Article SEVENTH shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
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<PAGE>
EIGHTH: The Corporation shall, to the fullest extent permitted by Section
145 of the DGCL, as the same may be amended and supplemented, indemnify each
director and officer of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said section
and the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders, vote of disinterested directors or otherwise,
and shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
persons and the Corporation may purchase and maintain insurance on behalf of any
director or officer to the extent permitted by Section 145 of the DGCL.
NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the DGCL order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
TENTH: Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing of such holders.
Except as otherwise required by law and as provided in the first sentence of
ARTICLE NINTH and subject to the preferred rights of the holders of shares of
any class or series of Preferred Stock as provided by the Board of Directors
with respect to any such class or series of Preferred Stock, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the Board of Directors, or by
the Chief Executive Officer of the Corporation. This Article TENTH may not be
altered, amended, or repealed except by the affirmative vote of 66-2/3 percent
of the votes which all stockholders of the then outstanding shares of capital
stock of the Corporation would be entitled to vote thereon.
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<PAGE>
IN WITNESS WHEREOF, this Second Amended and Restated Certificate of
Incorporation having been duly adopted in accordance with the provisions of
Sections 242 and 245 of the DGCL the Corporation has caused this Certificate to
be executed in its corporate name this ___ day of ____, 1997.
-------------------------------------
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APPENDIX D-2
FORM OF
SECOND AMENDED AND RESTATED BY-LAWS
OF
TRITON GROUP LTD.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at such stockholder's address as it appears on the records of the
Corporation. The notice shall state the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such
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class vote unless the representation of a larger number of shares of such class
shall be required by law, by the Certificate of Incorporation or by these
By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be present
in person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board and the President, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all meetings
of the stockholders; but in the absence of the Secretary, the Chairman may
appoint any person to act as Secretary of the meeting. It shall be the duty of
the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to
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corporate action in writing without a meeting may authorize another person or
persons to act for him or her by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. When directed by the presiding officer or upon the demand of any
stockholder, the vote upon any matter before a meeting of stockholders shall be
by ballot. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall be elected by a plurality of the votes cast at a
meeting of stockholders by the stockholders entitled to vote in the election
and, whenever any corporate action, other than the election of Directors is to
be taken, it shall be authorized by a majority of the votes cast at a meeting of
stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. Unless otherwise
provided in the Certificate of Incorporation, the Directors shall, except as
hereinafter provided for filling vacancies, be elected at the annual meeting of
stockholders, and shall hold office until their respective successors are
elected and qualified or until their earlier resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with cause, any Director and fill the
vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall
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have been made, or any vacancy caused by the death or resignation of any
Director or for any other reason, and any newly created directorship resulting
from any increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the Directors then in office, although less
than a quorum, and any Director so elected to fill any such vacancy or newly
created directorship shall hold office until his successor is elected and
qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the state
of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every Director at least
five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the special meeting
or by causing the same to be transmitted by facsimile, telegram or telephone at
least one day before the special meeting to each Director. Unless otherwise
indicated in the notice thereof, any and all business other than an amendment of
these By-Laws may be transacted at any special meeting, and an amendment of
these By-Laws may be acted upon if the notice of the special meeting shall have
stated that the amendment of these By-Laws is one of the purposes of the
meeting. At any special meeting at which every Director shall be present, even
though without any notice, any business may be transacted, including the
amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is
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present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Board of Directors. In the absence of the Chairman of the Board and the
President, a Chairman shall be elected from the Directors present. The Secretary
of the Corporation shall act as Secretary of all meetings of the Directors; but
in the absence of the Secretary, the Chairman may appoint any person to act as
Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors. The Board may designate
one or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws; and unless such resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise restricted
by the Certificate of Incorporation or by these By-Laws, the members of the
Board of Directors or any committee designated by the Board, may participate in
a meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
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ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer, and such additional officers, if any, as shall be elected by the
Board of Directors pursuant to the provisions of Section 8 of this Article III.
The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees of the Corporation shall be subject
to removal, with or without cause, at any time by the Board of Directors. The
removal of an officer without cause shall be without prejudice to his contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights. All agents and employees other than officers elected by
the Board of Directors shall also be subject to removal, with or without cause,
at any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any officer,
or otherwise, may be filled by the Board of Directors, and any officer so
elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation
as set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The Chairman
of the Board shall be the chief executive officer of the Corporation and,
subject to the control of the Board of Directors, shall have general charge and
control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Chairman of the Board. The Chairman
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors.
SECTION 3. Powers and Duties of the President. The President shall be
the chief operating officer of the Corporation and, subject to the control of
the Board of Directors and the Chairman of the Board, shall have general charge
and control of all its operations and shall have all powers and shall perform
all duties incident to the office of President. In the absence of the Chairman
of the Board, the President shall preside at all meetings of the stockholders
and at all meetings of the Board of Directors and shall have such other powers
and perform such other
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duties as may from time to time be assigned by these By-Laws or by the Board of
Directors or the Chairman of the Board.
SECTION 4. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board or the President.
SECTION 5. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose. The Secretary
shall attend to the giving or serving of all notices of the Corporation; shall
have custody of the corporate seal of the Corporation and shall affix the same
to such documents and other papers as the Board of Directors or the President
shall authorize and direct; shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors or the President shall render statements of such accounts.
The Secretary shall have all powers and shall perform all duties incident to the
office of Secretary and shall also have such other powers and shall perform such
other duties as may from time to time be assigned by these By-Laws or by the
Board of Directors, the Chairman of the Board or the President.
SECTION 6. Powers and Duties of the Treasurer. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation. The Treasurer may endorse on behalf of
the Corporation for collection checks, notes and other obligations and shall
deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors or the President
shall render statements of such accounts. The Treasurer shall, at all reasonable
times, exhibit the books and accounts to any Director of the Corporation upon
application at the office of the Corporation during business hours; and shall
have all powers and shall perform all duties incident to the office of Treasurer
and shall also have such other powers and shall perform such other duties as may
from time to time be assigned by these By-Laws or by the Board of Directors, the
Chairman of the Board or the President.
SECTION 7. Additional Officers. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors, the Chairman of the Board or the President.
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The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 8. Giving of Bond by Officers. All officers of the Corporation,
if required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 9. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the President or any Vice President shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote, or in the name of the Corporation to execute proxies to vote, at
any meeting of stockholders of any corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise, in person or by
proxy, any and all rights, powers and privileges incident to the ownership of
such stock. The Board of Directors may from time to time, by resolution, confer
like powers upon any other person or persons.
SECTION 10. Compensation of Officers. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if the
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
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right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 4. Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article IV. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any,
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as the Board of Directors deems appropriate. The Board of Directors may
authorize the Corporation's legal counsel to represent such Director, officer,
employee or agent in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person
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described in Section 1 of this Article IV to the extent such person has
otherwise received payment (under any insurance policy, by-law or otherwise) of
the amounts otherwise payable as indemnity hereunder.
ARTICLE V
Stock; Seal; Fiscal Year
SECTION 1. Certificates for Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall
be transferred on the books of the Corporation by the holder thereof, in person
or by his attorney
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duly authorized in writing, upon surrender and cancellation of certificates for
the number of shares of stock to be transferred, except as provided in Section 2
of this Article V.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than 60 nor less than ten days before the date of
such meeting, or (ii) in the case of corporate action to be taken by consent in
writing without a meeting, prior to, or more than ten days after, the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, or (iii) more than 60 days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary.
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A duplicate of the seal may be kept and be used by any officer of the
Corporation designated by the Board of Directors, the Chairman of the Board or
the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
Section 3. Contracts. Except as otherwise provided in these By-Laws or
by law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the President or any Vice President shall be authorized to execute and
deliver, in the name and on behalf of the Corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and the seal of the
Corporation, if appropriate, shall be affixed thereto by any of such officers or
the Secretary or an Assistant Secretary. The Board of Directors, the Chairman of
the Board, the President or any Vice President designated by the Board of
Directors, the Chairman of the Board or the President may authorize any other
officer, employee or agent to execute and deliver, in the name and on behalf of
the Corporation, agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and, if appropriate, to affix the seal of the Corporation thereto. The
grant of such authority by the Board or any such officer may be general or
confined to specific instances.
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SECTION 4. Waivers of Notice. Whenever any notice whatever is required
to be given by law, by the Certificate of Incorporation or by these By-Laws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors or the Chairman of the Board.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof, may be altered,
amended or repealed or new By-Laws may be adopted by the holders of 85% of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
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Exihibit 10.25
APPENDIX E
TRITON GROUP LTD.
1997 LONG-TERM STOCK INCENTIVE PLAN
l. Purpose. The purpose of this 1997 Long-Term Stock Incentive Plan (the "Plan")
of Triton Group Ltd., a Delaware corporation, is to advance the interests of the
Company and its stockholders by providing a means to attract, retain, and reward
directors, officers and other key employees and consultants of the Company and
its subsidiaries and to enable such persons to acquire or increase a proprietary
interest in the Company, thereby promoting a closer identity of interests
between such persons and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including Stock
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents,
Non-Employee Directors Options, and Other Stock-Based Awards, are set forth in
Section 6 of the Plan. Such awards, together with any other right or interest
granted to a Participant under the Plan, are termed "Awards." For purposes of
the Plan, the following additional terms shall be defined as set forth below:
"Award Agreement" means any written agreement, contract, or other
instrument or document executed by the Company in connection with or
specifically relating to an Award.
"Beneficiary" shall mean the person, persons, trust, or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under
this Plan upon such Participant's death or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person, persons,
trust, or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
"Affiliate" has the meanings set forth in Rule 12b-2 of the 1934 Act.
"Board" means the Board of Directors of the Company.
"Cause" shall mean Cause as defined in any employment or severance
agreement then in effect between the Participant and the Company or any
subsidiary, or if not defined therein or if there shall be no such agreement,
shall mean: (i) the willful and continued failure by the Participant to
substantially perform his duties for the Company (other than any such failure
resulting from the Participant's incapacity due to physical or mental illness),
(ii) the willful engaging by the Participant
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in misconduct which is materially and financially injurious to the Company, or
(iii) the Participant's conviction of a felony.
"Change in Control" shall be deemed to have occurred upon:
(i) the date of the acquisition by any "person" (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the
Company or any of its subsidiaries or Affiliates, of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of 50% or more
of either the then outstanding shares of common stock of the Company, or
the then outstanding voting securities entitled to vote generally in the
election of directors; or
(ii) the date the individuals who constitute the Board as of the
date of this Agreement (the "Incumbent Board") cease for any reason to
constitute at least a majority of the members of the Board, provided that
any person becoming a director subsequent to the effective date of this
Agreement whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than any individual
whose nomination for election to Board membership was not endorsed by the
Company's management prior to, or at the time of, such individual's
initial nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or
(iii) the consummation of a merger, consolidation, recapitalization,
reorganization, sale or disposition of all or a substantial portion of the
Company's assets, a reverse stock split of outstanding voting securities,
the issuance of shares of stock of the Company in connection with the
acquisition of the stock or assets of another entity, provided, however,
that a Change in Control shall not occur under this clause (iii) if
consummation of the transaction would result in at least 50% of the total
voting power represented by the voting securities of the Company (or, if
not the Company, the entity that succeeds to all or substantially all of
the Company's business) outstanding immediately after such transaction
being beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least 50% of the holders of
outstanding voting securities of the Company immediately prior to the
transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the
transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
"Committee" means the Compensation Committee of the Board, or such other
Board committee as may be designated by the Board to administer the Plan.
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"Common Stock" means the shares of common stock, $.0001 par value per
share, of the Company.
"Company" means Triton Group Ltd., a corporation organized under the laws
of the State of Delaware, and any successor thereto; provided that unless
otherwise provided in this Plan, all references in this Plan to employment by
the Company shall include employment by any subsidiary of the Company, and all
references to termination of employment with the Company shall include the sale
of a subsidiary of the Company by which the Participant was employed.
"Covered Employee" means a person defined as a "covered employee" in
Section 162(m)(3) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time. References to any provision of the Exchange Act shall be deemed to
include rules thereunder and successor provisions and rules thereto.
"Fair Market Value" means, with respect to Stock, Awards, or other
property, (a) if the Stock is listed on a securities exchange or is traded over
the NASDAQ National Market System, the closing sales price of the Stock on such
exchange or over such system on such date or, in the absence of reported sales
on such date, the closing sales price on the immediately preceding date on which
sales were reported, or (b) if the Stock is not listed on a securities exchange
or traded over the NASDAQ National Market System, the mean between the bid and
offered prices of the Stock as quoted by the National Association of Securities
Dealers through NASDAQ for such date, provided, that if the Committee determines
that the fair market value of the Stock is not properly reflected by such NASDAQ
quotations, the "Fair Market Value" of the Stock will mean their fair market
value as determined by such other method as the Committee determines in good
faith to be reasonable.
"ISO" means any Option intended to be and designated as an incentive stock
option within the meaning of Section 422 of the Code.
"Non-Employee Director" shall mean a member of the Board who is neither
(i) employed by the Company or any subsidiary, nor (ii) a member of the Board by
virtue of the fact that such director is employed by or otherwise affiliated
with an entity that is a shareholder of the Company.
"Participant" means a person who, at a time when eligible under Section 5
hereof, has been granted an Award under the Plan.
"Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
"Stock" means the Common Stock and such other securities as may be
substituted for Stock or such other securities pursuant to Section 4.
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3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
Participant;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating
to transferability or forfeiture, exercisability, or settlement of an
Award, and waivers or accelerations thereof, and waivers of or
modifications to performance conditions relating to an Award, based in
each case on such considerations as the Committee shall determine), and
all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Stock, other Awards, or other property, or an Award
may be canceled, forfeited, or surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee, or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
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(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any function
of the Committee under the Plan, including without limitation for the purpose of
ensuring that transactions under the Plan by Participants who are then subject
to Section 16 of the Exchange Act in respect of the Company are exempt under
Rule 16b-3. In any case in which the Board is performing a function of the
Committee under the Plan, each reference to the Committee herein shall be deemed
to refer to the Board.
(b) Manner of Exercise of Committee Authority. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the Company or any subsidiary of the Company the authority,
subject to such terms as the Committee shall determine, to perform
administrative functions and to perform such other functions as the Committee
may determine.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination, or
interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total number of shares of Stock that may
be subject to outstanding Awards under the Plan, determined immediately after
the grant of Awards, may not exceed the greater of 770,000 shares of Stock or
10% of the total number of shares of Stock outstanding (on a fully diluted basis
assuming, if applicable, the conversion of all warrants and convertible
securities into Stock), in the aggregate. Notwithstanding the foregoing, the
number of shares of Stock that may be delivered upon exercise of an ISO shall
not exceed 200,000 shares of Stock under the Plan, provided, however, that
shares subject to ISOs shall not be deemed delivered
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if such ISOs are forfeited, expire or otherwise terminate without delivery of
the Stock to the Participant. If an Award valued by reference to Stock may only
be settled in cash, the number of shares to which such Award relates shall be
deemed to be Stock subject to such Award for purposes of this Section 4(a). Any
shares of Stock delivered pursuant to an Award may consist, in whole or in part,
of authorized and unissued shares or treasury shares.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Options and other Awards under the Plan that may be
settled by delivery of more than 125,000 shares of Stock, subject to adjustment
as provided in Section 4(c). In addition, with respect to Awards that may be
settled in cash (in whole or in part), no Participant may be paid during any
calendar year cash amounts relating to such Awards that exceed the greater of
the Fair Market Value of the number of shares of Stock set forth in the
preceding sentence at the date of grant or the date of settlement of Award. This
provision sets forth two separate limitations, so that awards that may be
settled solely by delivery of Stock will not operate to reduce the amount of
cash-only Awards, and vice versa; nevertheless, Awards that may be settled in
Stock or cash must not exceed either limitation.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Stock such that an adjustment is appropriate
in order to prevent dilution or enlargement of the rights of Participants under
the Plan, then the Committee shall adjust any or all of (i) the number and kind
of shares of Stock reserved and available for Awards under Section 4(a), (ii)
the number and kind of shares of outstanding Restricted Stock or other
outstanding Award in connection with which shares have been issued, (iii) the
number and kind of shares that may be issued in respect of other outstanding
Awards, (iv) the exercise price, grant price, or purchase price relating to any
Award, and (v) the number of shares with respect to which Awards may be granted
or measured in any calendar year, as set forth in Section 4(b).
5. Eligibility. Non-Employee Directors, executive officers and other key
employees of the Company and its subsidiaries (including any director or officer
who is also an employee), and persons who provide consulting or other services
to the Company deemed by the Committee to be of substantial value to the
Company, are eligible to be granted Awards under the Plan. In addition, a person
who has been offered employment by the Company or its subsidiaries is eligible
to be granted an Award under the Plan, provided that such Award shall be
canceled if such person fails to commence such employment, and no payment of
value may be made in connection with such Award until such person has commenced
such employment.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 8(e)),
such additional terms and conditions, not inconsistent with
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the provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as provided in Sections 6(e), 6(g), or 7(a),
or to the extent required to comply with requirements of the Delaware General
Corporation Law that lawful consideration be paid for Stock, only services may
be required as consideration for the grant (but not the exercise) of any Award.
(b) Stock Options. The Committee is authorized to grant options to
purchase shares of Stock ("Options") to Participants (including "reload" Options
automatically granted to offset specified exercises of Options) on the following
terms and conditions:
(i) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee and set
forth in an Award Agreement.
(ii) Time and Method of Exercise. The Committee shall determine and
set forth in an Award Agreement the time or times at which an Option may
be exercised in whole or in part, the methods by which such exercise price
may be paid or deemed to be paid, the form of such payment, including,
without limitation, cash, Stock, other Awards or awards granted under
other Company plans, or other property (including notes or other
contractual obligations of Participants to make payment on a deferred
basis, such as through "cashless exercise" arrangements, to the extent
permitted by applicable law), and the methods by which Stock will be
delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted with an
exercise price less than 100% (110% for an individual described in Section
422(b)(6) of the Code) of the Fair Market Value of a share of Stock on the
date of grant and granted no more than ten years after the effective date
of the Plan. Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to ISOs shall be interpreted, amended, or altered,
nor shall any discretion or authority granted under the Plan be exercised,
so as to disqualify either the Plan or any ISO under Section 422 of the
Code, unless requested by the affected Participant.
(iv) Termination of Employment. Unless otherwise determined by the
Committee and set forth in an Award Agreement, upon termination of a
Participant's employment with the Company and its subsidiaries, such
Participant may exercise any Options during the three month period
following such termination of employment (if such three-month period does
not exceed the remaining term of the Option), but only to the extent such
Option was exercisable immediately prior to such termination of
employment. Notwithstanding the foregoing, if such termination is for
Cause, all Options held by the Participant shall immediately terminate.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
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(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or,
if the Committee shall so determine in the case of any such right other
than one related to an ISO, the Fair Market Value of one share at any time
during a specified period before or after the date of exercise), over (B)
the grant price of the SAR as determined by the Committee as of the date
of grant of the SAR, which, except as provided in Section 7(a), shall be
not less than the Fair Market Value of one share of Stock on the date of
grant.
(ii) Other Terms. The Committee shall determine and set forth in an
Award Agreement the time or times at which an SAR may be exercised in
whole or in part, the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Stock will be
delivered or deemed to be delivered to Participants, whether or not an SAR
shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Limited SARs that may only be exercised upon the
occurrence of a Change in Control may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee may determine.
Limited SARs may be either freestanding or in tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as
the Committee may impose and set forth in an Award Agreement, which
restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, or otherwise, as the Committee
may determine. Except to the extent restricted under the terms of the Plan
and any Award Agreement relating to the Restricted Stock, a Participant
granted Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the
right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee and
set forth in an Award Agreement, upon termination of employment or service
(as determined under criteria established by the Committee) during the
applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by the Company;
provided, however, that the Committee may provide, by rule or regulation
or in any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of termination resulting from
specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates shall bear an
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appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, the Company shall retain physical
possession of the certificate, and the Participant shall have delivered a
stock power to the Company, endorsed in blank, relating to the Restricted
Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or
the payment of such dividends shall be deferred and/or the amount or value
thereof automatically reinvested in additional Restricted Stock, other
Awards, or other investment vehicles, as the Committee shall determine or
permit the Participant to elect. Stock distributed in connection with a
Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or
other property has been distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified in an Award Agreement for an
Award of Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred Stock
shall be subject to such restrictions as the Committee may impose and set
forth in an Award Agreement, if any, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times,
separately or in combination, in installments, or otherwise, as the
Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee and
set forth in an Award Agreement, upon termination of employment or service
(as determined under criteria established by the Committee) during the
applicable deferral period or portion thereof to which forfeiture
conditions apply (as provided in the Award Agreement evidencing the
Deferred Stock), all Deferred Stock that is at that time subject to
deferral (other than a deferral at the election of the Participant) shall
be forfeited; provided, however, that the Committee may provide, by rule
or regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating to
Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements (including the Company's Section 162(m) Cash Bonus Plan). Stock or
Awards granted hereunder shall be subject to such other terms as shall be
determined by the Committee and set forth in an Award Agreement.
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(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Stock,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of shares of Stock. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee may
provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Stock, Awards, or other
investment vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock and factors that may influence
the value of Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee, and Awards valued
by reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine, and set
forth in an Award Agreement, the terms and conditions of such Awards. Stock
issued pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
(i) Non-Employee Directors Options. Each person who is a Non-Employee
Director as of the date of the establishment of this Plan shall receive, without
the exercise of the discretion of any person, a non-qualified Option under the
Plan relating to the purchase of 10,000 shares of Stock. Thereafter, as of the
day after the annual meeting of stockholders of the Company to be held in
calendar years 1998 and 1999, respectively, each person who is a Non-Employee
Director shall receive, without the exercise of the discretion of any person,
additional grants of non-qualified Options under the Plan relating to the
purchase of 10,000 shares of Stock on each such date. In the event that there
are not sufficient shares available under this Plan to allow for the grant to
each Non-Employee Director of Options for the number of shares provided herein,
each Non-Employee Director shall receive an Option for his pro rata share of the
total number of shares of Stock available under the Plan. The exercise price of
each share of Stock subject to an Option granted to a Non-Employee Director
shall equal the Fair Market Value of a share of Stock on the date such Option is
granted. Each such Option granted hereunder shall have a term of ten years from
its grant and shall become exercisable as to one-third of the shares on each of
the first, second and third anniversaries thereof, respectively. Upon a
Non-Employee Director's cessation of service as a Non-Employee Director, the
Option, to the extent it was exercisable upon such cessation, shall remain
exercisable for a period of one year.
7. Certain Provisions Applicable to Awards.
10
<PAGE>
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan or any award granted under any other plan of the Company,
any subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with other
Awards or awards may be granted either as of the same time as or a different
time from the grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee and set forth in an Award Agreement; provided,
however, that in no event shall the term of any ISO or an SAR granted in tandem
therewith exceed a period of ten years from the date of its grant (or such
shorter period as may be applicable under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant or exercise of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise
dispose of equity securities, including derivative securities, acquired
under the Plan without incurring liability under Section 16(b) of the
Exchange Act, equity securities acquired under the Plan must be held for a
period of six months following the date of such acquisition, provided that
this condition shall be satisfied with respect to a derivative security if
at least six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than
upon exercise or conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant who
is then subject to Section 16 of the Exchange Act in respect of the
Company, the Committee shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction by
such a Participant is exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a non-exempt transaction
under the Plan if written notice has been given to the Participant
regarding the non-exempt nature of such transaction. The Committee may
authorize the Company to repurchase any Award or shares of Stock resulting
from any Award in order to prevent a Participant who is subject to Section
16 of the Exchange Act from incurring liability under Section 16(b).
Unless other wise specified by the Participant, equity securities,
including derivative securities, acquired
11
<PAGE>
under the Plan which are disposed of by a Participant shall be deemed to
be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and conditions, if any, under which the
loan or loans may be forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(f) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(f). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria used by the Committee in establishing performance
objectives for Awards subject to this Section 7(f) shall be selected from among
the following:
(1) Annual return on capital;
(2) Annual earnings or earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or more
objectives based on meeting specified revenue, market
penetration, geographic business expansion goals, cost
targets, and goals relating to acquisitions or divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to
12
<PAGE>
different Participants. The Committee shall specify the weighting to be given to
each performance objective for purposes of determining the final amount payable
with respect to any such Award. The Committee may, in its discretion, reduce the
amount of a payout otherwise to be made in connection with an Award subject to
this Section 7(f), but may not exercise discretion to increase such amount, and
the Committee may consider other performance criteria in exercising such
discretion. All determinations by the Committee as to the achievement of
performance objectives shall be in writing. The Committee may not delegate any
responsibility with respect to an Award subject to this Section 7(f).
(g) Acceleration upon a Change of Control. Notwithstanding anything
contained herein to the contrary, unless otherwise provided by the Committee in
an Award Agreement, all conditions and/or restrictions relating to the continued
performance of services and/or the achievement of performance objectives with
respect to the exercisability or full enjoyment of an Award shall immediately
lapse upon a Change in Control, provided, that this Section 7(g) shall not be
applicable if it is intended that the transaction constituting such Change in
Control be accounted for as a pooling of interests under Accounting Principles
Board Option No. 16 (or any successor thereto), and operation of this Section
7(g) would otherwise violate Paragraph 47(c) thereof.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be obligated
to issue or deliver Stock in connection with any Award or take any other action
under the Plan in a transaction subject to the registration requirements of the
Securities Act of 1933, as amended, or any other federal or state securities
law, any requirement under any listing agreement between the Company and any
national securities exchange or automated quotation system, or any other law,
regulation, or contractual obligation of the Company, until the Company is
satisfied that such laws, regulations, and other obligations of the Company have
been complied with in full. Certificates representing shares of Stock issued
under the Plan will be subject to such stop-transfer orders and other
restrictions as may be applicable under such laws, regulations, and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
however, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
13
<PAGE>
(c) No Right to Continued Employment. Neither the Plan nor any action taken
hereunder shall be construed as giving any employee the right to be retained in
the employ of the Company or any of its subsidiaries, nor shall it interfere in
any way with the right of the Company or any of its subsidiaries to terminate
any employee's employment at any time.
(d) Taxes. The Company and any subsidiary is authorized to withhold from any
Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award, or any payroll or other payment
to a Participant amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations;
in such case, the shares withheld shall be deemed to have been delivered for
purposes of Section 4(a).
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to
him. The Committee may waive any conditions or rights under, or amend, alter,
suspend, discontinue, or terminate, any Award theretofore granted and any Award
Agreement relating thereto; provided, however, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under such Award.
(f) No Rights to Awards; No Stockholder Rights. No Participant or employee
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants and employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a
14
<PAGE>
general creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Stock, other Awards, or
other property pursuant to any Award, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options granted with an exercise price per share at least equal to the Fair
Market Value of the Stock on the date the Option is granted , SARs, and other
Awards designated as Awards subject to Section 7(f) shall constitute "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. Accordingly, if any provision of the Plan or any Award
Agreement relating to such an Award does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise
payable in connection with any such Award upon attainment of the performance
objectives.
(k) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the Delaware General Corporation Law, without
giving effect to principles of conflicts of laws, and applicable federal law.
(l) Effective Date; Plan Termination. The Plan shall become effective as of
the date of its adoption by the Company's stockholders, immediately following
consummation of the Company's business combination with Security Systems
Holdings, Inc.
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action"), or
if such persons acted in good faith in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise.
Triton's Amended and Restated Certificate of Incorporation requires that
Triton provide for indemnification of directors, officers, employees and agents
(each an "Indemnified Party") of Triton to the fullest extent permitted by
Delaware law. Triton will indemnify any Indemnified Party who is, or is
threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in right of such corporation), by
reason of the fact that such person is or was a director or officer of Triton or
was serving at the request of Triton as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal proceeding, had no reasonable cause to believe
that his or her conduct was unlawful. Delaware law further provides for the
indemnification of directors and officers in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the director or officer is adjudged to be
liable to the corporation. Expenses incurred by an officer or director may be
paid by Triton in advance of the final disposition of an action, suit or
proceeding upon the undertaking of such person to repay Triton any amount for
which it is ultimately determined that he or she is not entitled to receive
indemnity.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits, as required by Item 601 of Regulation S-K, are
filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.01 Second Amended Joint Plan of Reorganization of Intermark, Inc., Triton Group Ltd., the Official Intermark
Committee of Unsecured Creditors and the Official Triton Committee of Unsecured Creditors (as modified)
dated as of June 4, 1993, incorporated herein by reference to File No. 1-8592 from Exhibit 2 to
Intermark's Interim Report on Form 8-K dated July 12, 1993.
2.02 Agreement and Plan of Merger by and between Triton and Intermark, dated as of June 25, 1993, incorporated
herein by reference to File No. 1-8592, Amendment No. 1 to Registration Statement on Form 10/A filed
September 10, 1993.
2.03 Agreement and Plan of Merger, dated December 23, 1996, among Triton Group Ltd., Triton Acquisition Corp.
and Security Systems Holdings, Inc. (restated to reflect Amendment No. 1 to Agreement and Plan of Merger
dated as of March 6, 1997) (included as Appendix A to the Proxy Statement/Prospectus that is part of this
Registration Statement).
3.01 Amended and Restated Certificate of Incorporation of Triton Group Ltd., incorporated herein by reference
to File No.1-8592, Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
3.02 Amended and Restated By-Laws of Triton Group Ltd., incorporated herein by reference to File No. 1-8592,
Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
3.03 Form of Second Amended and Restated Certificate of Incorporation of Triton Group Ltd. (included as
Appendix D-1 to the Proxy Statement/Prospectus that is part of this Registration Statement).
3.04 Form of Second Amended and Restated By-Laws of Triton Group Ltd. (included as Appendix D-2 to the Proxy
Statement/Prospectus that is part of this Registration Statement).
3.05 Restated Certificate of Incorporation of Security Systems Holdings, Inc., as amended.
3.06 By-Laws of Security Systems Holdings, Inc.
3.07 Form of Second Restated and Amended Certificate of Incorporation of Security Systems Holdings, Inc.
3.08 Form of Second Restated and Amended By-Laws of Security Systems Holdings, Inc.
4.01 Warrant Agreement and Form of Warrant, incorporated herein by reference to file No. 1-8592, Exhibit 4 to
Intermark's Interim Report on Form 8-K dated July 12, 1993.
4.02 Interim Rights Agreement between Triton Group Ltd. and First Interstate Bank of California, incorporated
herein by reference to File No. 0-8138, Interim Report on Form 8-K, filed April 5, 1995.
4.03 Warrant Agreement executed by Triton in favor of Patricof & Co. Capital Corp., dated January 1, 1996,
incorporated herein by reference to file No. 0-8138, Annual Report on Form 10-K for the year ended March
31, 1996.
4.04 Form of Triton Group Ltd. Common Stock Certficate.
4.05 Form of Triton Group Ltd. Warrant Certificate.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.06 Form of Registration Rights Agreement, among Triton Group Ltd. and certain stockholders of Triton Group
Ltd. and Security Systems Holdings, Inc.
5.01 Legal opinion of Latham & Watkins.
8.01 Opinion of Ernst & Young LLP with respect to certain tax matters.
10.01 Loan Agreement executed by Liquor Barn in favor of Intermark dated November 27, 1991 and amendments
thereto dated January 1, 1992 and May 1, 1992, incorporated herein by reference to File No. 1-8592,
Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
10.02 1993 Non-Employee Directors' Stock Option Plan, incorporated herein by reference to File No. 1-8592,
Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
10.03 Amended and Restated Promissory Note between Triton Group Ltd. and Security Pacific Business Credit,
Inc., dated July 1, 1993, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K
for the year ended March 31, 1994.
10.04 Amended and Restated Pledge Agreement between Triton Group Ltd. and Security Pacific Business Credit,
Inc., dated July 1, 1993, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K
for the year ended March 31, 1994.
10.05 Assumption and Guarantor Agreement between Triton Group Ltd. and Security Pacific Business Credit, Inc.,
dated July 1, 1993, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K for
the year ended March 31, 1994.
10.06 Amended and Restated Post Employment Agreement between Triton Group Ltd. and John C. Stiska dated March
22, 1995, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K for the year
ended March 31, 1995.
10.07 Amended and Restated Post Employment Agreement between Triton Group Ltd. and Michael M. Earley dated
March 22, 1995, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K for the
year ended March 31, 1995.
10.08 Amended and Restated Post Employment Agreement between Triton Group Ltd. and Mark G. Foletta dated March
22, 1995, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K for the year
ended March 31, 1995.
10.09 Stock Purchase Agreement between Ridgewood Properties, Inc. and Triton Group Ltd., dated August 15, 1994,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 8-K/A, filed September 2,
1994.
10.10 Agreement and Plan of Merger by and among First Aviation Services Inc., FE Acquisition Subsidiary, Triton
Group Ltd. and National Airmotive Corporation, dated March 3, 1995, incorporated herein by reference to
File No. 0-8138, Amendment No. 1 to Interim Report on Form 8-K/A, filed June 16, 1995.
10.11 Amendment No. 1 to Agreement and Plan of Merger, by and among First Aviation Services Inc., FE
Acquisition Subsidiary, Triton Group Ltd. and National Airmotive Corporation, dated June 2, 1995,
incorporated herein by reference to File No. 0-8138, Amendment No. 1 to Interim Report on Form 8-K/A,
filed June 16, 1995.
10.12 Letter Agreement dated October 12, 1995 between Triton Group Ltd. and The Actava Group Inc., incorporated
herein by reference to File No. 0-8138, Interim Report on Form 8-K, filed November 2, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Stock Purchase Agreement dated September 27, 1995 between Marubeni America Corporation and Triton Group
Ltd., incorporated herein by reference to File No. 0-8138, Interim Report on Form 8-K, filed November 13,
1995.
10.14 First Amendment to Stock Purchase Agreement between Marubeni America Corporation and Triton Group Ltd.,
dated October 31, 1995, incorporated herein by reference to file No. 0-8138, Annual Report on Form 10-K
for the year ended March 31, 1996.
10.15 Option Forbearance Agreement between John C. Stiska and Triton Group Ltd., dated November 1, 1995,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed February 13,
1996.
10.16 Option Forbearance Agreement between Michael M. Earley and Triton Group Ltd., dated November 1, 1995,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed February 13,
1996.
10.17 Option Forbearance Agreement between Mark G. Foletta and Triton Group Ltd., dated November 1, 1995,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed February 13,
1996.
10.18 Option Forbearance Agreement between Richard R. Tartre and Triton Group Ltd., dated November 1, 1995,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed February 13,
1996.
10.19 Option Forbearance Agreement between Michael E. Cahr and Triton Group Ltd., dated November 1, 1995,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed February 13,
1996.
10.20 Form of Severance Agreement, among Triton Group Ltd., Security Systems Holdings, Inc. and Russell R.
MacDonnell.
10.21 Form of Severance Agreement, among Triton Group Ltd., Security Systems Holdings, Inc. and David
Heidecorn.
10.22 Form of Severance Agreement, among Triton Group Ltd., Security Systems Holdings, Inc. and Gregory J.
Westhoff.
10.23 Form of Management Agreement, between Triton Group Ltd. and Triton Group Management, Inc.
10.24 Commitment Letter, dated October 31, 1996, between Bank of Boston Connecticut and Alarmguard, Inc.
(restated to reflect the letter agreement between Bank of Boston Connecticut and Alarmguard, Inc. dated
March 5, 1997).
10.25 Form of 1997 Triton Group Ltd. Long-Term Stock Incentive Plan (included as Appendix E to the Proxy
Statement/Prospectus that is part of this Registration Statement).
10.26 Stock Purchase Agreement, dated December 20, 1996, between Security Systems Holdings, Inc. and Protective
Alarms, Inc. (restated to reflect the Amendment to Stock Purchase and Sale Agreement dated as of February
28, 1997).
10.27 Form of Stock Option and Conversion Agreement, among Triton Group Ltd., Security Systems Holdings, Inc.
and certain stockholders of Security Systems Holdings Inc.
10.28 Form of Affiliate Agreement, among Triton Group Ltd. and certain affiliates of Security Systems Holdings,
Inc.
10.29 Lock-up Agreement, dated December 23, 1996, among Triton Group Ltd., Security Systems
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
Holdings, Inc. and certain stockholders of Security Systems Holdings, Inc.
<C> <S>
10.30 Security Systems Holdings, Inc., Senior Subordinated Bridge Note Due June 1997.
11.01 Computation of Earnings per Share, incorporated herein by reference to File No. 0-8138, Annual Report on
Form 10-K for the year ended March 31, 1996.
21.01 Listing of Subsidiaries of Triton Group Ltd., incorporated herein by reference to File No. 0-8138, Annual
Report on Form 10-K for the year ended March 31, 1996.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Ernst & Young LLP.
23.03 Consent of Ernst & Young LLP (contained in its opinion filed as Exhibit 8.01).
23.04 Consent of Patricof & Co. Capital Corp.
23.05 Consent of Latham & Watkins (contained in its opinion filed as Exhibit 5.01)
23.06 Consent of Russell R. MacDonnell pursuant to Rule 438 under the Securities Act.
23.07 Consent of David Heidecorn pursuant to Rule 438 under the Securities Act.
23.08 Consent of Stephen L. Green pursuant to Rule 438 under the Securities Act.
23.09 Consent of Stuart L. Bell pursuant to Rule 438 under the Securities Act.
23.10 Consent of Thomas W. Janes pursuant to Rule 438 under the Securities Act.
23.11 Consent of Price Waterhouse LLP.
23.12 Consent of Price Waterhouse LLP.
24.01 Power of Attorney (contained on signature page).
99.01 Form of Triton Group Ltd. proxy card.
</TABLE>
All other exhibits have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
exhibit, or because the information required is included in the consolidated
financial statements or the notes thereto.
(b) Financial Statement Schedules:
None required.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(I) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no
II-5
<PAGE>
more than 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
PROVIDED, HOWEVER, that the undertakings set forth in paragraphs (1)(I) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the Registrant pursuant to Section
13 or 15(d) of the Exchange Act that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (I) that is filed pursuant
to the immediately preceding paragraph; or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that for the purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This incudes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
II-6
<PAGE>
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California on March 14, 1997.
TRITON GROUP LTD.
By: /s/ MICHAEL M. EARLEY
-----------------------------------------
Name: Michael M. Earley
Title: President & CEO
POWER OF ATTORNEY
Each person whose signature appears below appoints Michael M. Earley and
Mark G. Foletta, either of whom may act without the joinder of the other, as his
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any registration statement for the same
offering pursuant to Rule 462 under the Securities Act of 1933, and to file the
same, with all exhibits thereto and all other 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, 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 Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
/s/ MICHAEL M. EARLEY Officer and Director
- ------------------------------ (Principal Executive March 13, 1997
Michael M. Earley Officer)
Senior Vice President,
Chief Financial Officer
/s/ MARK G. FOLETTA and Director (Principal
- ------------------------------ Financial Officer and March 13, 1997
Mark G. Foletta Principal Accounting
Officer)
/s/ MICHAEL E. CAHR Director
- ------------------------------ March 13, 1997
Michael E. Cahr
/s/ RICHARD R. TARTRE Director
- ------------------------------ March 13, 1997
Richard R. Tartre
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
2.01 Second Amended Joint Plan of Reorganization of Intermark, Inc., Triton Group Ltd., the Official
Intermark Committee of Unsecured Creditors and the Official Triton Committee of Unsecured
Creditors (as modified) dated as of June 4, 1993, incorporated herein by reference to File No.
1-8592 from Exhibit 2 to Intermark's Interim Report on Form 8-K dated July 12, 1993.
2.02 Agreement and Plan of Merger by and between Triton and Intermark, dated as of June 25, 1993,
incorporated herein by reference to File No. 1-8592, Amendment No. 1 to Registration Statement on
Form 10/A filed September 10, 1993.
2.03 Agreement and Plan of Merger, dated December 23, 1996, among Triton Group Ltd., Triton Acquisition
Corp. and Security Systems Holdings, Inc. (restated to reflect Amendment No. 1 to Agreement and
Plan of Merger dated as of March 6, 1997) (included as Appendix A to the Proxy
Statement/Prospectus that is part of this Registration Statement).
3.01 Amended and Restated Certificate of Incorporation of Triton Group Ltd., incorporated herein by
reference to File No.1-8592, Amendment No. 1 to Registration Statement on Form 10/A filed
September 10, 1993.
3.02 Amended and Restated By-Laws of Triton Group Ltd., incorporated herein by reference to File No.
1-8592, Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
3.03 Form of Second Amended and Restated Certificate of Incorporation of Triton Group Ltd. (included as
Appendix D-1 to the Proxy Statement/Prospectus that is part of this Registration Statement).
3.04 Form of Second Amended and Restated By-Laws of Triton Group Ltd. (included as Appendix D-2 to the
Proxy Statement/Prospectus that is part of this Registration Statement).
3.05 Restated Certificate of Incorporation of Security Systems Holdings, Inc., as amended.
3.06 By-Laws of Security Systems Holdings, Inc.
3.07 Form of Second Restated and Amended Certificate of Incorporation of Security Systems Holdings,
Inc.
3.08 Form of Second Restated and Amended By-Laws of Security Systems Holdings, Inc.
4.01 Warrant Agreement and Form of Warrant, incorporated herein by reference to file No. 1-8592,
Exhibit 4 to Intermark's Interim Report on Form 8-K dated July 12, 1993.
4.02 Interim Rights Agreement between Triton Group Ltd. and First Interstate Bank of California,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 8-K, filed April 5,
1995.
4.03 Warrant Agreement executed by Triton in favor of Patricof & Co. Capital Corp., dated January 1,
1996, incorporated herein by reference to file No. 0-8138, Annual Report on Form 10-K for the year
ended March 31, 1996.
4.04 Form of Triton Group Ltd. Common Stock Certficate.
4.05 Form of Triton Group Ltd. Warrant Certificate.
4.06 Form of Registration Rights Agreement, among Triton Group Ltd. and certain stockholders of Triton
Group Ltd. and Security Systems Holdings, Inc.
5.01 Legal opinion of Latham & Watkins.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
8.01 Opinion of Ernst & Young LLP with respect to certain tax matters.
10.01 Loan Agreement executed by Liquor Barn in favor of Intermark dated November 27, 1991 and
amendments thereto dated January 1, 1992 and May 1, 1992, incorporated herein by reference to File
No. 1-8592, Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
10.02 1993 Non-Employee Directors' Stock Option Plan, incorporated herein by reference to File No.
1-8592, Amendment No. 1 to Registration Statement on Form 10/A filed September 10, 1993.
10.03 Amended and Restated Promissory Note between Triton Group Ltd. and Security Pacific Business
Credit, Inc., dated July 1, 1993, incorporated herein by reference to File No. 0-8138, Annual
Report on Form 10-K for the year ended March 31, 1994.
10.04 Amended and Restated Pledge Agreement between Triton Group Ltd. and Security Pacific Business
Credit, Inc., dated July 1, 1993, incorporated herein by reference to File No. 0-8138, Annual
Report on Form 10-K for the year ended March 31, 1994.
10.05 Assumption and Guarantor Agreement between Triton Group Ltd. and Security Pacific Business Credit,
Inc., dated July 1, 1993, incorporated herein by reference to File No. 0-8138, Annual Report on
Form 10-K for the year ended March 31, 1994.
10.06 Amended and Restated Post Employment Agreement between Triton Group Ltd. and John C. Stiska dated
March 22, 1995, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K
for the year ended March 31, 1995.
10.07 Amended and Restated Post Employment Agreement between Triton Group Ltd. and Michael M. Earley
dated March 22, 1995, incorporated herein by reference to File No. 0-8138, Annual Report on Form
10-K for the year ended March 31, 1995.
10.08 Amended and Restated Post Employment Agreement between Triton Group Ltd. and Mark G. Foletta dated
March 22, 1995, incorporated herein by reference to File No. 0-8138, Annual Report on Form 10-K
for the year ended March 31, 1995.
10.09 Stock Purchase Agreement between Ridgewood Properties, Inc. and Triton Group Ltd., dated August
15, 1994, incorporated herein by reference to File No. 0-8138, Interim Report on Form 8-K/A, filed
September 2, 1994.
10.10 Agreement and Plan of Merger by and among First Aviation Services Inc., FE Acquisition Subsidiary,
Triton Group Ltd. and National Airmotive Corporation, dated March 3, 1995, incorporated herein by
reference to File No. 0-8138, Amendment No. 1 to Interim Report on Form 8-K/A, filed June 16,
1995.
10.11 Amendment No. 1 to Agreement and Plan of Merger, by and among First Aviation Services Inc., FE
Acquisition Subsidiary, Triton Group Ltd. and National Airmotive Corporation, dated June 2, 1995,
incorporated herein by reference to File No. 0-8138, Amendment No. 1 to Interim Report on Form
8-K/A, filed June 16, 1995.
10.12 Letter Agreement dated October 12, 1995 between Triton Group Ltd. and The Actava Group Inc.,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 8-K, filed November 2,
1995.
10.13 Stock Purchase Agreement dated September 27, 1995 between Marubeni America Corporation and Triton
Group Ltd., incorporated herein by reference to File No. 0-8138, Interim Report on Form 8-K, filed
November 13, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
10.14 First Amendment to Stock Purchase Agreement between Marubeni America Corporation and Triton Group
Ltd., dated October 31, 1995, incorporated herein by reference to file No. 0-8138, Annual Report
on Form 10-K for the year ended March 31, 1996.
10.15 Option Forbearance Agreement between John C. Stiska and Triton Group Ltd., dated November 1, 1995,
incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed February
13, 1996.
10.16 Option Forbearance Agreement between Michael M. Earley and Triton Group Ltd., dated November 1,
1995, incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed
February 13, 1996.
10.17 Option Forbearance Agreement between Mark G. Foletta and Triton Group Ltd., dated November 1,
1995, incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed
February 13, 1996.
10.18 Option Forbearance Agreement between Richard R. Tartre and Triton Group Ltd., dated November 1,
1995, incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed
February 13, 1996.
10.19 Option Forbearance Agreement between Michael E. Cahr and Triton Group Ltd., dated November 1,
1995, incorporated herein by reference to File No. 0-8138, Interim Report on Form 10-Q, filed
February 13, 1996.
10.20 Form of Severance Agreement, among Triton Group Ltd., Security Systems Holdings, Inc. and Russell
R. MacDonnell.
10.21 Form of Severance Agreement, among Triton Group Ltd., Security Systems Holdings, Inc. and David
Heidecorn.
10.22 Form of Severance Agreement, among Triton Group Ltd., Security Systems Holdings, Inc. and Gregory
J. Westhoff.
10.23 Form of Management Agreement, between Triton Group Ltd. and Triton Group Management, Inc.
10.24 Commitment Letter, dated October 31, 1996, between Bank of Boston Connecticut and Alarmguard, Inc.
(restated to reflect the letter agreement between Bank of Boston Connecticut and Alarmguard, Inc.
dated March 5, 1997).
10.25 Form of 1997 Triton Group Ltd. Long-Term Stock Incentive Plan (included as Appendix E to the Proxy
Statement/Prospectus that is part of this Registration Statement).
10.26 Stock Purchase Agreement, dated December 20, 1996, between Security Systems Holdings, Inc. and
Protective Alarms, Inc. (restated to reflect the Amendment to Stock Purchase and Sale Agreement
dated as of February 28, 1997).
10.27 Form of Stock Option and Conversion Agreement, among Triton Group Ltd., Security Systems Holdings,
Inc. and certain stockholders of Security Systems Holdings Inc.
10.28 Form of Affiliate Agreement, among Triton Group Ltd. and certain affiliates of Security Systems
Holdings, Inc.
10.29 Lock-up Agreement, dated December 23, 1996, among Triton Group Ltd., Security Systems Holdings,
Inc. and certain stockholders of Security Systems Holdings, Inc.
10.30 Security Systems Holdings, Inc., Senior Subordinated Bridge Note Due June 1997.
11.01 Computation of Earnings per Share, incorporated herein by reference to File No. 0-8138, Annual
Report on Form 10-K for the year ended March 31, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
21.01 Listing of Subsidiaries of Triton Group Ltd., incorporated herein by reference to File No. 0-8138,
Annual Report on Form 10-K for the year ended March 31, 1996.
23.01 Consent of Ernst & Young LLP.
23.02 Consent of Ernst & Young LLP.
23.03 Consent of Ernst & Young LLP (contained in its opinion filed as Exhibit 8.01).
23.04 Consent of Patricof & Co. Capital Corp.
23.05 Consent of Latham & Watkins (contained in its opinion filed as Exhibit 5.01)
23.06 Consent of Russell R. MacDonnell pursuant to Rule 438 under the Securities Act.
23.07 Consent of David Heidecorn pursuant to Rule 438 under the Securities Act.
23.08 Consent of Stephen L. Green pursuant to Rule 438 under the Securities Act.
23.09 Consent of Stuart L. Bell pursuant to Rule 438 under the Securities Act.
23.10 Consent of Thomas W. Janes pursuant to Rule 438 under the Securities Act.
23.11 Consent of Price Waterhouse LLP.
23.12 Consent of Price Waterhouse LLP.
24.01 Power of Attorney (contained on signature page).
99.01 Form of Triton Group Ltd. proxy card.
</TABLE>
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
SECURITY SYSTEMS HOLDINGS, INC.
Security Systems Holdings, Inc., a Delaware corporation, hereby certifies
as follows:
FIRST. The name of the Corporation is Security Systems Holdings, Inc. The
name under which it was originally incorporated was Security Systems Holdings
Inc. The date of filing of its original Certificate of Incorporation with the
Secretary of State was December 4, 1991.
SECOND. This Restated Certificate of Incorporation amends, restates and
integrates the provisions of the Certificate of Incorporation of said
Corporation and has been duly adopted by the Corporation's Board of Directors in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, and written consent of the holders of
a majority of the outstanding stock entitled to vote thereon adopting this
Restated Certificate of Incorporation, and written notice thereof, have been
given in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD. The text of the Certificate of Incorporation is hereby amended and
restated to read herein as set forth in full:
ARTICLE I
The name of the Corporation is Security Systems Holdings, Inc.
ARTICLE II
The address of the Corporation's registered office is Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
<PAGE>
ARTICLE IV
The Corporation shall be authorized to issue Two Hundred Ninety-Five
Thousand (295,000) shares of capital stock, which shall be divided into One
Hundred Seventy-Two Thousand Five Hundred (172,500) shares of Common Stock,
$1.00 par value per share (the "Common Stock"), Fifty Thousand (50,000) shares
of Series A Preferred Stock, $100.00 par value per share (the "Series A
Preferred Stock") and Seventy-Two Thousand Five Hundred (72,500) shares of
Series B Preferred Stock, $120.00 par value per share (the "Series B Preferred
Stock") (the Series A Preferred Stock and the Series B Preferred Stock being
referred to collectively as the "Preferred Stock").
The following is a statement of the rights, preferences and privileges of
the authorized capital stock of the Corporation:
A. PREFERRED STOCK
1. Series of Preferred Stock. The Preferred Stock shall be issued in two Series,
Series A Preferred Stock and Series B Preferred Stock. Except for the par value
per share of shares issued in each such Series, all shares of the Preferred
Stock shall have and enjoy all of the same rights, preferences and privileges,
and shall, for all purposes, be and act as a single class of shares.
2. Voting.
(a) Except as set forth in Section C of this ARTICLE IV, the shares of
Preferred Stock shall be voted equally with the shares of the Corporation's
Common Stock at any annual or special meeting of shareholders of the Corporation
or may act by written consent in the same manner as the Corporation's Common
Stock upon the following basis: Each holder of shares of the Preferred Stock
shall be entitled to one vote for each share of Preferred Stock and to a total
number of votes as shall be equal to the whole number of shares of the Preferred
Stock held by such shareholder on the record date fixed for such meeting or the
effective date of such written consent.
(b) In addition, so long as any Preferred Stock shall remain outstanding,
the Corporation shall not effect or validate any one or more of the following
without the written consent or the affirmative vote, as a separate class, given
in person or by proxy at any meeting called for the purpose of the holders of at
least sixty-six and seven-tenths percent (66.7%) of the outstanding shares of
the Preferred Stock, as of the record date fixed for such meeting or the
effective date of such consent:
2
<PAGE>
(i) The sale, transfer, lease or other disposition or encumbrance,
directly or through any subsidiary, of the property or assets of the
Corporation, or any subsidiary of the Corporation except in the ordinary course
of business and except as security for debt incurred in the acquisition of
businesses and assets for the benefit of the Company;
(ii) Consolidate or merge the Corporation or engage in any other
transaction in which control of the Corporation is transferred;
(iii) Authorize or issue or obligate itself to issue any series or
class of preferred stock in addition to the shares now authorized or of any
other class of stock ranking prior to or on a parity with the Preferred Stock
with respect to either the payment of dividends or the distribution of assets
upon liquidation or of any securities convertible into Preferred Stock or any
such shares ranking prior thereto or on a parity therewith;
(iv) The Amendment of the Certificate of Incorporation or Bylaws of
the Corporation so as to affect adversely any of the preferences or other rights
of the holders of Preferred Stock;
(v) Incur, create or assume any indebtedness that will cause the
Corporation's and its subsidiaries' total indebtedness to exceed a debt to
equity ratio of 3 to 1 at any time, determined on a consolidated basis;
(vi) Declare or pay any dividends to or return any capital to or
make any distribution of assets to the holders of any shares of the
Corporation's capital stock, as such, other than the Preferred Stock or permit
any subsidiary to do any of the foregoing;
(vii) Purchase, redeem, retire, or otherwise acquire for value any
shares of the Corporation's capital stock other than the Preferred Stock;
(viii) Notwithstanding the foregoing, subsidiaries of the
Corporation may declare and make payment of cash and stock dividends, return
capital and make distributions of assets to the Corporation, and nothing
herein contained shall prevent the Corporations from:
(A) effecting a stock split or declaring or paying any
dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; or
(B) complying with any specific provision of the terms of the
Preferred Stock (including, without limitation, provisions relating to the
liquidation preference, cumulative dividends or redemption right of the
Preferred Stock); or
(ix) Liquidate, dissolve, recapitalize or wind-up the Corporation.
3
<PAGE>
3. Dividends.
(a) The holders of the outstanding shares of Preferred Stock shall be
entitled to receive, out of any funds legally available therefor, dividends
accumulated, but not compounded, at a rate of five percent (5 %) per annum on
the par value of each share. Dividends on the Preferred Stock shall accrue on a
daily basis from the date of original issuance of such share until paid.
Dividends shall be paid:
(i) if, as and when declared by the Board of Directors of the
Corporation;
(ii) upon liquidation, dissolution or winding up of the Corporation;
(iii) upon the closing of a Public Offering (defined herein); and
(iv) upon redemption.
(b) Dividends on the Preferred Stock shall be subject to equitable
adjustment in the event of any stock dividend, stock split, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of the Preferred Stock.
(c) Dividends on the Preferred Stock shall have a preference over and be
paid before dividends are paid on the Common Stock of the Corporation so that if
dividends on the Preferred Stock, in respect of any previous or current annual
period, shall not have been paid in full or declared and a sum sufficient for
the full payment thereof is set apart, such accrued but unpaid dividends on the
Preferred Stock shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Common Stock.
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of any
other class or series of capital stock of the Corporation, the holders of
each share of Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings ("Available Assets"), an amount equal to the par value of
each share of Preferred Stock outstanding (the "Preferred Stock Price"), plus
all accrued but unpaid dividends thereon, whether or not declared, up to and
including the date full payment shall be tendered to the holders of the
Preferred Stock.
(b) If, upon liquidation, dissolution or winding up of the Corporation,
the Available Assets shall be insufficient to pay the holders of Preferred Stock
the full amount to which they otherwise would be entitled, the holders of
Preferred Stock shall share ratably in any distribution of Available Assets pro
rata in proportion to the respective liquidation preference amounts to which
they would otherwise be entitled upon liquidation if all liquidation
4
<PAGE>
preference amounts owing to the holders of Preferred Stock were paid in full.
(c) The amounts set forth above in Sections 3(a) and (b) shall be subject
to equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of the Preferred
Stock.
(d) A capital reorganization of the Preferred Stock or Common Stock of
the Corporation or a merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the
Corporation's capital stock or assets to any other person or entity, or any
other form of business combination or reorganization in which control of the
Corporation is transferred shall be regarded as a liquidation, dissolution or
winding up of the Corporation ("Liquidating Event"). The provisions of this
Section 3(d) notwithstanding any reorganization, merger or consolidation
involving (i) only a change in the state of incorporation of the Corporation,
(ii) a merger of the Corporation with or into a wholly-owned subsidiary of
the Corporation, (iii) an acquisition by merger, reorganization or
consolidation, of which the Corporation is substantively the surviving
corporation and operates as a going concern, of another corporation
incorporated in the United States of America that is engaged in a business
complementary with or similar or related to the business of the Corporation
and which does not involve a recapitalization or reorganization of the
Preferred Stock shall not be regarded as a Liquidating Event.
(e) Whenever the distribution provided for in this Section 3 shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the Corporation. In the event of any dispute between the holders of
the Preferred Stock and the Board of Directors regarding the fair market value
of non-cash distributions, at the election of the holders of a majority of the
outstanding shares of Preferred Stock, the Corporation shall engage a consulting
or investment banking firm selected by the Board of Directors and approved by
the holders of a majority of the outstanding shares of Preferred Stock to
prepare an independent appraisal of the fair market value of such property to be
distributed. The expenses of any appraisal by such consulting or investment
banking firm shall be borne by the Corporation.
5. Public Offering.
(a) Upon the closing of a Public Offering on a firm commitment or best
efforts basis pursuant to an effective registration statement filed pursuant
to the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation (a "Public Offering"), and
before any distribution or payment is made out of the net proceeds of the
Public Offering available for distribution to the Corporation and/or holders
of the Corporation's capital stock ("Available Net Proceeds"), an amount
equal to the Preferred Stock Price, plus all accrued but unpaid dividends
thereon, whether or not declared, up to and including the date full payment
is made to the holders of the Preferred Stock from the Available Net Proceeds.
5
<PAGE>
(b) If, upon the closing of a Public Offering, the Available Net Proceeds
shall be insufficient to pay the holders of Preferred Stock the full amount to
which they otherwise would be entitled, the holders of Preferred Stock shall
share ratably in any distribution of Available Net Proceeds pro rata in
proportion to the respective preference amounts to which they would otherwise be
entitled upon the closing of a Public Offering if all liquidation amounts owing
to the holders of Preferred Stock were paid in full. Available Net Proceeds
shall be first applied to pay accrued but unpaid dividends, then to repurchases
of shares of Preferred Stock at the Preferred Stock Price.
6. Redemption Rights.
(a) Unless the Preferred Stock has already been redeemed, the Corporation
shall redeem the outstanding shares of Preferred Stock as follows:
(i) On September 30, 1996 (the "First Redemption Date"), the
Corporation shall redeem 25% of the outstanding shares of Preferred Stock at the
Preferred Stock Redemption Price (defined herein).
(ii) On December 31, 1996 (the "Second Redemption Date"), the
Corporation shall redeem 25% of the outstanding shares of Preferred Stock at the
Preferred Stock Redemption Price.
(iii) On March 31,1997 (the "Third Redemption Date"), the
Corporation shall redeem 25% of the outstanding shares of Preferred Stock at the
Preferred Stock Redemption Price.
(iv) On June 30,1997 (the "Fourth Redemption Date") the Corporation
shall redeem the remaining 25% of the outstanding shares of Preferred Stock at
the Preferred Stock Redemption Price.
(v) The First Redemption Date, the Second Redemption Date, the
Third Redemption Date and the Fourth Redemption Date are referred to herein
individually as a "Redemption Date", and collectively as the "Redemption
Dates." The Corporation shall make each installment payment for shares of
Preferred Stock to be redeemed on a Redemption Date (an "Installment") out of
legally available funds therefor on the dates that such shares of Preferred
Stock are redeemed.
(vi) The redemption price for each share of Preferred Stock redeemed
pursuant to this Section 5 shall be the par value per share plus all accrued and
unpaid dividends thereon, whether or not declared, on such shares up to and
including the date fixed for redemption (the "Preferred Stock Redemption
Price").
(b) In addition to all rights conferred above with respect to the
redemption of the Preferred Stock, the holders of a majority of the outstanding
shares of Preferred Stock, voting
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as a class, shall have the following rights with respect to the redemption of
the Preferred Stock upon the occurrence of an Event of Noncompliance (defined
herein):
(i) An "Event of Noncompliance" shall mean one or more of the
following:
(A) the Corporation fails to make any liquidation payment with
respect to the Preferred Stock which it is obligated to make hereunder; or
(B) any representation, warranty or certification made by the
Corporation in the Subscription Agreement dated September 9, 1992 between the
Corporation and the other parties named therein (the "Subscription Agreement")
relating to the issuance of the Preferred Stock and the Common Stock of the
Corporation pursuant to the Corporation's Confidential Descriptive Memorandum
dated May 1992 and amended and dated September 1992 (the "Confidential
Memorandum"), or in any certificate or other document delivered pursuant thereto
shall prove to have been false or misleading when made and as of the closing of
the issuance of the Preferred Stock and Common Stock pursuant to the
Subscription Agreement in any material respect with respect to the Corporation's
assets, financial condition, business or operations.
(C) any representation, warranty or certification made by
the Corporation in the Subscription Agreement dated August 6, 1993 between
the Corporation and the other parties named therein (the "Subscription
Agreement") relating to the issuance of the Preferred Stock and the Common
Stock of the Corporation pursuant to the Corporation's Confidential
Descriptive Memorandum dated May 1993 and amended by supplement dated July
1992 (the "Confidential Memorandum"), or in any certificate or other document
delivered pursuant thereto shall prove to have been false or misleading when
made and as of the closing of the issuance of the Preferred Stock and Common
Stock pursuant to the Subscription Agreement in any material respect with
respect to the Corporation's assets, financial condition, business or
operations.
(ii) If any Event of Noncompliance has occurred and is continuing
and the Corporation has failed to cure such Event of Noncompliance within
forty-five (45) days of written notice thereof, then, upon the written request
of the holders of a majority of the outstanding shares of Preferred Stock, the
Corporation shall redeem, on the date (also a "Redemption Date") specified in
such notice (even if such date is prior to September 30, 1996), which Redemption
Date shall be not less than twenty (20) days after the date of such written
notice, that number of shares of Preferred Stock (which may be any or all of the
then outstanding shares) indicated in such notice, at the Preferred Stock
Redemption Price. All of the shares indicated in such written notice shall be
redeemed on such Redemption Date or pursuant to a different payment schedule
agreed upon in writing by the Corporation and the holders of a majority of the
outstanding shares of Preferred Stock.
(c) The Preferred Stock Redemption Price set forth in this Section 5 shall
be subject to
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equitable adjustment whenever there shall occur a stock split, stock dividend,
combination, recapitalization, reclassification or other similar event involving
a change in the Preferred Stock.
(d) At least fifteen (15) days prior to a Redemption Date, written
notice (the "Redemption Notice") shall be delivered by express overnight
courier service by the Corporation to each holder of record of Preferred
Stock which is to be redeemed, at its address shown on the records of the
Corporation; provided, however, that the Corporation's failure to give such
Redemption Notice shall in no way affect its obligation to redeem the shares
of Preferred Stock as provided herein. The Redemption Notice shall contain
the following information:
(i) The number of shares of Preferred Stock held by the holder which
shall be redeemed by the Corporation and the total number of shares of Preferred
Stock held by all holders to be so redeemed;
(ii) The Redemption Date and the Preferred Stock Redemption Price;
and
(iii) That the holder is to surrender to the Corporation, at the
places and times designated therein, its certificate or certificates
representing the shares of Preferred Stock to be redeemed.
(e) Each holder of shares of Preferred Stock to be redeemed shall
surrender the certificate(s) representing such shares to the Corporation at the
places and times designated in the Redemption Notice, and thereupon the
Preferred Stock Redemption Price shall be paid to the order of the person whose
name appears on such certificate(s) and each surrendered certificate shall be
cancelled and retired. In the event some but not all of the shares of Preferred
Stock represented by a certificate(s) surrendered by a holder are being
redeemed, the Corporation shall execute and deliver to or on the order of the
holder, at the expense of the Corporation, a new certificate representing the
number of shares of Preferred Stock which were not redeemed.
(f) Each holder of shares of Preferred Stock to be redeemed shall retain
all of the rights and privileges of the Preferred Stock until such share is
actually redeemed and the holder thereof is fully paid.
(g) If the funds of the Corporation available for redemption of the
Preferred Stock on any Redemption Date or the times at which any Installment
is due are insufficient to redeem the number of shares of Preferred Stock to
be so redeemed on such date, the holders of shares of Preferred Stock shall
share ratably in any funds legally available for redemption of such shares
according to the respective amounts which would be payable with respect to
the number of shares owned by them if the shares to be so redeemed on such
Redemption Date were redeemed in full. The shares of Preferred Stock not
redeemed on any Redemption Date shall remain outstanding and entitled to all
rights and preferences provided herein.
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(h) In addition to the foregoing, if the Corporation shall fail to make
any redemption under Section 5 when due, then upon the written request of
holders of a majority of the outstanding shares of Preferred Stock (the
"Request"), the Corporation shall within sixty (60) days of such request, at its
expense, engage a third-party investment banking firm for the purpose of
assisting the Corporation in taking such steps as is necessary for the
Corporation to meet its obligations under this Section 5. Such necessary steps
may include a merger, consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
capital stock or assets to any other person or entity, or any other form of
business combination or reorganization in which control of the Corporation is
transferred, an infusion of capital (whether debt or equity or a combination
thereof), or a borrowing (collectively, a "Reorganization Event"). If the
Corporation shall fail to engage a third party investment banking firm, the
holders of a majority of the outstanding shares of Preferred Stock may, at their
election and at the Corporation's expense, engage such a firm to effect a
Reorganization Event. The Corporation shall use its best efforts to consummate
such Reorganization Event within nine (9) months of the delivery of the Request.
If such Reorganization Event is not consummated by the end of such nine (9)
month period, the holders of a majority of the outstanding shares of Preferred
Stock may, at their election, compel a Reorganization Event by a judgment for
specific performance or other remedies, at law or in equity, by a court of
competent jurisdiction.
7. No Dilution or Impairment. The Corporation will not, except by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action with the affirmative vote of at least
sixty-six and seven-tenths percent (66.7) of the outstanding shares of the
Preferred Stock, avoid or seek to avoid the observance or performance of any of
the rights of the Preferred Stock set forth herein, but the Corporation will at
all times carry out all of such rights and take such action as may be necessary
or appropriate in order to protect such rights of the holders of the Preferred
Stock against dilution or other impairment.
8. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right; or
(b) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other Corporation, or any other entity or
person; or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the
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Corporation, then and in each such event the Corporation shall mail or cause to
be mailed to each holder of Preferred Stock a notice specifying (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed by
first class mail, postage prepaid, at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
9. Status of Reacquired Stock. When the Preferred Stock is repurchased or
reacquired by the Corporation, the shares so reacquired shall resume the status
of authorized but unissued Preferred Stock.
B. COMMON STOCK
1. Priority. All rights and privileges of the Common Stock are expressly made
subject to those of the Preferred Stock as set forth in Article IV Section A of
this Restated Certificate of Incorporation.
2. Voting Rights. Except as set forth in Section C of this ARTICLE IV, the
shares of Common Stock shall be entitled to one vote for each share of Common
Stock at any annual or special meeting of shareholders of the Corporation, or
may act by written consent. Each holder of shares of Common Stock shall be
entitled to such number of votes for the Common Stock held by such shareholder
on the record date fixed for such meeting, or on the effective date of such
written consent.
3. Dividends. Subject to provisions of law and this Certificate of
Incorporation, the holders of Common Stock shall be entitled to receive
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in their sole discretion.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the payment or provision
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of the Preferred Stock are entitled with respect to
the distribution of assets in liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation available
for distribution.
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5. No Dilution or Impairment. The Corporation will not, except by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action with the vote of at least sixty-six and
seven-tenths percent (66.7%) of the outstanding shares of the Common Stock,
avoid or seek to avoid the observance or performance of any of the rights of the
Common Stock set forth herein, but the Corporation will at all times carry out
all of such rights and take such action as may be necessary or appropriate in
order to protect such rights of the holders of the Common Stock against dilution
or other impairment.
6. Right of First Offer. Before the Corporation shall offer, issue, sell or
exchange, agree or obligate itself to offer, issue, sell or exchange, or reserve
or set aside for issuance, sale or exchange, any (i) shares of common capital
stock, (ii) other equity security of the Corporation, including without
limitation, shares of preferred stock, (iii) convertible debt security of the
Corporation, including without limitation, any debt security which by its terms
is convertible into or exchangeabe Corporation, (iv) security of the Corporation
that is a combination of debt and equity, or (v) option, warrant or other right
to subscribe for, purchase or otherwise acquire any such equity security or any
such debt security of the Corporation, the Corporation shall, in each case,
first offer to sell such securities (the "Offered Securities") to those holders
then holding Common Stock as follows:
(a) The Corporation shall offer to sell to each holder (i) that portion of
the Offered Securities as the number of shares of Common Stock issued bears to
the total number of said Common Stock issued to all stockholders (the "Basic
Amount"), and (ii) such additional portion of the Offered Securities as the
holders shall indicate they will purchase should the other holders subscribe for
less than their Basic Amounts (the "Undersubscription Amount"). The price and
other terms for the purchase of the Offered Securities shall be specified by the
Corporation in writing and delivered to the holders (the "Offer"). The Offer by
its terms shall remain open and irrevocable for a period of twenty (20) days
from receipt by the holders of the Offer. The term "receipt" shall mean delivery
to a holder's address on the books of the Corporation.
(b) Notice of each holder's intention to accept, in whole or in part, any
Offer made pursuant to Section 6(a) shall be evidenced by a writing signed by
such holder and delivered to the Corporation on or prior to the end of the
twenty (20) day period of the Offer, setting forth such holder's Basic Amount as
such holder elects to purchase and, if such holder shall elect to purchase all
of its Basic Amount, such Undersubscription Amount as such holder shall elect to
purchase (the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all holders are less than the total Offered Securities, then each holder who has
set forth Undersubscription Amounts in its Notice of Acceptance shall purchase,
in addition to the Basic Amounts subscribed for, all Undersubscription Amounts
it has subscribed for; provided, however, that should the Undersubscription
Amounts subscribed for exceed the difference between the Offered Securities and
the Basic Amounts subscribed for (the "Available Undersubscription
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Amount"), each holder who has subscribed for any Undersubscription Amount shall
purchase only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such holder bears to the total
Undersubscription Amounts subscribed for by all holders, subject to rounding by
the Board of Directors to the extent it reasonably deems necessary.
(c) In the event that Notices of Acceptance are not given by the
holders in respect of all the Offered Securities at the end of the twenty
(20) day period, the Corporation shall have ninety (90) days from the end of
said twenty (20) day period to sell any such Offered Securities as to which a
Notice of Acceptance has not been given by the holders (the "Refused
Securities") to any Person or Persons, but only for cash and otherwise in all
respects upon terms and conditions, including, without limitation, share
price and interest rates, which are no more favorable, in the aggregate, to
such other Person or Persons or less favorable to the Corporation than those
set forth in the Offer.
(d) In the event the Corporation shall propose to sell less than all of
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 6(c) above), then each holder may reduce the number of
shares of the Offered Securities specified in its respective Notices of
Acceptance to an amount which shall be not less than the amount of the Offered
Securities which the holder elected to purchase pursuant to Section 6(b)
multiplied by a fraction, (i) the numerator of which shall be the amount of
Offered Securities which the Corporation actually proposes to sell, and (ii) the
denominator of which shall be the amount of all Offered Securities. In the event
that any holder so elects to reduce the number or amount of Offered Securities
specified in its respective Notice of Acceptance, the Corporation may not sell
or otherwise dispose of more than the reduced amount of the Offered Securities
until such securities have again been offered to the holders in accordance with
Section 6(a).
(e) The date, time and location of the closings for the sale of the
securities described in this Article shall be set in the Offer. Upon the
closing, which shall include full payment to the Corporation, of the sale to
such other Person or Persons of all or less than all the Refused Securities, the
holders shall purchase from the Corporation, and the Corporation shall sell to
the holders, the number of Offered Securities and/or Offered Refused Securities
specified in the Notices of Acceptance, as reduced pursuant to Section 6(d) if
the holders have so elected, upon the terms and conditions specified in the
Offer. The purchase by the holders of any Offered Securities and/or Offered
Refused Securities is subject in all cases to the preparation, execution and
delivery by the Corporation and the holders of a purchase agreement relating to
such Offered Securities and/or Offered Refused Securities reasonably
satisfactory in form and substance to the holders and their respective counsel.
(f) In each case, any Offered Securities not purchased by the holders or
the other Person or Persons in accordance with this Article may not be sold or
otherwise disposed of until they are again offered to the holders under the
procedures specified in Sections 6(a), (b), (c) and (d).
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(g) The rights of the holders under this Section 6 may be waived only upon
the prior written consent or affirmative vote of the holders of at least
sixty-six and seven tenths percent (66.7%) of the outstanding Preferred Stock
voting as a separate class, and shall terminate immediately prior to the
effectiveness of the registration statement with respect to a Public Offering,
but expressly conditioned on the consummation of such Public Offering.
(h) The rights of the holders under this Section 6 shall not apply to:
(i) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock;
(ii) Preferred Stock issued as a dividend to holders of Preferred
Stock upon any subdivision or combination of shares of the Preferred Stock; or
(iii) The issuance of up to 50,000 shares of Common Stock (A) 31,250
of which may be issued pursuant to exercise of the existing stock options
granted by the Corporation and (B) the balance to management on such terms and
conditions as may be decided in the sole discretion of the Compensation
Committee of the Corporation's Board of Directors; provided, however, that none
of the shares of Common Stock described in (A) and (B) shall be sold before the
Preferred Stock is redeemed either by the original holder thereof or by any
transferee, nor may they be transferred before the Preferred Stock is redeemed
except to the ancestors, descendants or spouse (or to trusts for the benefit of
such persons) of the original holder thereof. These shares shall be subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event.
C. LARGE INSTITUTIONAL STOCKHOLDERS
1. Large Institutional Stockholders. Triumph-Connecticut Limited Partnership, a
Connecticut limited partnership ("Triumph") and Canaan Venture Limited
Partnership, a Delaware limited partnership ("CVLP") and Canaan Venture Offshore
Limited Partnership C.V., a Netherland Antilles limited partnership ("CVOLP")
(CVLP and CVOLP are affiliates and are sometimes referred to herein as "Canaan")
are investors in or are about to become investors in the Corporation.
2. Special Voting Rights. Each Large Institutional Stockholder shall be entitled
to appoint the number of members of the Board of Directors of the Corporation
determined in accordance with the criteria set forth below in this Section 2.
Such appointments shall be made at the time of the annual elections of directors
of the Corporation, and each such appointed director
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("Appointed Director") shall serve for a one year term unless he or she is
sooner removed, resigns or dies. The number of Appointed Directors which a Large
Institutional Stockholder shall have the right to appoint shall be determined by
the percentage of the issued and outstanding shares of the Corporation's capital
stock it owns of record (the "Equity Percentage"). For so long as the Equity
Percentage owned of record by a Large Institutional Stockholder is in excess of
ten, it shall have the right to appoint two directors. If the Equity Percentage
so owned is ten or less, but greater than zero, it shall have the right to
appoint one director. At such time and after the Equity Percentage owned of
record by a Large Institutional Stockholder falls to zero, it shall no longer
have any right to appoint directors pursuant to this Section C. In determining
the Equity Percentage owned of record by Canaan, the shares owned of record by
both CVLP and CVOLP shall be aggregated. The appointment of directors shall be
made by whichever of CVLP and CVOLP is then the record owner of the greater
number of shares. If the number of shares is the same, CVOLP shall have the
right to exercise the right to appoint set forth in this Section C.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal By-Laws of the Corporation with the vote or written
consent of two-thirds of the members of the Board of Directors, subject to any
rights of holders of Preferred Stock and subject to the provisions of this
certificate of incorporation.
ARTICLE VI
1. Written Ballots for Directors. Elections of directors need not be by written
ballot except and to the extent provided in this certificate of incorporation or
the By-Laws of the Corporation.
2. Number of Directors. The Board shall consist of the number of members last
elected or appointed by the Stockholders in accordance with the provisions of
this certificate of incorporation, but shall not exceed ten. The number of
members of the Board shall consist of the number of members elected by
stockholders (which shall not exceed ten, less the number of memberships which
Large Institutional Stockholders are then entitled to fill by appointment) plus
the number of members which have been appointed by Large Institutional
Stockholders. If the number of directorships which a Large Institutional
Stockholder is entitled to appoint shall decrease pursuant to the provisions of
subsection 2 of SECTION C of ARTICLE IV of this certificate of incorporation,
there shall immediately be a vacancy on the Board which shall be filled in the
manner set forth in Section 3. If such Large Institutional Stockholder is, after
such decrease, still entitled to appoint one director, the director remaining on
the Board shall be Stephen L. Green, if the Large Institutional Investor is
Canaan, or Thomas W. Janes, if the
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Large Institutional Stockholder is Triumph. If Mr. Green or Mr. Janes, as the
case may be, is no longer a member of the Board at the time, the remaining
director shall be whoever has been appointed as the successor to Mr. Green or
Mr. Janes, as the case may be.
3. Vacancies on the Board. In the event of a vacancy on the Board of Directors
caused by the removal, resignation or death of an Appointed Director, the Large
Institutional Stockholder which appointed such director shall have the sole
right to name such director's successor. In the event of a vacancy on the Board
of Directors caused by the removal, resignation or death of a director other
than an Appointed Director, it shall be filled: (i) by the vote of stockholders
if due to removal and if the vacancy is filled at the same meeting (or by
written consent) as effects such removal, or, (ii) if not so filled or if due to
resignation or death, by the remaining directors.
4. Compensation Committee. For so long as any Large Institutional Stockholder is
entitled to appoint one or more Appointed Directors, it shall be entitled to
have one of its Appointed Directors (chosen by it) serve on the Compensation
Committee of the Board of Directors.
ARTICLE VII
REGISTRATION RIGHTS
1. Request for Registration. (a) At any time after the earlier of September 9,
1997 or six (6) months after the closing of the Corporation's first public
offering of Registrable Shares pursuant to a registration statement, either (i)
a single holder owning of record at least twenty percent (20%) of Registrable
Shares or (ii) several holders owning of record, in the aggregate, at least
forty per cent (40%) of Registrable Shares (such percentages to be determined
without taking into account any shares issued upon exercize of options granted
to management) (the "Requesting Shareholders") may request at any time and from
time to time, in writing, that the Corporation effect a registration on Form S-l
or Form SB-2 (or any successor form) of Registrable Shares owned by such holder
or holders. If the Requesting Shareholders intend to distribute their
Registrable Shares by means of the underwriting, they shall so advise the
Corporation in their request. In the event such registration is underwritten,
the right of other shareholders of the Corporation to participate shall be
conditioned on such shareholders' participation in such underwriting. Upon
receipt of any such request from a Requesting Shareholder, the Corporation shall
promptly give written notice of the proposed registration to all shareholders of
record holding Registrable Shares (the "Other Shareholders"). The Other
Shareholders shall have the right, by giving written notice to the Corporation
within thirty (30) days after the Corporation provides its notice, to elect to
have included in such registration such of their Registrable Shares as the Other
Shareholders may request in such notice of election. Thereafter, the Corporation
shall, as expeditiously as possible, use its best efforts to effect the
registration, on Form S-l or Form SB-2 (or any successor form), of all
Registrable Shares that the Corporation has been requested to so register. If
the underwriter (if any)
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managing the offering determines that, because of marketing factors, all of
the Registrable Shares requested to be registered by all shareholders may not
be included in the offering, then all shareholders who have requested
registration shall participate in the offering pro rata based upon the number
of Registrable Shares that they have requested to be so registered.
"Registrable Shares" means (a) any shares of common capital stock issued by
the Corporation, and (b) any other shares of common capital stock of the
Corporation issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations or similar events). For
purposes of this ARTICLE VII, Canaan shall be considered a single record
holder of shares held by CVLP and CVOLP.
(b) At any time after the Corporation becomes eligible to file a registration
Statement on Form S-3 (or any successor form relating to secondary
offerings), a holder or holders holding in the aggregate at least 20%of the
Registrable Shares (the "Requesting Shareholders") may request the
Corporation, in writing, to effect a registration on Form S-3 (or such
successor form), of Registrable Shares having an aggregate offering price of
at least $500,000 (based on the current public market price). Upon receipt of
any such request, the Corporation shall promptly give written notice of such
proposed registration to all Other Shareholders. The Other Shareholders shall
have the right, by giving written notice to the Corporation within thirty
(30) days after the Corporation provides its notice, to elect to have
included in such registration such of their Registrable Shares as the Other
Shareholders may request in such notice of election. Thereafter, the
Corporation shall, as expeditiously as possible, use its best efforts to
effect the registration on Form S-3, or such successor form, of all
Registrable Shares that the Corporation has been requested to register. If
the underwriter (if any) managing the offering determines that, because of
marketing factors, all of the Registrable Shares requested to be registered
by all shareholders may not be included in the offering, then all
shareholders who have requested registration shall participate in the
offering pro rata based upon the number of Registrable Shares that they have
requested to be so registered. The Corporation shall be only required to pay
Registration Expenses as provided in Section 4 for the first two
registrations pursuant to this Section 2(b).
(c) The Corporation shall not be required to effect more than two (2)
registrations pursuant to Section 1(a) above nor more than three (3)
registrations (and no more than one (1) per year) pursuant to Section 1(b)
above.
(d) If at the time any request to register Registrable Shares pursuant to this
Section 1 is received by the Corporation, the Corporation is (i) engaged in or
(ii) the Corporation's Board of Directors has approved plans to engage within
the next thirty (30) days in a registered public offering as to which the
Requesting Shareholders may include Registrable Shares pursuant to 2 or is (iii)
engaged in any other activity that, in the good faith determination of the
Corporation's Board of Directors, will be adversely affected by the requested
registration to the material detriment of the Corporation, then the Corporation
may, at its option, direct that such request be delayed for a period not in
excess of six months from (x) the effective
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date of such offering proposed by the Corporation or (y) the date of
commencement of such other material activity, as the case may be. The
Corporation's right to delay a Requesting Shareholders' request may not be
exercised by the Corporation more than once in any two year period.
2. Corporation Registration. (a) Every time the Corporation proposes to file
a Registration Statement (other than pursuant to Section 1(a) or (b)), it
will, prior to such filing, give written notice to all shareholders of record
holding Registrable Shares (the "Registrable Shareholder or Shareholders") of
its intention (the "Registration Notice"). Any Registrable Shareholder
wishing to have shares registered shall send the Corporation a written
request within twenty (20) days after receipt of the Registration Notice
(which request shall state the intended method of disposition of such
Registrable Shares). The Corporation shall use its best efforts to cause all
Registrable Shares that the Corporation has been so requested to register to
be registered under the Securities Act to the extent necessary to permit
their sale or other disposition in accordance with the intended methods of
distribution specified in the requests of such Registrable Shareholder or
Shareholders. The above stated provisions notwithstanding, the Corporation
shall have the right to postpone or withdraw any registration affected
pursuant to this Section 2 without obligation to any shareholder.
(b) In connection with any registration under this Section 2 involving an
underwriting, the Corporation shall not be required to include any
Registrable Shares in such offering unless the holders thereof accept the
terms of the underwriting as agreed upon between the Corporation and the
underwriters selected by it (provided that such terms must be consistent with
this certificate), and then only in such quantity as will not, in the opinion
of the underwriters, jeopardize the success of the offering by the
Corporation. If in the opinion of the managing underwriter the registration
of all, or part of, the Registrable Shares that the holders have requested to
be included would materially and adversely affect such public offering, then
the Corporation shall be required to include in the underwriting only that
number of Registrable Shares, if any, that the managing underwriter believes
may be sold without causing such adverse effect. If the number of Registrable
Shares to be included in the underwriting in accordance with the foregoing is
less than the total number of shares that the holders of Registrable Shares
have requested to be included, then the holders of the Common Shares shall
have priority over the holder or holders of all other Registrable Shares. If
the number of Registrable Shares is still too large after giving effect to
the above described priority then the holders of the Common Shares requesting
registration of their Registrable Shares who have requested registration and
the Corporation shall participate in the underwriting pro rata based upon
their total ownership of Registrable Shares. If any Common Shareholder will
thus be entitled to include more shares than such shareholder then requests
to be registered, the excess shall be allocated first among other requesting
Common Share holders and then to all other shareholders pro rata based upon
their total ownership of Registrable Shares in each case.
3. Registration Procedures. If and whenever the Corporation is required by the
provisions of
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this certificate to use its best efforts to effect the registration of any of
the Registrable Shares under the Securities Act, the Corporation shall:
(a) File with the Commission a Registration Statement with respect to such
Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) As expeditiously as possible prepare and file with the Commission any
amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to
keep the Registration Statement effective, in the case of a firm
commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it and, in the
case of any other offering, until the earlier of the sale of all
Registrable Shares covered thereby or as otherwise required by law;
(c) As expeditiously as possible, furnish to each selling shareholder such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as the selling shareholder may reasonably request in
order to facilitate the public sale or other disposition of the
Registrable Shares owned by the selling shareholder; and
(d) As expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling shareholders
shall reasonably request, and do any and all other acts and things that
may be necessary or desirable to enable the selling shareholders to
consummate the public sale or other disposition in such states of the
Registrable Shares owned by the selling shareholders.
(e) Promptly notify the selling shareholders if the prospectus is amended
and, if requested by the Corporation, the selling shareholders shall
immediately cease making offers of Registrable Shares and return all
prospectuses to the Corporation. The Corporation shall promptly provide
the selling shareholders with revised prospectuses and, following receipt
of the revised prospectuses, the selling shareholders shall be free to
resume making offers of the Registrable Shares.
4. Allocation of Expenses. The Corporation will pay up to $50,000 of
Registration Expenses for each registration under Section 1(a); provided
however, that (a) if a requested registration under Section 1(a) is withdrawn at
the request of the Requesting Shareholders for reasons other than information
concerning the business or financial condition of the Corporation that is made
known to the Requesting Shareholders after the date on which such registration
was requested or (b) if the Requesting Shareholders elect not to have such
registration counted as a registration requested under Section 1(a), the
Requesting Shareholders shall pay the
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Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. The
Corporation will pay all Registration Expenses for the first two (2)
registrations under Section 1(b) and thereafter the selling shareholders will
pay the Registration Expenses for registrations under Section 1(b). The
Corporation and the selling shareholders will each pay their own expenses in any
registration under Section 2. "Registration Expenses" means all expenses
incurred by the Corporation in complying with this Article VII, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees, and expenses of counsel for the Corporation and the
fees and expenses of one legal counsel selected by the selling shareholders to
represent the selling shareholders, state Blue Sky fees and expenses, and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts, selling commissions, and the fees and
expenses of selling shareholders' own counsel (other than the counsel selected
to represent all selling shareholders).
5. Underwriting Agreements. In the event that Registrable Shares are sold
pursuant to a Registration Statement in an underwritten offering, the
Corporation agrees to enter into an underwriting agreement containing
customary representations and warranties with respect to the business and
operations of an issuer of the securities being registered and customary
covenants and agreements to be performed by such issuer, including without
limitation customary provisions with respect to indemnification by the
Corporation of the underwriters of such offering.
6. Information By Holder. Each holder of Registrable Shares included in any
registration shall furnish to the Corporation such information regarding such
holder and the distribution proposed by such holder as the Corporation may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Article VII.
7. "Stand-Off" Agreement. Each holder of Registrable Shares included in any
registration, if requested by the Corporation and an underwriter, shall agree
not to sell or otherwise transfer or dispose of any Registrable Shares or other
securities of the Corporation held by such shareholder for a specified period of
time (not to exceed one hundred twenty (120) days) following the effective date
of a Registration Statement; provided, that:
(a) Such agreement shall only apply to the first such Registration
Statement covering Common Shares to be sold to the public in an
underwritten offering; and
(b) All officers and directors of the Corporation enter into similar
agreements.
(c) Such agreement shall be in writing in a form satisfactory to the
Corporation and such underwriter. The Corporation may impose stop-transfer
instructions with respect to the Registrable Shares or other securities
subject to the foregoing restriction until the end of the standoff period.
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8. Registration Rights Caveat. The shareholder registration rights provisions of
this Article VII notwithstanding, no shareholder may participate in any public
offering of Registrable Securities unless (a) the Preferred Shares have been
redeemed and all accrued dividends paid or (b) if all of the Preferred Shares
have not been redeemed and dividends paid, then the net proceeds to be received
by the Corporation in the public offering must be used for and be sufficient to
redeem all Preferred Shares outstanding at their face amount plus all accrued
and unpaid dividends.
9. Registration Indemnification. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Certificate of
Incorporation:
(a) The Corporation will indemnify and hold harmless the seller of such
Registrable Shares, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the
meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, or liabilities, joint or several, to which such seller,
underwriter, or controlling person may become subject under the Securities
Act, the Exchange Act, state securities or Blue Sky laws, or otherwise,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) (i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any
Registration Statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus, or final prospectus
contained in the Registration Statement, or any amendment or supplement to
such Registration Statement, or (ii) arise out of or are based upon the
omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Corporation will, in addition, reimburse such seller, underwriter, and
each controlling person for any legal or any other expenses reasonably
incurred by such seller, underwriter, or controlling person in connection
with investigating or defending any such loss, claim, damage, liability,
or action; provided, however, that the Corporation will not be liable in
any such case to the extent that any such loss, claim, damage, or arises
out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus, or final prospectus, or
any such amendment or supplement, in reliance upon and in conformity with
information furnished to the Corporation, in writing, by or on behalf of
such seller, underwriter, or controlling person specifically for use in
the preparation thereof.
(b) In consideration for the Corporation's agreements in Subsection
(a), each seller of Registrable Shares, severally and not jointly, will
indemnify and hold harmless the Corporation, each of its directors and
officers and each underwriter (if any) and each person, if any, who
controls the Corporation or any such underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities, joint or several, to which the Corporation, such
directors and officers, underwriter, or
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controlling person may become subject under the Securities Act, Exchange
Act, state securities or Blue Sky laws, or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof)
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under
which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to the Registration
Statement, or (ii) arise out of or are based upon any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement
or omission was made in reliance upon and in conformity with information
relating to such seller which was furnished in writing to the Corporation
by or on behalf of such seller specifically for use in connection with the
preparation of such Registration Statement, prospectus, amendment, or
supplement; provided, however, that the obligations of such sellers
hereunder shall be limited to an amount equal to the proceeds to each
seller of Registrable Shares sold in connection with such registration.
The Corporation will require all stockholders exersizing their rights
hereunder to enter into agreements evidencing their obligations to
indemnify the Corporation hereunder.
(c) Each party entitled to indemnification under this Section 2 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") not later than fifteen (15)
business days after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld); and, provided, further, that the
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Section
2. The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such
expense if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any
other party represented by such counsel in such proceeding. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include a release from
all liability in respect of such claim or litigation as an unconditional
term thereof, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written
consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to joint
liability under the
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Securities Act in any case in which either (i) any seller of Registrable
Shares exercising rights under this Agreement, or any controlling person
of any such seller, makes a claim for indemnification pursuant to this
Section 2 but it is judicially determined (by the entry of a final
judgement or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding
the fact that this Section 2 provides for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of
any such seller or any such controlling person in circumstances for which
indemnification is provided under this Section 2; then, in each such case,
the Corporation and such seller will contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (after
contribution from others) in such proportions so that such seller is
responsible for the portion represented by the percentage that the public
offering price of the seller's Registrable Shares offered by the
Registration Statement bears to the public offering price of all
Registrable Shares offered by such Registration Statement, and the
Corporation is responsible for the remaining portion; provided, however,
that, in any such case, (A) no seller will be required to contribute any
amount in excess of the proceeds to it of all Registrable Shares sold by
it pursuant to such Registration Statement, and (B) no person or entity
guilty of fraudulent misrepresentation, within the meaning of Section 11
of the Securities Act, shall be entitled to contribution from any person
or entity who is not guilty of such fraudulent misrepresentation.
(e) In the event any damages are entered, incurred, sustained, suffered,
assessed, or rendered against the Indemnified Party for which the
Indemnifying Party is obligated to pay under this Agreement, the
Indemnifying Party shall pay, satisfy, discharge or otherwise dispose of
the same within ten (10) days from the date the obligation "comes into
existence," (as hereinafter defined) it being intended that in no event
shall the Indemnified Party be required to pay or be liable for such items
nor shall any of the Indemnified Party's assets or property be subjected
to or applied to payment or satisfaction of any such items.
ARTICLE VIII
1. Elimination of Personal Liability. The Corporation eliminates the personal
liability of each member of its Board of Directors to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the foregoing shall not eliminate the liability of a director (l)
for any breach of such director's duty of loyalty to the Corporation or its
stockholders (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
Title 8 of the Delaware Code, or (4) for any transaction from which such
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended in the future to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent
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permitted by the Delaware General Corporation Law, as so amended from time to
time. Any repeal or modification of this Article shall not increase the personal
liability of any director of this Corporation for any act or occurrence taking
place prior to such repeal or modification, or otherwise adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
2. Right to Indemnification.
(a) Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee, partner or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (hereinafter an
"Indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee, partner or agent or in
any other capacity while serving as a director, officer, employee, partner or
agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such Indemnitee in connection therewith and such indemnification shall
continue as to an Indemnitee who has ceased to be a director, officer,
employee, partner, or agent and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators; provided, however, that
except as provided in this Article with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
Indemnitee in connection with a proceeding (or part thereof) initiated by
such Indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation. The right to indemnification
conferred in this Section shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided. however, that, if the Delaware General
Corporation Law so requires, an advancement of expenses incurred by an
Indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such Indemnitee,
including without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final Judicial decision from which there is no
further right to appeal that such Indemnitee is not entitled to be
indemnified for such expenses under this Section or otherwise (hereinafter an
"undertaking").
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(b) If a claim under this Section is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
Indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
Indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
Indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
Indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee
to enforce a right hereunder, or by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving
that the Indemnitee is not entitled to be indemnified or to such advancement
of expenses under this Section or otherwise shall be on the Corporation.
(c) The rights to indemnification and to the advancement of expenses
conferred in this Section shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation or
any statute, By-Law, contract or agreement, vote of stockholders or
disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
(e) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses, to any agent of the Corporation to the fullest extent of the
provisions of this Section with respect to the indemnification and advancement
of expenses of directors, officers and employees of the Corporation.
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ARTICLE IX
The Corporation is to have perpetual existence.
IN WITNESS WHEREOF, Security Systems Holdings, Inc. has caused this
certificate to be signed by Russell R. MacDonnell, its President, and attested
by Tracy B. Ambler, its Secretary, as of this the ___ day of August 1993.
SECURITY SYSTEMS HOLDINGS, INC.
By: /s/ Russell R. MacDonnell
------------------------------------
Russell R. MacDonnell, President
Attest:
By: /s/ Tracy B. Ambler
-----------------------------
Tracy B. Ambler, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SECURITY SYSTEMS HOLDINGS, INC.
Security Systems Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify that the following resolution amending the Corporation's
Certificate of Incorporation was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware, with
written consent having been given, and written notice thereof having been given,
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware:
RESOLVED, that Section 6 of Part A of ARTICLE IV of the Corporation's
certificate of incorporation be and hereby is deleted and replaced in its
entirety by the following:
ARTICLE IV
* * *
A. PREFERRED STOCK
* * *
6. Redemption Rights.
(a) Unless the Preferred Stock has already been redeemed, the Corporation
shall redeem the outstanding shares of Preferred Stock as follows:
(i) On March 31, 1997 (the "Optional Redemption Date"), the
Corporation shall redeem seventy-five percent (75%) of the outstanding shares of
Preferred Stock held by each holder of Preferred Stock, provided such holder of
Preferred Stock has given the Corporation, on or before 60 days prior to the
Optional Redemption Date, written notice of such holder's desire for the
Corporation to redeem seventy-five percent (75%), but only seventy-five percent
(75%), of such holder's shares of Preferred Stock on the Optional Redemption
Date. All of the shares indicated in such written notice shall be redeemed on
such Redemption Date at the Preferred Stock Redemption Price. The failure of any
holder of Preferred Stock to timely give written notice of such holder's desire
to have such holder's Preferred Stock redeemed on the Optional Redemption Date
shall not affect the Corporation's obligation to redeem the Preferred Stock from
those holders which have given timely written notice of their desire to have
their Preferred Stock redeemed on the Optional Redemption Date.
<PAGE>
(ii) On June 30, 1997 (the "Mandatory Redemption Date") the
Corporation shall redeem all remaining outstanding shares of Preferred Stock at
the Preferred Stock Redemption Price.
(iii) The Optional Redemption Date and the Mandatory Redemption Date
are referred to herein individually as a "Redemption Date", and collectively as
the "Redemption Dates." The Corporation shall make each payment for shares of
Preferred Stock to be redeemed on a Redemption Date (an "Installment") out of
legally available funds therefor on the dates that such shares of Preferred
Stock are redeemed.
(iv) The redemption price for each share of Preferred Stock redeemed
pursuant to this Section 6 shall be the par value per share plus all accrued and
unpaid dividends thereon, whether or not declared, on such shares up to and
including the date fixed for redemption (the "Preferred Stock Redemption
Price").
(v) For any holder which holds shares of both Series A Preferred
Stock and Series B Preferred Stock, in the event of a redemption of Preferred
Stock in which less than all outstanding shares of Preferred Stock held by
such holder are redeemed, shares of Series A Preferred Stock and Series B
Preferred Stock shall be redeemed pro rata, such that the same percentage of
shares of each such Series held by such holder shall be redeemed.
(b) In addition to all rights conferred above with respect to the
redemption of the Preferred Stock, the holders of a majority of the outstanding
shares of Preferred Stock, voting as a class, shall have the following rights
with respect to the redemption of the Preferred Stock upon the occurrence of an
Event of Noncompliance (defined herein):
(i) An "Event of Noncompliance" shall mean one or more of the
following:
(A) the Corporation fails to make any liquidation payment with
respect to the Preferred Stock which it is obligated to make hereunder; or
(B) any representation, warranty or certification made by
the Corporation in the Subscription Agreement dated September 9, 1992 between
the Corporation and the other parties named therein (the "Subscription
Agreement") relating to the issuance of the Preferred Stock and the Common
Stock of the Corporation pursuant to the Corporation's Confidential
Descriptive Memorandum dated May 1992 and amended and dated September 1992
(the "Confidential Memorandum"), or in any certificate or other document
delivered pursuant thereto shall prove to have been false or misleading when
made and as of the closing of the issuance of the Preferred Stock and Common
Stock pursuant to the Subscription Agreement in any material respect with
respect to the Corporation's assets, financial condition, business or
operations.
(C) any representation, warranty or certification made by the
Corporation in the Subscription Agreement dated August 6, 1993 between the
Corporation and the other parties named therein (the "Subscription Agreement")
relating to the issuance of the Preferred Stock and the Common Stock of the
Corporation pursuant to the Corporation's Confidential
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Descriptive Memorandum dated May 1993 and amended by supplement dated July 1992
(the "Confidential Memorandum"), or in any certificate or other document
delivered pursuant thereto shall prove to have been false or misleading when
made and as of the closing of the issuance of the Preferred Stock and Common
Stock pursuant to the Subscription Agreement in any material respect with
respect to the Corporation's assets, financial condition, business or
operations.
(ii) If any Event of Noncompliance has occurred and is continuing
and the Corporation has failed to cure such Event of Noncompliance within
forty-five (45) days of written notice thereof, then, upon the written
request of the holders of a majority of the outstanding shares of Preferred
Stock, the Corporation shall redeem, on the date (also a "Redemption Date")
specified in such notice (even if such date is prior to the Optional
Redemption Date), which Redemption Date shall be not less than twenty (20)
days after the date of such written notice, that number of shares of
Preferred Stock (which may be any or all of the then outstanding shares)
indicated in such notice, at the Preferred Stock Redemption Price. All of the
shares indicated in such written notice shall be redeemed on such Redemption
Date or pursuant to a different payment schedule agreed upon in writing by
the Corporation and the holders of a majority of the outstanding shares of
Preferred Stock.
(c) The Preferred Stock Redemption Price set forth in this Section 6 shall
be subject to equitable adjustment whenever there shall occur a stock split,
stock dividend, combination, recapitalization, reclassification or other similar
event involving a change in the Preferred Stock.
(d) At least 90 days prior to the Optional Redemption Date, written notice
shall be delivered by express overnight courier service by the Corporation to
each holder of record of Preferred Stock reminding such holder of the impending
Optional Redemption Date. At least fifteen (15) days prior to a Redemption Date,
written notice (the "Redemption Notice") shall be delivered by express overnight
courier service by the Corporation to each holder of record of Preferred Stock
which is to be redeemed, at its address shown on the records of the Corporation;
provided, however, that the Corporation's failure to give such Redemption Notice
shall in no way affect its obligation to redeem the shares of Preferred Stock as
provided herein. The Redemption Notice shall contain the following information:
(i) The number of shares of Preferred Stock held by the holder which
shall be redeemed by the Corporation and the total number of shares of Preferred
Stock held by all holders to be so redeemed;
(ii) The Redemption Date and the Preferred Stock Redemption Price;
and
(iii) That the holder is to surrender to the Corporation, at the
places and times designated therein, its certificate or certificates
representing the shares of Preferred Stock to be redeemed.
(e) Each holder of shares of Preferred Stock to be redeemed shall
surrender the certificate(s) representing such shares to the Corporation at the
places and times designated in the
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Redemption Notice, and thereupon the Preferred Stock Redemption Price shall be
paid to the order of the person whose name appears on such certificate(s) and
each surrendered certificate shall be cancelled and retired. In the event some
but not all of the shares of Preferred Stock represented by a certificate(s)
surrendered by a holder are being redeemed, the Corporation shall execute and
deliver to or on the order of the holder, at the expense of the Corporation, a
new certificate representing the number of shares of Preferred Stock which were
not redeemed.
(f) Each holder of shares of Preferred Stock to be redeemed shall retain
all of the rights and privileges of the Preferred Stock until such share is
actually redeemed and the holder thereof is fully paid.
(g) If the funds of the Corporation available for redemption of the
Preferred Stock on any Redemption Date or the times at which any Installment is
due are insufficient to redeem the number of shares of Preferred Stock to be so
redeemed on such date, the holders of shares of Preferred Stock shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts which would be payable with respect to the number of
shares owned by them if the shares to be so redeemed on such Redemption Date
were redeemed in full. The shares of Preferred Stock not redeemed on any
Redemption Date shall remain outstanding and entitled to all rights and
preferences provided herein.
(h) In addition to the foregoing, the Corporation shall, within a
commercially reasonable time, but no later than April 30, 1996, at its
expense, engage a third-party investment banking firm for the purpose of
assisting the Corporation in taking such steps as is necessary for the
Corporation to meet its obligations under this Section 6. Such necessary
steps may include a merger, consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the
Corporation's capital stock or assets to any other person or entity, or any
other form of business combination or reorganization in which control of the
Corporation is transferred, an infusion of capital (whether debt or equity or
a combination thereof), or a borrowing (collectively, a "Reorganization
Event"). If the Corporation shall fail, within a commercially reasonable
time, but no later than April 30, 1996, to engage a third party investment
banking firm, the holders of a majority of the outstanding shares of
Preferred Stock may, at their election and at the Corporation's expense,
engage such a firm to effect a Reorganization Event. If the Corporation fails
to make any redemption required pursuant to this Section 6, and a
Reorganization Event has not been consummated, the holders of a majority of
the outstanding shares of Preferred Stock may, at their election, compel a
Reorganization Event by a judgment for specific performance or other
4
<PAGE>
remedies, at law or in equity, by a court of competent jurisdiction. The
Corporation's Board of Directors shall be charged with the responsibility for
retaining and managing the relationship with the investment banking firm
referred to above.
* * *
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by
its Secretary this ___ day of March, 1996.
Security Systems Holdings, Inc.
By: /s/ Tracy B. Ambler
--------------------------------
Tracy B. Ambler, Secretary
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SECURITY SYSTEMS HOLDINGS, INC.
Security Systems Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify that the following resolution amending the Corporation's
Certificate of Incorporation was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, with written consent having been given, and written notice thereof
having been given, in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware:
"RESOLVED, that the first two paragraphs of ARTICLE IV, Sections 1 and 2(a)
and Section 5(a) of Part A of ARTICLE IV, Part B of ARTICLE IV, and Section
One of Part C of ARTICLE IV of the Corporation's certificate of incorporation
be and hereby are deleted and replaced in their entirety by the following:
ARTICLE IV
The Corporation shall be authorized to issue Three Hundred Seventy-Nine
Thousand (379,000) shares of capital stock, which shall be divided into Two
Hundred Twenty-Two Thousand Seven Hundred (222,700) shares of Class A Voting
Common Stock, $1.00 par value per share (the "Voting Common Stock"),
Thirty-Three Thousand Eight Hundred (33,800) shares of Class B Non-Voting Common
Stock, $1.00 par value per share (the "Non-Voting Common Stock") (the Voting
Common Stock and the Non-Voting Common Stock being referred to collectively as
the "Common Stock"), Fifty Thousand (50,000) shares of Series A Preferred Stock,
$100.00 par value per share (the "Series A Preferred Stock") and Seventy-Two
Thousand Five Hundred (72,500) shares of Series B Preferred Stock, $120.00 par
value per share (the "Series B Preferred Stock") (the Series A Preferred Stock
and the Series B Preferred Stock being referred to collectively as the
"Preferred Stock").
The following is a statement of the rights, preferences and privileges of
the authorized capital stock of the Corporation:
A. PREFERRED STOCK
1. Series of Preferred Stock. The Preferred Stock shall be issued in two Series,
Series A Preferred Stock and Series B Preferred Stock. Except for the par value
per share of shares issued
<PAGE>
in each such Series, all shares of the Preferred Stock shall have and enjoy all
of the same rights, preferences and privileges, and shall, for all purposes, be
and act as a single class of shares.
2. Voting.
(a) Except as set forth in Section C of this ARTICLE IV, the shares of Preferred
Stock shall be voted equally with the shares of the Corporation's Voting Common
Stock at any annual or special meeting of shareholders of the Corporation or may
act by written consent in the same manner as the Corporation's Voting Common
Stock upon the following basis: Each holder of shares of the Preferred Stock
shall be entitled to one vote for each share of Preferred Stock and to a total
number of votes as shall be equal to the whole number of shares of the Preferred
Stock held by such shareholder on the record date fixed for such meeting or the
effective date of such written consent.
****
5. Public Offering.
(a) Upon the closing of a Public Offering on a firm commitment or best
efforts basis pursuant to an effective registration statement filed pursuant to
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of the Corporation (a "Public Offering"), and before any
distribution or payment is made out of the net proceeds of the Public Offering
available for distribution to the Corporation and/or holders of the
Corporation's capital stock ("Available Net Proceeds"), an amount equal to the
Preferred Stock Price, plus all accrued but unpaid dividends thereon, whether or
not declared, up to and including the date full payment is made, shall be made
to the holders of the Preferred Stock from the Available Net Proceeds.
*****
B. COMMON STOCK
1. Priority. All rights and privileges of the Common Stock are expressly made
subject to those of the Preferred Stock as set forth in Article IV Section A of
this Restated Certificate of Incorporation.
2. Classes of Common Stock. The Common Stock shall be issued in two Classes,
Class A Voting Common Stock and Class B Non-Voting Common Stock. Except for the
right to vote accorded to the shares of Voting Common Stock, all shares of the
Common Stock shall have and enjoy all of the same rights, preferences and
privileges, and shall, for all purposes, be and act as a single class of shares.
3. Voting Rights. (a) Except as set forth in Section C of this ARTICLE IV, the
shares of Voting
2
<PAGE>
Common Stock shall be entitled to one vote for each share of Voting Common Stock
at any annual or special meeting of shareholders of the Corporation, or may act
by written consent. Each holder of shares of Voting Common Stock shall be
entitled to such number of votes for the Voting Common Stock held by such
shareholder on the record date fixed for such meeting, or on the effective date
of such written consent.
(b) Except as otherwise provided by law, the shares of Non-Voting Common Stock
shall not be entitled to vote on any matter. The foregoing notwithstanding,
shares of Non-Voting Common Stock shall immediately and automatically be
accorded the same rights to vote as, and shall thereupon and thereafter for all
purposes be considered to be, shares of Voting Common Stock upon the occurrence
of any of the following:
(i) the consummation of the sale of the beneficial interest of such
shares by the initial holder thereof to other than an Affiliate of
the initial holder thereof; or
(ii) the consummation of a Public Offering (as defined herein)
For purposes of this Section 3(b), any transfer by the initial holder of such
shares shall be presumed to be to an Affiliate of the initial holder thereof
unless and until the Company receives a statement, signed by the transferor and
the transferee, to the contrary. An "Affiliate" of the initial holder of such
shares is a person that, directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the initial holder of such shares.
4. Dividends. Subject to provisions of law and this Certificate of
Incorporation, the holders of Common Stock shall be entitled to receive
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in their sole discretion.
5. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the payment or provision
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of the Preferred Stock are entitled with respect to
the distribution of assets in liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation available
for distribution.
6. No Dilution or Impairment. The Corporation will not, except by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action with the vote of at least sixty-six and
seven-tenths percent (66.7%) of the outstanding shares of the Voting Common
Stock, avoid or seek to avoid the observance or performance of any of the rights
of the Voting Common Stock set forth herein, but the Corporation will at all
times carry out all of such rights and take such action as may be necessary or
appropriate in order to protect such rights of the holders of the Voting Common
Stock against dilution or other impairment.
3
<PAGE>
7. Right of First Offer. Before the Corporation shall offer, issue, sell or
exchange, agree or obligate itself to offer, issue, sell or exchange, or reserve
or set aside for issuance, sale or exchange, any (i) shares of common capital
stock, (ii) other equity security of the Corporation, including without
limitation, shares of preferred stock, (iii) convertible debt security of the
Corporation, including without limitation, any debt security which by its terms
is convertible into or exchangeable for any equity security of the Corporation,
(iv) security of the Corporation that is a combination of debt and equity, or
(v) option, warrant or other right to subscribe for, purchase or otherwise
acquire any such equity security or any such debt security of the Corporation,
the Corporation shall, in each case, first offer to sell such securities (the
"Offered Securities") to those holders then holding Common Stock as follows:
(a) The Corporation shall offer to sell to each holder (i) that portion of
the Offered Securities as the number of shares of Common Stock issued bears to
the total number of said Common Stock issued to all stockholders (the "Basic
Amount"), and (ii) such additional portion of the Offered Securities as the
holders shall indicate they will purchase should the other holders subscribe for
less than their Basic Amounts (the "Undersubscription Amount"). The price and
other terms for the purchase of the Offered Securities shall be specified by the
Corporation in writing and delivered to the holders (the "Offer"). The Offer by
its terms shall remain open and irrevocable for a period of twenty (20) days
from receipt by the holders of the Offer. The term "receipt" shall mean delivery
to a holder's address on the books of the Corporation.
(b) Notice of each holder's intention to accept, in whole or in part,
any Offer made pursuant to Section 7(a) shall be evidenced by a writing
signed by such holder and delivered to the Corporation on or prior to the end
of the twenty (20) day period of the Offer, setting forth such holder's Basic
Amount as such holder elects to purchase and, if such holder shall elect to
purchase all of its Basic Amount, such Undersubscription Amount as such
holder shall elect to purchase (the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all holders are less than the total Offered
Securities, then each holder who has set forth Undersubscription Amounts in
its Notice of Acceptance shall purchase, in addition to the Basic Amounts
subscribed for, all Undersubscription Amounts it has subscribed for;
provided, however, that should the Undersubscription Amounts subscribed for
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each holder who
has subscribed for any Undersubscription Amount shall purchase only that
portion of the Available Undersubscription Amount as the Undersubscription
Amount subscribed for by such holder bears to the total Undersubscription
Amounts subscribed for by all holders, subject to rounding by the Board of
Directors to the extent it reasonably deems necessary.
(c) In the event that Notices of Acceptance are not given by the holders
in respect of all the Offered Securities at the end of the twenty (20) day
period, the Corporation shall have ninety (90) days from the end of said twenty
(20) day period to sell any such Offered Securities as to which a Notice of
Acceptance has not been given by the holders (the "Refused Securities") to any
Person or Persons, but only for cash and otherwise in all respects upon terms
and conditions, including, without limitation, share price and interest rates,
which are no more favorable, in the
4
<PAGE>
aggregate, to such other Person or Persons or less favorable to the Corporation
than those set forth in the Offer.
(d) In the event the Corporation shall propose to sell less than all of
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 7(c) above), then each holder may reduce the number of
shares of the Offered Securities specified in its respective Notices of
Acceptance to an amount which shall be not less than the amount of the
Offered Securities which the holder elected to purchase pursuant to Section
7(b) multiplied by a fraction, (i) the numerator of which shall be the amount
of Offered Securities which the Corporation actually proposes to sell, and
(ii) the denominator of which shall be the amount of all Offered Securities.
In the event that any holder so elects to reduce the number or amount of
Offered Securities specified in its respective Notice of Acceptance, the
Corporation may not sell or otherwise dispose of more than the reduced amount
of the Offered Securities until such securities have again been offered to
the holders in accordance with Section 7(a).
(e) The date, time and location of the closings for the sale of the
securities described in this Article shall be set in the Offer. Upon the
closing, which shall include full payment to the Corporation, of the sale to
such other Person or Persons of all or less than all the Refused Securities, the
holders shall purchase from the Corporation, and the Corporation shall sell to
the holders, the number of Offered Securities and/or Offered Refused Securities
specified in the Notices of Acceptance, as reduced pursuant to Section 7(d) if
the holders have so elected, upon the terms and conditions specified in the
Offer. The purchase by the holders of any Offered Securities and/or Offered
Refused Securities is subject in all cases to the preparation, execution and
delivery by the Corporation and the holders of a purchase agreement relating to
such Offered Securities and/or Offered Refused Securities reasonably
satisfactory in form and substance to the holders and their respective counsel.
(f) In each case, any Offered Securities not purchased by the holders or
the other Person or Persons in accordance with this Article may not be sold or
otherwise disposed of until they are again offered to the holders under the
procedures specified in Sections 7(a), (b), (c) and (d).
(g) The rights of the holders under this Section 7 may be waived only upon
the prior written consent or affirmative vote of the holders of at least
sixty-six and seven tenths percent (66.7%) of the outstanding Preferred Stock
voting as a separate class, and shall terminate immediately prior to the
effectiveness of the registration statement with respect to a Public Offering,
but expressly conditioned on the consummation of such Public Offering.
(h) The rights of the holders under this Section 7 shall not apply to:
(i) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock;
(ii) Preferred Stock issued as a dividend to holders of Preferred
Stock upon any subdivision or combination of shares of the Preferred Stock; or
5
<PAGE>
(iii) The issuance of up to 50,000 shares of Common Stock (A) 31,250
of which may be issued pursuant to exercise of the existing stock options
granted by the Corporation and (B) the balance to management on such terms and
conditions as may be decided in the sole discretion of the Compensation
Committee of the Corporation's Board of Directors; provided, however, that none
of the shares of Common Stock described in (A) and (B) shall be sold before the
Preferred Stock is redeemed either by the original holder thereof or by any
transferee, nor may they be transferred before the Preferred Stock is redeemed
except to the ancestors, descendants or spouse (or to trusts for the benefit of
such persons) of the original holder thereof. These shares shall be subject to
equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event.
*****
C. LARGE INSTITUTIONAL STOCKHOLDERS
1. Large Institutional Stockholders. Triumph-Connecticut Limited Partnership, a
Connecticut limited partnership ("Triumph") and Canaan Venture Limited
Partnership, a Delaware limited partnership ("CVLP") and Canaan Venture Offshore
Limited Partnership C.V., a Netherlands Antilles limited partnership ("CVOLP")
(CVLP and CVOLP are affiliates and are sometimes referred to herein as "Canaan")
are investors in the Corporation ("Large Institutional Investors").
*****
RESOLVED, that all the shares of the Corporation's Common Stock, $1.00 par value
per share, authorized prior to this amendment, are and shall be automatically
redesignated as shares of Class A Voting Common Stock, $1.00 par value per
share, upon the effectiveness of this amendment.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by its Secretary this ___ day of November, 1995.
Security Systems Holdings, Inc.
By: /s/ Tracy B. Ambler
--------------------------------
Tracy B. Ambler, Secretary
6
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SECURITY SYSTEMS HOLDINGS, INC.
Security Systems Holdings, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify that the following resolution amending the Corporation's
Certificate of Incorporation was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware, with
written consent having been given, and written notice thereof having been given,
in accordance with the provisions of Section 228 of the General Corporation Law
of the State of Delaware:
"RESOLVED, that the first paragraph of ARTICLE IV of the Corporation's
certificate of incorporation be and hereby is amended, to read as follows:
ARTICLE IV
The Corporation shall be authorized to issue Two Hundred Ninety-Six
Thousand (296,000) shares of capital stock, which shall be divided into One
Hundred Seventy-Three Thousand Five Hundred (173,500) shares of Common Stock,
$1.00 par value per share (the "Common Stock"), Fifty Thousand (50,000) shares
of Series A Preferred Stock, $100.00 par value per share (the "Series A
Preferred Stock") and Seventy-Two Thousand Five Hundred (72,500) shares of
Series B Preferred Stock, $120.00 par value per share (the "Series B Preferred
Stock") (the Series A Preferred Stock and the Series B Preferred Stock being
referred to collectively as the "Preferred Stock")."
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by its Secretary this ___ day of May, 1995.
Security Systems Holdings, Inc.
By: /s/ Tracy B. Ambler
---------------------------------
Tracy B. Ambler, Secretary
1
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SECURITY SYSTEMS HOLDINGS, INC.
Security Systems Holdings, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, does hereby certify that the following resolution
amending the Corporation's Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware, with written consent having been given, and written
notice thereof having been given, in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware:
"RESOLVED, that the first sentence of subsection (a)(ii) of Section 6 of
Part A of ARTICLE IV of the Corporation's Certificate of Incorporation be and
hereby is amended by:
Deleting the words "June 30, 1997" and substituting in lieu thereof
the words "March 31, 1998".
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by its Secretary this 6 day of March 1997.
SECURITY SYSTEMS HOLDINGS, INC.
By: /s/ Tracy B. Ambler
-----------------------------
Tracy B. Ambler, Secretary
<PAGE>
BY-LAWS
OF
SECURITY SYSTEMS HOLDINGS, INC.
Meetings of Stockholders
1. Place of Meetings. All meetings of stockholders of Security Systems
Holdings, Inc. (hereinafter called the Corporation) may be held at the
registered office of the Corporation, or at such other place within or without
the State of Delaware as shall be specified in the notice of such meeting given
as hereinafter provided.
2. Annual meeting. An annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the fourth
Thursday of July of each year at such place and hour as shall be designated in
the notice thereof.
3. Special Meetings. Special meetings may be called by the Board of
Directors of the Corporation (hereinafter called the "Board"), or by the
President of the Corporation, by the Chairman of the Board should one be
appointed as provided in these By-Laws, by any two directors or at the request
in writing of stockholders owning at least forty percent (40%) in amount of the
entire capital stock of the Corporation issued and outstanding and entitled to
vote or at the request in writing of stockholders owning at least twenty percent
(20%) of any class of capital stock of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
4. Notice of meetings and waiver. Whenever stockholders of the
Corporation are required or permitted to take any action at a meeting, a
written notice of the meeting shall be given which shall state the place,
date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. The written notice of
any meeting shall be given not less than ten nor more than sixty days before
the date of the meeting to each stockholder entitled to vote at such meeting.
If mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. A written waiver of notice signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special
<PAGE>
meeting of the stockholders need be specified in any written waiver of notice.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting, unless these By-Laws otherwise require, if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
5. List of stockholders. It shall be the duty of the Secretary of the
Corporation to prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
6. Quorum and manner of acting. A majority of the shares of stock issued
and outstanding represented at any meeting of the stockholders, either in person
or by proxy, and entitled to vote thereat, shall constitute a quorum for the
purpose of such meeting. Unless otherwise provided by statute or in the
Certificate of Incorporation of the Corporation, and subject to the provisions
of these By-Laws, each stockholder shall be entitled to one vote for each share
of the Corporation's capital stock held by such stockholder. Except as otherwise
provided by statute or in the Certificate of Incorporation or these By-Laws, the
action of the stockholders shall be decided by a majority of the votes cast by
the holders of shares of the Corporation's outstanding capital stock present in
person or represented by proxy and entitled to vote thereon at a meeting duly
called and held.
Any action which may be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Each stockholder entitled to vote at a meeting of stockholders, or to
express consent or dissent to corporate action may appoint a person or persons
to act for him by proxy, but no such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
<PAGE>
7. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the
date of such meeting nor more than sixty days prior to any other action. If
no record date is fixed: (i) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held; (ii) the record date for determining
stockholders entitled to express consent to corporate action in writing
without a meeting, when no prior action by the Board is necessary, shall be
the day on which the first written consent is expressed; and (iii) the record
date for determining stockholders for any other purpose shall be at the close
of business on the day on which the Board adopts the resolution relating
thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
8. Order of business, Voting and Proxies. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting. All elections of directors shall be by written ballot. Except in the
case of a vote for the election of directors, unless demanded by a
stockholder present in person or represented by proxy at any meeting of the
stockholders and entitled to vote or so directed by the chairman of the
meeting, the vote on any question need not be by ballot. Upon a demand by any
such stockholder for a vote by ballot on any question or at the direction of
the chairman of the meeting that a vote by ballot be taken on any question,
the vote shall be so taken. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or in his name by his proxy, if there be a proxy,
and it shall show the number of shares voted by him. Except as otherwise
required by statute or by these By-Laws, all voting may be viva voce.
9. Inspectors of election. At each meeting of the stockholders the
chairman of the meeting may, and at the request of a stockholder present in
person or represented by proxy and entitled to vote at the meeting shall,
appoint two inspectors of election to act at the meeting. No director or
candidate for the office of director shall be appointed such an inspector.
Inspectors of election need not be stockholders. Each inspector of election so
appointed, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspection at the meeting with
strict impartiality and according to the best of his ability. Such inspectors of
election shall determine the number of shares of stock outstanding and the
voting power of each, the number of shares of stock represented at the meeting,
the existence of a quorum, and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to
<PAGE>
conduct the election or vote, with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote at the meeting,
the inspectors shall make a report in writing of any challenge, request or
matter determined by them and shall execute a certificate of any fact found
by them.
Board of Directors
10. Powers, qualifications, number, term and election. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board. The Board may exercise all the authority and powers of the Corporation
and do all lawful acts and things which are not by statute or the Certificate of
Incorporation of the Corporation or these By-Laws directed or required to be
exercised or done by the stockholders. If any such provision is made in the
Certificate of Incorporation, the powers and duties conferred or imposed upon
the Board shall be exercised or performed to such extent and by such person or
persons as shall be provided in the Certificate of Incorporation. Each director
shall be at least twenty-one years of age. A director need not be a resident of
the State of Delaware or a stockholder. Subject to the provisions of the
Certificate of Incorporation, the Board shall consist of one or more members
elected or appointed at the last annual meeting of stockholders, which number
shall not be more than ten directors. The term of office of each director shall
be from the time of his election and qualification or appointment until his
successor shall have been duly elected or appointed at the next annual meeting
of the stockholders and shall have qualified, or until his earlier death, or
resignation or removal as provided in these By-Laws. At all elections of
directors by the stockholders, the persons (other than persons selected by
appointment pursuant to the provisions of the Certificate of
Incorporation)receiving a plurality of the votes cast shall be the directors.
11. Compensation. Directors as such shall not receive any compensation
for their services, although the Board shall have the authority to fix by
resolution the compensation of directors. Expenses, if any, of attendance at
any meeting may be allowed each director. Nothing contained in these By-Laws
shall be construed to preclude a director from serving the Corporation in any
other capacity as an officer, employee, agent or otherwise and receiving
compensation there for.
12. Place of meetings. The Board may hold its meetings at the place or
places within or without the State of Delaware as it may from time to time by
resolution determine or as shall be specified or fixed in the respective notices
or waivers of notice thereof.
13. First Meeting after annual meeting. The Board shall meet for the
purpose of organization, election of officers, appointment of committees, if
any, and the transaction of other business as soon as practicable after each
annual meeting of the stockholders.
14. Regular Meetings. Each regular meeting of the Board shall be held at
the time and place specified in a resolution adopted by the Board then in
effect, or, if there is not any such resolution then in effect, as specified in
a notice of the meeting, given as provided in these By-Laws for notices of
special meetings of the Board, or as specified in a waiver of notice thereof
signed by all the directors of the Corporation then in office. If at the time
any regular meeting of the Board is to be held, the time and place of holding
regular meetings of the Board shall have
<PAGE>
been fixed by resolution of the Board then in effect, notice of the regular
meeting need not be given except as may otherwise be provided by statute.
15. Special Meetings, Notice and Waiver. Special meetings of the Board
shall be held whenever called by the President or the Secretary of the
Corporation, or by the Chairman of the Board, should one be appointed as
provided in these By-Laws, by any two members of the Board or at the request
in writing of stockholders owning at least twenty percent (20%) of any class
of capital stock of the Corporation issued and outstanding and entitled to
vote. Except as otherwise provided by statute, a notice of each special
meeting, which shall state the time and place of the meeting, shall be mailed
to each director addressed to him at his residence or usual place of business
at least five days before the day on which the meeting is to be held, or
shall be sent addressed to him at his usual place of business by telegraph or
delivered personally or by telephone not later than two days before the day
on which the meeting is to be held. If mailed, notice is given when deposited
in the United States mail, postage prepaid, directed to the director at his
residence address or the address of his usual place of business. A written
waiver of notice of a Board meeting, signed by the director, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a director at a Board meeting shall constitute a waiver of
notice of such meeting, except when the director attends a meeting for the
express purpose of objecting at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in any written
waiver of notice. Any meeting of the Board shall be a legal meeting without
any notice having been given if all the directors of the Corporation then in
office shall have waived notice or shall have attended the meeting without
any director having protested, prior thereto or at its commencement, the lack
of notice.
16. Quorum Adjournment and Manner of Acting. At each meeting of the
Board, the presence of a majority of the total number of directors then in
office shall constitute a quorum and sufficient for the transaction of
business. Any vote of a majority of the directors present at a meeting at
which there is a quorum present at the time of the vote shall be the act of
the Board, except as may be otherwise specifically provided by statute or in
the Certificate of Incorporation of the Corporation or these By-Laws. Any
meeting of the Board may be adjourned by a majority vote of the directors
present at the meeting. In the absence of a quorum at any meeting, a majority
of the directors present may adjourn the meeting to another time and place
until a quorum is present. Notice of any adjourned meeting need not be given.
The directors shall act only as a Board and the individual directors shall
have no power as such. Any action required or permitted to be taken at any
meeting of the Board may be taken without a meeting if all members of the
Board consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board. Members of the Board may participate
in a meeting of the Board by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
By-Law provision shall constitute presence in person at such meeting.
<PAGE>
17. Removal. Except as provided in the Corporation's Certificate of
Incorporation, any director or the entire Board of the Corporation may be
removed from office at any time with or without cause by the holders of a
majority of the outstanding shares of the Corporation's capital stock then
entitled to vote at an election of directors.
18. Vacancies. In the event of a vacancy on the Board of Directors caused
by the removal, resignation or death of an Appointed Director, the Large
Institutional Stockholder (as defined in the Certificate of Incorporation) which
appointed such director shall have the sole right to name such director's
successor. In the event of a vacancy on the Board of Directors caused by the
removal, resignation or death of a director other than an Appointed Director, it
shall be filled: (i) by the vote of stockholders if due to removal and if the
vacancy is filled at the same meeting (or by written consent) as effects such
removal, or, (ii) if not so filled or if due to resignation or death, by the
remaining directors.
19. Reliance on reports. A member of the Board shall, in the performance
of his duties, be fully protected in relying in good faith upon the books of
account or reports made to the Corporation by any of its officers, or by an
independent certified public accountant, or by an appraiser selected with
reasonable care by the Board, or in relying in good faith upon other records of
the Corporation.
20. Committees. The Board may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The Board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it; but no such committee shall have the power
or authority to amend the Certificate of Incorporation, adopt an agreement of
merger or consolidation, recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets, recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, amend the By-Laws of the Corporation, declare a
dividend, or authorize the issuance of stock.
Officers
21. Number and qualifications. The officers of the Corporation shall be
the President, Secretary, and Treasurer. The Board may also appoint, in
accordance with the provisions of these By-Laws, a Chairman of the Board (who
shall be a member of the Board), one or more Vice
<PAGE>
Presidents, one or more of whom may be designated an Executive Vice President or
a Senior Vice President, a Controller, and subordinate officers, agents and
employees, with such duties as the Board shall determine or as otherwise
provided in these By-Laws. Any number of offices may be held by the same person.
22. Election and term of office. The officers of the Corporation shall be
elected from time to time by the Board, each to hold office until the meeting of
the Board after the next annual meeting of the stockholders and his successor
shall have been duly elected and shall have qualified, or until his earlier
death, or resignation, or removal as provided in these By-Laws.
23. Subordinate officers, etc. The Board may from time to time appoint
such subordinate officers, agents or employees as the Board may consider to be
necessary or advisable, including one or more Assistant Treasurers and one or
more Assistant Secretaries, each of whom shall hold office for the period, have
the authority, and perform the duties provided in these By-Laws or as the Board
may from time to time determine.
24. Removal. Any officer, agent or employee of the Corporation may be
removed at any time with or without cause by vote of a majority of the entire
Board.
25. Vacancies. In case the office of the Chairman of the Board, the
President, any Vice President, Secretary, Treasurer, or of a subordinate
officer, agent or employee of the Corporation becomes vacant due to death,
resignation, removal, or a newly created office, the directors then in office,
although less than a quorum of the Board, by a majority vote, may elect or
appoint a successor to fill the vacancy, to hold office for the unexpired
term.
26. Chairman of the Board. The Chairman of the Board, if one is
appointed and if present, shall preside at all meetings of stockholders and
of the Board. He shall perform such other duties as may from time to time be
assigned to him by these By-Laws or by the Board.
27. President. The President shall be the chief executive officer of the
Corporation and shall have general supervision over the business of the
Corporation, subject to the control of the Board. The President shall preside at
each meeting of the stockholders of the Corporation and of the Board, unless
these duties shall have been assigned to a Chairman of the Board. The President
shall see that all orders and resolutions of the Board are carried into effect.
He may sign, with the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, certificates for shares of the capital stock of the
Corporation; and he may sign, execute and deliver in the name of the Corporation
all deeds, mortgages, bonds, contracts or other instruments authorized by the
Board, except in cases where the signing, execution or delivery of the
instrument shall be expressly delegated by the Board or by these By-Laws to some
other officer or agent of the Corporation or shall be required by statute
otherwise to be signed, executed and delivered, and he may affix the seal of the
Corporation to any instrument which requires a seal. In general the President
shall perform all duties incident to the office of president and other duties
assigned to him from time to time by these By-Laws or by the Board.
28. Vice Presidents. Each Vice President shall perform the duties assigned
to him from
<PAGE>
time to time by the Board or the President. Any Vice President may sign, with
the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, certificates for shares of the capital stock of the Corporation.
29. Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all the funds and securities of the Corporation, shall keep
full and accurate accounts of receipts and disbursements in books belonging
to the Corporation, and shall deposit all moneys and other valuable effects
in the name of and to the credit of the Corporation in the banks or other
depositaries designated by the Board. The Treasurer shall disburse the funds
of the Corporation as ordered by the Board, taking proper vouchers for
disbursements, and shall render to the President, and to the directors at the
meetings of the Board, a statement of all his transactions as Treasurer and
an account of the financial condition of the Corporation. In general, the
Treasurer shall perform all the duties incident to the office of treasurer
and other duties assigned to him from time to time by the Board or the
President. He may sign, with the President or a Vice President, certificates
for shares of the capital stock of the Corporation.
30. Secretary. The Secretary shall act as secretary of, and record the
proceedings of, meetings of the Board and of the stockholders in a book to be
kept for that purpose. He shall cause to be given notice of meetings of the
stockholders and directors; he shall be custodian of the seal of the Corporation
and shall affix the seal, or cause it to be affixed, to certificates for shares
of the capital stock of the Corporation and to documents the execution of which
on behalf of the Corporation under its seal shall have been specifically or
generally authorized by the Board; and he shall have charge of the record of
stockholders and also of the other books, records and papers of the Corporation
which relate to its organization as a corporation and shall see that the
reports, statements and other documents required by statute are properly kept or
filed. In general the Secretary shall perform all the duties incident to the
office of secretary and other duties assigned to him from time to time by the
Board or the President. He may sign, with the President or a Vice President,
certificates for shares of the capital stock of the Corporation.
31. Salaries. Salaries of officers of the Corporation, if any, shall be
fixed from time to time by, or with the authority of, the Board. An officer
shall not be prevented from receiving a salary by reason of the fact that he is
also a member of the Board; but an officer who is also a member of the Board
shall have no vote in the determination of the amount of the salary that shall
be paid to him.
Resignations
32. Resignations. Any director, officer, or any subordinate officer, agent
or employee of the Corporation appointed by the Board, may resign his office at
any time by giving written notice of his resignation to the President or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if no time is specified, at the time of its receipt by the Corporation, and
acceptance shall not be necessary to make the resignation effective.
<PAGE>
Contracts and Bank Accounts
33. Execution of contracts. Except as these By-Laws may otherwise provide,
the Board may authorize any officer, subordinate officer, agent or employee, in
the name of and on behalf of the Corporation, to enter into any contract or
execute and deliver any instrument; the authority may be general or confined to
specific instances. Unless so authorized by the Board or expressly authorized by
these By-Laws, no officer, subordinate officer, agent or employee shall have any
power or authority to bind the Corporation by any contract or engagement or to
pledge its credit or render it pecuniarily liable for any purpose or to any
amount.
34. Checks, drafts, etc. All checks, drafts and other orders for the
payment of moneys out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in the manner authorized from time to time by the Board.
35. Deposits. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in the banks, trust
companies, or other depositaries selected by the Board or by an officer,
subordinate officer, agent or employee of the Corporation to whom such authority
may from time to time be delegated by the Board. Any officer, subordinate
officer, agent or employee of the Corporation to whom authority to make such a
deposit may be delegated by the Board may endorse, assign and deliver checks,
drafts and other orders for the payment of moneys which are payable to the order
of the Corporation.
Stock, Dividends
36. Stock certificate. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the Chairman of the Board, or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation. Any of or all the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. Certificates
for shares of capital stock of the Corporation shall be in the form approved by
the Board, be issued and signed as provided in these By-Laws, and sealed with
the seal of the Corporation. The seal may be a facsimile.
37. Lost certificates. The Corporation may issue a new certificate of
stock, in the place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
<PAGE>
38. Transfers. Transfers of stock shall be made on the stock ledger of
the Corporation only upon authorization by the registered holder of the
shares in person or by his duly authorized attorney or legal representative,
upon surrender and cancellation of the certificates duly endorsed or
accompanied by duly executed stock powers for a like number of shares and
upon payment of all taxes thereon. The person in whose name stock shall stand
on the stock ledger of the Corporation shall be deemed the owner thereof for
all purposes as regards the Corporation, and the stock ledger shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list of stockholders entitled to vote at a meeting, or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders. The Board may make additional rules and regulations and take
any action it considers to be expedient, not inconsistent with the
Certificate of Incorporation of the Corporation or these By-Laws, concerning
the issue, transfer and registration of stock certificates of the Corporation
or the issue of certificates in lieu of certificates claimed to have been
lost, stolen or destroyed.
39. Dividends. Subject to the provisions of the Certificate of
Incorporation of the Corporation and to the extent permitted by statute, the
Board may declare dividends on the shares of the Corporation's capital stock at
the times and in the amounts as, in its opinion, the condition of the business
of the Corporation renders advisable. Before payment of any dividend or making
any distribution of the Corporation's property to stockholders, the Board may
set aside out of the surplus or net profits of the Corporation any sum or sums
which the Board from time to time, in its absolute discretion, considers to be
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for other
purposes considered by the Board to be in the best interests of the Corporation.
If the dividend is to be paid in shares of the Corporation's
theretofore unissued capital stock, the Board shall, by resolution, direct
that there be transferred from surplus to the capital account in respect of
such shares an amount which is not less than the aggregate par value of par
value shares being declared as a dividend and, in the case of shares without
par value being declared as a dividend, such amount as shall be determined by
the Board. No transfer from surplus to capital shall be necessary if shares
are being distributed by the Corporation pursuant to a split-up or division
of its stock rather than as payment of a dividend declared payable in stock
of the Corporation.
Offices, Books, Etc.
40. Offices. The registered office of the Corporation shall be at 1209
Orange Street, Wilmington, Delaware or as may otherwise be provided from time to
time in the Certificate of Incorporation. The Board may from time to time and at
any time establish other offices and branches of the Corporation's business at
whatever place or places seem to it expedient.
41. Books and records. There shall be kept correct and complete books and
records of account of all the business and transactions of the Corporation.
There shall also be kept by the
<PAGE>
Corporation a record which shall contain the names and addresses of all
stockholders of the Corporation, the number of shares held by each, and the date
when each became the owner of record.
42. Seal. The seal of the Corporation shall be circular in form and
contain the name of the Corporation and the words "Incorporated Delaware".
43. Fiscal year. The fiscal year of the Corporation shall be fixed from
time to time by resolution of the Board.
44. Indemnity. Except as otherwise provided in the Certificate of
Incorporation of the Corporation, on the terms, to the extent, and subject to
the conditions prescribed by statute and by rule and regulations, not
inconsistent with statute, imposed by the Board in its discretion in general or
particular cases or classes of cases, the Corporation shall indemnify any person
who was or is a party, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of the
other enterprise, against expenses including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding, or any appeal therein. The
Corporation may pay, in advance of the final disposition of the action, suit or
proceeding, expenses incurred by the person which may be indemnifiable as
provided herein.
Amendments to By-Laws
45. Amendments. These By-Laws may be amended or repealed, or new By-Laws
may be adopted, by a majority vote of the whole Board, provided that the
proposed action in respect thereof shall be stated in the notice of the meeting,
subject to the power of the holders of a majority of the outstanding shares of
stock of the Corporation entitled to vote in respect thereof, by their vote
given at an annual or special meeting or taken by consent in writing as provided
in these By-Laws, to amend or repeal any By-Law made by the Board.
* * *
<PAGE>
Exihibit 3.07
FORM OF
SECOND RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
OF
SECURITY SYSTEMS HOLDINGS, INC.
Security Systems Holdings, Inc., a Delaware corporation, hereby certifies
as follows:
FIRST: The name of the Corporation is Security Systems Holdings, Inc.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street, Wilmington, Delaware 19801. The registered
agent at the address is CT Corporation System.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 100 shares of Common Stock, par value $.01 per
share.
FIFTH: Elections of directors need not be by ballot unless the By-Laws of
the Corporation shall so provide.
SIXTH: The Board of Directors of the Corporation may make By-Laws and from
time to time may alter, amend or repeal By-Laws.
SEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
DGCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended. Any repeal or modification of the foregoing provisions of this
Article SEVENTH shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
EIGHTH: The Corporation shall, to the fullest extent permitted by Section
145 of the DGCL, as the same may be amended and supplemented, indemnify each
director and officer of
<PAGE>
the Corporation from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said section and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any By-Law, agreement, vote of
stockholders, vote of disinterested directors or otherwise, and shall continue
as to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such persons and the
Corporation may purchase and maintain insurance on behalf of any director or
officer to the extent permitted by Section 145 of the DGCL.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
-2-
<PAGE>
Exihibit 3.08
FORM OF
RESTATED AND AMENDED BY-LAWS
OF
SECURITY SYSTEMS HOLDINGS, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in these
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder of the Corporation entitled to vote at such meeting at such
stockholder's address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for
<PAGE>
purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in the
absence of the Chairman of the Board, the President shall call all meetings of
the stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board and the President, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled to
vote at a meeting of stockholders or to express consent
-2-
<PAGE>
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him or her by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. When directed by the presiding officer or upon the
demand of any stockholder, the vote upon any matter before a meeting of
stockholders shall be by ballot. Except as otherwise provided by law or by the
Certificate of Incorporation, Directors shall be elected by a plurality of the
votes cast at a meeting of stockholders by the stockholders entitled to vote in
the election and, whenever any corporate action, other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors, none of whom need be stockholders of the Corporation. The number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The Directors
shall, except as hereinafter otherwise provided for filling vacancies, be
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elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the state
of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
of the Board of Directors shall be given by mailing the same at least two days
before the special meeting or by causing the same to be transmitted by
facsimile, telegram or telephone at least one day before the special meeting to
each Director. Unless otherwise indicated in the notice thereof, any and all
business other than an amendment of these By-Laws may be transacted at any
special meeting, and an amendment of these By-Laws may be acted upon if the
notice of the special meeting shall
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have stated that the amendment of these By-Laws is one of the purposes of the
meeting. At any special meeting at which every Director shall be present, even
though without any notice, any business may be transacted, including the
amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors. If at any meeting
of the Board there is less than a quorum present, a majority of those present
may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board or, in the
absence of the Chairman of the Board, the President shall preside at all
meetings of the Board of Directors. In the absence of the Chairman of the Board
and the President, a Chairman shall be elected from the Directors present. The
Secretary of the Corporation shall act as Secretary of all meetings of the
Directors; but in the absence of the Secretary, the Chairman may appoint any
person to act as Secretary of the meeting.
SECTION 8. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors. The Board may designate
one or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws; and unless such resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications
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equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 10. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer, and such additional officers, if any, as shall be elected by the
Board of Directors pursuant to the provisions of Section 7 of this Article III.
The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees of the Corporation shall be
subject to removal, with or without cause, at any time by the Board of
Directors. The removal of an officer without cause shall be without prejudice to
his contract rights, if any. The election or appointment of an officer shall not
of itself create contract rights. All agents and employees other than officers
elected by the Board of Directors shall also be subject to removal, with or
without cause, at any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall be the chief executive officer of the Corporation
and, subject to the control of the Board of Directors, shall have general charge
and control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Chairman of the Board. The
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Chairman shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors and shall have such other powers and perform such
other duties as may from time to time be assigned by these By-Laws or by the
Board of Directors.
SECTION 3. Powers and Duties of the President. The President shall
be the chief operating officer of the Corporation and, subject to the control of
the Board of Directors and the Chairman of the Board, shall have general charge
and control of all its operations and shall have all powers and shall perform
all duties incident to the office of President. In the absence of the Chairman
of the Board, the President shall preside at all meetings of the stockholders
and at all meetings of the Board of Directors and shall have such other powers
and perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors or the Chairman of the Board.
SECTION 4. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board or the President.
SECTION 5. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors or the President shall authorize and direct; shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors or the President shall direct, all of which
shall at all reasonable times be open to the examination of any Director, upon
application, at the office of the Corporation during business hours; and
whenever required by the Board of Directors or the President shall render
statements of such accounts. The Secretary shall have all powers and shall
perform all duties incident to the office of Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors, the Chairman of the
Board or the President.
SECTION 6. Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors or the President
shall render statements of such accounts. The Treasurer shall, at all reasonable
times, exhibit the books and accounts to any Director of the
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Corporation upon application at the office of the Corporation during business
hours; and shall have all powers and shall perform all duties incident to the
office of Treasurer and shall also have such other powers and shall perform such
other duties as may from time to time be assigned by these By-Laws or by the
Board of Directors, the Chairman of the Board or the President.
SECTION 7. Additional Officers. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors, the Chairman of the Board or the President.
The Board of Directors may from time to time by resolution delegate
to any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 8. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 9. Voting Upon Stocks. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the President or any Vice President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote, or in the name of the Corporation to execute proxies to
vote, at any meeting of stockholders of any corporation in which the Corporation
may hold stock, and at any such meeting shall possess and may exercise, in
person or by proxy, any and all rights, powers and privileges incident to the
ownership of such stock. The Board of Directors may from time to time, by
resolution, confer like powers upon any other person or persons.
SECTION 10. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of
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any action alleged to have been taken or omitted in such capacity, and may
indemnify any person who was or is a party or is threatened to be made a party
to such an action, suit or proceeding by reason of the fact that he or she is or
was or has agreed to become an employee or agent of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
or on his or her behalf in connection with such action, suit or proceeding and
any appeal therefrom, if the person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful; except that in the
case of an action or suit by or in the right of the Corporation to procure a
judgment in its favor (1) such indemnification shall be limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in
the defense or settlement of such action or suit, and (2) no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (i) by the Board of Directors by a majority vote of a
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quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
Section 4. Advance Payment of Expenses. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article IV. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may authorize the
Corporation's legal counsel to represent such Director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the
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fullest extent permitted by any applicable portion of this Article IV that shall
not have been invalidated and to the fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification
to a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, by-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
Stock; Seal; Fiscal Year
SECTION 1. Certificates for Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or
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destroyed, he or she shall file in the office of the Corporation an affidavit
setting forth, to the best of his or her knowledge and belief, the time, place
and circumstances of the loss, theft or destruction, and, if required by the
Board of Directors, a bond of indemnity or other indemnification sufficient in
the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article V.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than 60 nor less than ten days before the date of
such meeting, or (ii) in the case of corporate action to be taken by consent in
writing without a meeting, prior to, or more than ten days after, the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, or (iii) more than 60 days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
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SECTION 6. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
endorsed for deposit to the credit of the Corporation with a duly authorized
depository by the Treasurer and/or such other officers or persons as the Board
of Directors from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
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Section 3. Contracts. Except as otherwise provided in these By-Laws
or by law or as otherwise directed by the Board of Directors, the Chairman of
the Board, the President or any Vice President shall be authorized to execute
and deliver, in the name and on behalf of the Corporation, all agreements,
bonds, contracts, deeds, mortgages, and other instruments, either for the
Corporation's own account or in a fiduciary or other capacity, and the seal of
the Corporation, if appropriate, shall be affixed thereto by any of such
officers or the Secretary or an Assistant Secretary. The Board of Directors, the
Chairman of the Board, the President or any Vice President designated by the
Board of Directors, the Chairman of the Board or the President may authorize any
other officer, employee or agent to execute and deliver, in the name and on
behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary or
other capacity, and, if appropriate, to affix the seal of the Corporation
thereto. The grant of such authority by the Board or any such officer may be
general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors or the Chairman of the Board.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof, may be altered,
amended or repealed or new By-Laws may be adopted by the holders of a majority
of the total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
-14-
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
SD
<S> <C> <C>
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE TRITON GROUP Ltd. SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 896757 10 1
This Certifies that
SPECIMEN
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.0001 PAR VALUE, OF
COUNTERSIGNED AND REGISTERED:
TRITON GROUP LTD.
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
transferable on the books of the Corporation in person or by duly authorized attorney on surrender of this certificate properly
endorsed. This certificate shall not be valid until countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its duly authorized officers.
Dated:
Secretary SEAL President
</TABLE>
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common
TEN ENT --as tenants by the entireties
JT TEN --as joint tenants with right of survivorship and not as tenants in
common
COM PROP --as community property
UNIF GIFT MIN ACT- ..............Custodian...............
(Cust) (Minor)
under Uniform Gifts to Minors
Act...................................
(State)
UNIF TRF MIN ACT- ..............Custodian (until age....)
(Cust)
..............under Uniform Transfers
(Minor)
to Minors Act.........................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ____________________________ hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power or substitution in the premises.
Dated _______________________
_________________________________________________________________
_________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
________________________________________________________________________________
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
Ad-15.
INFORMATION LEGEND ONLY
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ISSUED PURSUANT TO AN
EXEMPTION PROVIDED BY 11 U.S.C. SECTION 1145, UNDER AN ORDER CONFIRMING THE
PLAN IN THE CASES ENTITLED IN RE INTERMARK, INC., DEBTOR, CASE NO.
92-12385-B11, AND IN RE TRITON GROUP LTD., DEBTOR, CASE NO 92-12386-B11, IN
THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA.
THE HOLDER OF THIS CERTIFICATE IS REFERRED TO 11 U.S.C. SECTION 1145(b) AND
(c) FOR GUIDANCE AS TO THE SALE OF THESE SECURITIES."
<PAGE>
EXERCISABLE ON OR BEFORE JUNE 25, 1998
WARRANT CERTIFICATE
TRITON GROUP LTD.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 896757 11 9
THIS WARRANT CERTIFICATE CERTIFIES THAT
, or registered assigns, is the registered holder of Warrants expiring June 25,
1998 (the "Warrants") to purchase Common Stock, .0001 par value (the "Common
Stock"), of Triton Group Ltd., a Delaware corporation (the "Company"). Each
Warrant entitles the holder upon exercise to receive from the Company on or
before 5:00 p.m., New York City time on June 25, 1998, one fully paid and
nonassessable share of Common Stock (a "Warrant Share") at the initial exercise
price (the "Exercise Price") equal to 125% of the "current market price" of the
Common Stock on October 25, 1993 which shall be deemed to be the average of the
Quoted Prices (as defined in the Warrant Agreement) of the Common Stock for the
immediately preceding 30 consecutive trading days; provided, however, if the
Exercise Price as determined at such time would otherwise be less than or equal
to $3.75 (the "Minimum Exercise Price") the Exercise Price shall nevertheless be
$3.75 and if the Exercise Price as determined at such time would otherwise be
greater than or equal to $5.00 (the "Maximum Exercise Price") the Exercise Price
shall nevertheless be $5.00. The Exercise Price shall be payable in lawful money
of the United States of America upon surrender of this Warrant Certificate and
payment of the Exercise Price at the office or agency of the Warrant Agent, but
only subject to the conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof. The Exercise Price (including the Maximum
Exercise Price and the Minimum Exercise Price if certain events set forth in the
Warrant Agreement
occur on or prior to October 25, 1993) and number of Warrant Shares issuable
upon exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York City time on June 25,
1998, and to the extent not exercised by such time such Warrants shall become
void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent, as such term is used in the Warrant Agreement.
This Warrant Certificate shall be governed and construed in accordance with
the internal laws of the State of California.
IN WITNESS WHEREOF, Triton Group Ltd. has caused this Warrant Certificate
to be signed by its President and by its Secretary, each by a facsimile of his
signature and has caused a facsimile of its corporate seal to be affixed
hereunto or imprinted hereon.
Dated: TRITON GROUP LTD.
COUNTERSIGNED: BY
AMERICAN STOCK TRANSFER & TRUST COMPANY
PRESIDENT
as Warrant Agent
BY BY
AUTHORIZED SIGNATURE SECRETARY
TRITON GROUP LTD. CORPORATE SEAL DELAWARE 1988
<PAGE>
TRITON GROUP LTD.
The Warrants evidenced by this Warrant Certificate are part of a duly authorized
issue of Warrants expiring June 25, 1998 entitling the holder on exercise to
receive shares of Common Stock, .0001 par value, of the Company (the "Common
Stock"), and are to be issued pursuant to a Warrant Agreement dated as of June
25, 1993 (the "Warrant Agreement"), duly executed and delivered by the Company
to First Interstate Bank of California, a California corporation, as warrant
agent (the "Warrant Agent"), which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Warrants may be exercised at any time on or before June 25, 1998. The holder
of Warrants evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the form of election to purchase
set forth heron properly completed and executed, together with payment of the
Exercise Price in cash at the office of the Warrant Agent. In the event that
upon any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall
be issued to the holder hereof or his assignee a new Warrant Certificate
evidencing the number of Warrants not exercised. No adjustment shall be made
for any dividends on any Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events the
Exercise Price set forth on the face hereof may, subject to certain conditions,
be
adjusted. If the Exercise Price is adjusted, the Warrant Agreement
provides that the number of shares of Common Stock issuable upon the exercise of
each Warrant shall be adjusted. No fractions of a share of Common Stock will be
issued upon the exercise of any Warrant, but the Company will pay the cash value
thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered holder(s)
thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, of any distribution to the holder(s) hereof, and
for all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary. Neither the Warrant nor this Warrant
Certificate entitles any holder hereof to any rights of a stockholder of the
Company.
ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED____________________________________________hereby sells,
assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
_______________________________________________________________________attorney,
to transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ______________ Signature______________________________________________
_______________________________________________________
NOTICE: The signature to the foregoing Assignment must
correspond to the name as written upon the face of this
Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever.
Signature Guaranteed:
________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ______________________shares
of Common Stock and herewith tenders payment for such shares to the order of
TRITON GROUP LTD. in the amount of $____________________________________________
in accordance with the terms hereof. The undersigned requests that a
certificate for such shares be registered in the name of________________________
__________________________,whose address is_____________________________________
and that such shares be delivered to
__________________________,whose address is____________________________________.
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
__________________________,whose address is____________________________________,
and that such Warrant Certificate be delivered to
__________________________, whose address is___________________________________.
Date:____________________ Signature_________________________________________
_________________________________________
Signature Guaranteed:
________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION.
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15
INFORMATION LEGEND ONLY
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND WERE ISSUED PURSUANT TO AN EXEMPTION PROVIDED BY
11 U.S.C. SECTION 1145, UNDER AN ORDER CONFIRMING THE PLAN IN THE CASES
ENTITLED IN RE INTERMARK, INC., DEBTOR, CASE NO. 92-12385-B11, AND IN RE TRITON
GROUP LTD., DEBTOR, CASE NO. 92-12386-B11, IN THE UNITED STATES BANKRUPTCY
COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA. THE HOLDER OF THIS CERTIFICATE
IS REFERRED TO 11 U.S.C. SECTION 1145(b) AND (c) FOR GUIDANCE AS TO THE SALE
OF THESE SECURITIES."
<PAGE>
Exhibit 4.06
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of ______ __,
1997, by and among TRITON GROUP LTD., a Delaware corporation (the "Company"),
CANAAN VENTURE LIMITED PARTNERSHIP ("Canaan Venture LP"), CANAAN VENTURE
OFFSHORE LIMITED PARTNERSHIP, CV ("Canaan Offshore" and, together with Canaan
Venture LP, the "Canaan Entities"), TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP, a
Connecticut limited partnership ("Triumph"), ALIS & CO., an Illinois general
partnership ("Alis"), THORNE-BARNES DONNELLEY 1994 TRUST ("Thorne Trust" and,
together with Alis and their respective successors, the "Alis Holders") and the
additional holders of securities of the Company that are signatories hereto (the
"Triton Holders").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated as
of December __, 1996 (the "Merger Agreement"), among the Company, Triton
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Company ("Merger Sub"), and Security Systems Holdings, Inc., a Delaware
corporation ("SSH"), Merger Sub is merging with and into SSH (the "Merger") on
the date hereof and the issued and outstanding shares of Company Common Stock
and Company Preferred Stock immediately prior to the Effective Time are being
converted into shares of common stock, par value $.0001 per share, of the
Company ("Common Stock"); and
WHEREAS, each of the Company, the Canaan Entities, Triumph and the Alis
Holders has entered into that certain Lock-up Agreement, dated December __,
1996, among SSH and the signatories thereto, pursuant to which each of the
Company, the Canaan Entities, Triumph and the Alis Holders has agreed to enter
into this Agreement; and
WHEREAS, it is a condition to the closing of the Merger and the other
transactions contemplated by the Merger Agreement that the Company enter into
this Agreement in order to provide certain registration rights to the Holders
(as defined below) with respect to the Registrable Securities (as defined
below).
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. Capitalized terms used but not otherwise defined herein
shall have the meaning ascribed to such terms in the Merger Agreement. For
purposes of this Agreement, the following terms shall have the following
meanings:
"Affiliate" has the meaning specified in Rule 12b-2 under the Exchange
Act.
<PAGE>
"Blackout Period" has the meaning specified in Section 6(a).
"Business Day" means a day on which the principal offices of the SEC in
Washington, D.C. are open to accept filings, or in the case of determining a
date of which any payment is due, a day other than Saturday, Sunday or any day
on which banks located in New York City are authorized or obligated by law to
close.
"Canaan Holders" means the Canaan Entities and their successors and
permitted transferees.
"Counsel to the Holders" means the single law firm reasonably acceptable
to the Company from time to time representing the Holders, as appointed by the
Requesting Demand Holder(s); provided that if Registrable Securities of both
Canaan Holders and the Triumph Holders shall be registered, the such single law
firm shall be appointed by the respective Required Demand Holders.
"Demand Holders" means the Canaan Holders and the Triumph Holders.
"Demand Request" shall have the meaning specified in Section 4(a).
"Effective Period" means, with respect to any Holder, a period commencing
on the date of this Agreement and ending on the earlier of (i) the first date as
of which all Registrable Securities cease to be Registrable Securities and (ii)
the date on which such Holder may sell all of its Registrable Securities in
accordance with Rule 145(d)(3) under the Securities Act or Rule 144(k) under the
Securities Act, as the case may be.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means each of the Canaan Holders, the Triumph Holders, the Alis
Holders, the Triton Holders and each person who is an Affiliate or other
permitted transferee of any such Holder, that is a holder of Registrable
Securities.
"Initiating Holder(s)" has the meaning specified in Section 3(a).
"Inspectors" has the meaning specified in Section 7(1).
"Prospectus" means the prospectus included in any Registration Statement,
as amended or supplemented by any prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered by
any Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
"Records" has the meaning specified in Section 7(1).
-2-
<PAGE>
"Registrable Securities" means, collectively, (i) the shares of Common
Stock issued to or held by the Demand Holders as of the date hereof or otherwise
acquired thereafter, (ii) the shares of Common Stock held by (a) the Triton
Holders identified on Schedule I hereto, (b) the Alis Holders as of the date
hereof or otherwise acquired thereafter, and (iii) any securities paid, issued
or distributed in respect of any such shares of Common Stock by way of stock
dividend or distribution or stock split or in connection with a combination of
shares, recapitalization, reorganization, merger, consolidation or otherwise.
Securities will cease to be Registrable Securities in accordance with Section 2
(b) hereof.
"Registration Expenses" means any and all out-of-pocket expenses incident
to the Company's performance of or compliance with this agreement, including,
without limitation, (i) all SEC, National Association of Securities Dealers,
Inc. and securities exchange registration and filing fees, (ii) all fees and
expenses of complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for any underwriters in connection
with blue sky qualifications of the Registrable Securities), (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange or automated quotation system pursuant to Section 7(h), (v) the fees
and disbursements of counsel for the Company and of its independent public
accountants, (vi) the reasonable fees and expenses of any special experts
retained by the Company in connection with the requested registration, (vii) the
reasonable fees and expenses of Counsel to the Holders not exceeding $50,000 in
respect of the applicable registration and (viii) out-of-pocket expenses of
underwriters customarily paid by the issuer to the extent provided for in any
underwriting agreement, but excluding (x) underwriting discounts and
commissions, transfer taxes, if any, and documentary stamp taxes, if any, and
(y) any fees or disbursements of counsel to the Holders or any Holder (other
than Counsel to the Holders).
"Registration Statement" means any registration statement of the Company
referred to in Section 3 or 4, including any Prospectus, amendments and
supplements to any such registration statement, including post-effective
amendments, and all exhibits and all material incorporated by reference in any
such registration statement.
"Registration Hold Period" means a Section 7(e) Period or a Section 7(m)
Period.
"Related Securities" means any securities of the Company similar or
identical to any of the Registrable Securities, including, without limitation,
Common Stock, any other equity securities of the Company and all options,
warrants, rights and other securities convertible into, or exchangeable or
exercisable for, Common Stock or such other equity securities.
"Requesting Demand Holder" has the meaning specified in Section 4(a).
"Requesting Holder" has the meaning specified in Section 3(a).
-3-
<PAGE>
"Required Demand Holder(s)" means at any time, in respect of each of the
Canaan Holders and the Triumph Holders, Holders within each such Demand Holder
group which hold Registrable Securities representing at such time at least a
majority (by number of shares) of the Registrable Securities held by all Holders
within such Demand Holder group.
"SEC" means the Securities and Exchange Commission.
"Section 7(e) Period" has the meaning specified in Section 7(e).
"Section 7(m) Period" has the meaning specified in Section 7(m).
"Securities Act" means the Securities Act of 1933, as amended.
"Triumph Holders" means Triumph and its successors and permitted
transferees.
"underwritten registration" or "underwritten offering" shall mean an
underwritten offering in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. Securities Subject to This Agreement. (a) The securities entitled to
the benefits of this Agreement are the Registrable Securities.
(b) For the purposes of this Agreement, any particular Registrable
Securities will cease to be Registrable Securities when and to the extent that
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act and such Registrable Securities
have been disposed of pursuant to such effective Registration Statement, (ii)
such Registrable Securities have been distributed to the public pursuant to Rule
144 (or any similar provision then in force) under the Securities Act, (iii)
such Registrable Securities have been otherwise transferred or disposed of, new
certificates therefor not bearing a legend restricting further transfer have
been delivered by the Company and, at such time, subsequent transfer or
disposition of such securities does not require registration or qualification of
such securities under the Securities Act or any similar state law then in force
or (iv) such Registrable Securities have ceased to be outstanding.
3. Piggy-Back Registration Rights. (a) Whenever during the Effective
Period the Company shall propose to file a registration statement under the
Securities Act relating to the public offering of Common Stock or any other
security of the Company that is also a Registrable Security for the Company's
own account (other than pursuant to a registration statement on Form S-4 or Form
S-8 or any successor forms to Form S-4 or Form S-8, or filed in connection with
an exchange offer or an offering of securities solely to existing stockholders
or employees of the Company) or for the account of any Demand Holders or other
holder of Common Stock or any other security of the Company that is also a
Registrable Security (the "Initiating Holder(s)") and on a form and in a manner
that would permit registration of Registrable Securities for sale to the
-4-
<PAGE>
public under the Securities Act, the Company shall (i) give written notice at
least 20 Business Days prior to the filing thereof to each Holder of Registrable
Securities then outstanding, specifying the approximate date on which the
Company proposes to file such registration statement and advising such Holder of
its right to have any or all of the Registrable Securities then held by such
Holder included among the securities to be covered thereby and (ii) at the
written request of any such Holder given to the Company within 15 days after
such Holder's receipt of such written notice from the Company, use its
reasonable best efforts to include among the securities covered by such
registration statement the number of Registrable Securities which such Holder
("Requesting Holder") shall have requested be so included (subject, however, to
reduction in accordance with paragraph (b) of this Section). The Company shall
not select a form of Registration Statement under the Securities Act which would
restrict the Holders' ability to sell Registrable Securities thereunder if
another form of Registration Statement is available, the use of which, in the
reasonable judgment of the Company, would not (i) give rise to any additional
Registration Expenses or (ii) be reasonably likely to cause any delay in the
effectiveness thereof.
(b) Each Holder of Registrable Securities desiring to participate in an
offering pursuant to Section 3(a) may include Registrable Securities in any
Registration Statement relating to such offering to the extent that the
inclusion of such Registrable Securities shall not reduce the number of shares
of Common Stock or other securities of the Company to be offered and sold by the
Company or any Initiating Holder pursuant thereto. If the lead managing
underwriter selected by the Company for an underwritten offering pursuant to
Section 3(a) determines that marketing factors require a limitation on the
number of Registrable Securities to be offered and sold by Requesting Holders in
such offering, there shall be included in the offering only that number of
Registrable Securities, if any, that such lead managing underwriter reasonably
and in good faith believes will not jeopardize the success of the offering of
all the shares of Common Stock and securities that the Company desires to sell
for its own account or that the Initiating Holder desires to sell for its own
account, as the case may be. In such event and provided the lead managing
underwriter has so notified the Company in writing, the shares of Common Stock
or other securities of the Company to be included in such offering shall consist
of (i) first, the shares of Common Stock or other securities the Company or the
Initiating Holder(s), as the case may be, proposes to sell; and (ii) second, the
number, if any, of Registrable Securities requested to be included in such
registration that in the opinion of such lead managing underwriter can be sold
without jeopardizing the success of the offering of all the shares of Common
Stock and other securities of the Company that the Company or the Initiating
Holder(s), as the case may be, desires to sell for its own account, such amount
to be allocated on a pro rata basis among the holders of Registrable Securities
who have requested their securities to be so included based on the number of
Registrable Securities that each holder thereof has requested to be so included.
(c) Nothing in this Section 3 shall create any liability on the part of
the Company to the Holders of Registrable Securities if the Company for any
reason should decide not to file a registration statement proposed to be filed
under Section 3(a) or to withdraw such registration
-5-
<PAGE>
statement subsequent to its filing, regardless of any action whatsoever that a
Holder may have taken, whether as a result of the issuance by the Company of any
notice hereunder of otherwise.
(d) A request by Holders to include Registrable Securities in a proposed
underwritten offering pursuant to Section 3(a) shall not be deemed to be a
request for a demand registration pursuant to Section 4.
4. Demand Registration Rights. (a) Subject to the conditions set forth in
Section 4(b), upon the written request during the Effective Period of any of the
Required Demand Holder(s) (all Demand Holders comprising the group of Demand
Holders represented by such Required Demand Holder(s) being hereinafter referred
to as the "Requesting Demand Holder(s)") that the Company effect the
registration with the SEC under and in accordance with the provisions of the
Securities Act of such number of the Requesting Demand Holder's Registrable
Securities as specified in such written request (which written request shall
specify the means of distribution of such shares), the Company shall use its
reasonable best efforts to file a Registration Statement covering the Requesting
Demand Holder(s)' Registrable Securities requested to be registered within 60
Business Days after receipt of such request (each such request for registration
pursuant to this Section 4(a) being hereinafter referred to as a "Demand
Request").
(b) Notwithstanding anything in Section 4(a) to the contrary, the Company
shall not be required to take any action pursuant to any Demand Request under
Section 4(a):
(i) if the Demand Request is made on or prior to six months after
the Closing Date of the Merger; or
(ii) if prior to the date of such Demand Request, the Company shall
have effected two registrations (including any registrations deemed to be
effected in accordance with Section 4(e)) under this Section 4 at the
request of the Requesting Demand Holder; or
(iii) if the Company shall have completed a public offering of
Common Stock for its own account pursuant to a Registration Statement
within the 120-day period next preceding such Demand Request which
permitted such Requesting Demand Holder to register Registrable
Securities; or
(iv) if the Company shall have completed a public offering of Common
Stock pursuant to a Registration Statement filed pursuant to a request of
Demand Holders (other than the Requesting Demand Holder(s)) or any other
Initiating Holder within the 120-day period next preceding the Demand
Request; or
(v) if the Company shall have completed a public offering of Common
Stock pursuant to a Registration Statement filed pursuant to a prior
Demand Request of the
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Requesting Demand Holder(s) within the 180-day period next preceding the
current Demand Request; or
(vi) if the Company shall at the time of such Demand Request have
effective a "shelf" registration statement on an appropriate form pursuant
to Rule 415 under the Securities Act (or any successor rule that may be
adopted by the SEC) pursuant to which the Requesting Demand Holder(s)
could effect the disposition of its Registrable Securities in the manner
requested; or
(vii) if the Registrable Securities which the Company has been
requested to register pursuant to such Demand Request shall have a then
current market value of less than $3,000,000, unless (i) such Demand
Request is for all remaining Common Stock constituting Registrable
Securities held by the Requesting Demand Holder(s) and (ii) the then
current market value of such remaining Common Stock constituting
Registrable Securities is greater than $700,000; or
(viii) during the pendency of any Blackout Period; and
provided further, however, that the Company shall be permitted to satisfy its
obligations under this Section 4 by amending (to the extent permitted by
applicable law) within 10 Business Days after a written request for
registration, any Registration Statement previously filed by the Company under
the Securities Act so that such Registration Statement (as amended) shall permit
the disposition (in accordance with the intended methods of disposition
specified as aforesaid) of all of the Registrable Securities for which a Demand
Request has been made. If the Company shall so amend a previously filed
Registration Statement, it shall be deemed to have effected a registration for
purposes of this Section 4.
(c) The Requesting Demand Holder(s) may distribute the Registrable
Securities covered by such request by means of an underwritten offering or any
other means, as determined by such Requesting Demand Holder(s).
(d) Except for a Registration Statement subject to Section 4(e), a
registration requested pursuant to this Section 4 shall not be deemed to be
effected for purposes of this Section 4 if it has not been declared effective by
the SEC or become effective in accordance with the Securities Act and the rules
and regulations thereunder.
(e) The Requesting Demand Holder(s), at any time prior to the effective
date of a Registration Statement relating to such Demand Request, may revoke
such Demand Request by the relevant Required Demand Holder(s) providing a
written notice to the Company revoking such request. If a Registration Statement
is so revoked, the Requesting Demand Holder(s) shall reimburse the Company for
all its out-of-pocket expenses incurred in the preparation, filing and
processing of such Registration Statement; provided, however, that in lieu of
such reimbursement under this Section 4(e), the Requesting Demand Holder(s) may
elect; with written
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notice to the Company, to have such Demand Request deemed to constitute an
effected registration for the purposes of Section 4(b)(2); provided further,
however, that no such reimbursement under this Section 4(e) shall be required if
(i) at the time of such Demand Request, the Company knows or has reason to know
of a material adverse change in the financial condition of the Company that is
in existence at such time, (ii) the Company did not inform such Requesting
Demand Holder(s) of such material adverse change prior to, or within a
reasonable period of time following, such Demand Request and (iii) such
Requesting Demand Holder(s) did not know or have reason to know of such material
adverse change at the time of such Demand Request.
(f) Except as provided in Section 3 hereof, the Company shall not include
any securities which are not Registrable Securities in any Registration
Statement filed pursuant to a demand made under this Section 4 without the prior
written consent of the relevant Required Demand Holder(s).
5. Selection of Underwriters. In connection with any underwritten offering
pursuant to a Registration Statement filed pursuant to a request made under
Section 4, the Company shall have the right to have its board of directors
select a lead managing underwriter or underwriters to administer the offering,
which lead managing underwriter or underwriters must be satisfactory to the
relevant Required Demand Holder(s).
6. Blackout Periods; Holdback. (a) If the Board of Directors of the
Company determines in good faith that the registration and distribution of
Registrable Securities (i) would materially impede, delay, interfere with or
otherwise adversely affect any pending financing, registration of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company or (ii) would require disclosure of non-public material information
that the Company has a bona fide business purpose for preserving as
confidential, the Company shall promptly give the Holders notice of such
determination and shall be entitled to postpone the filing or effectiveness of a
Registration Statement for the shortest period of time reasonably required, but
in any event not to exceed 60 days; provided, that a Blackout Period with
respect to a registration of securities proposed by the Company may, at the
election of the Company, commence on the date that is 30 days prior to the date
the Company in good faith estimates will be the date of filing of the
registration statement, and end no later than the date, following the effective
date of such registration, specified in the form of underwriting agreement
relating to such registration during which the Company shall be prohibited from
selling, offering or otherwise disposing of Common Stock, but in no event to
exceed 60 days; provided further, that the Company shall not obtain any deferral
under this Section 6(a) more than twice in any twelve-month period or more than
once in any twelve-month period if the effect a second deferral in such period
would be to twice defer any Requesting Demand Holder(s) in such period, other
than in each such case normal deferrals required prior to the public release of
quarterly financial results of the Company. The Company shall promptly notify
each Holder of the expiration or earlier termination of a Blackout Period.
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(b) Each Holder of Registrable Securities agrees, by acquisition or
continued holding of the Registrable Securities, if so requested in writing by
the managing underwriters, not to effect any public sale or distribution of such
securities or Related Securities during the seven days prior to and the 120 days
after the effective time of any underwritten registration by the Company (either
for its own account, or for the benefit of the Holders of any securities of the
Company, including Registrable Securities), unless the managing underwriters of
the registered public offering agree.
(c) The Company agrees, if so requested in writing by the managing
underwriters, (i) not to effect any public sale or distribution of Common Stock,
during the seven days prior to and the 120 days after the effective time of any
underwritten registration with respect to Registrable Securities pursuant to
this Agreement in which any Holder is a selling stockholder (except as part of
such underwritten registration or pursuant to registrations on Forms S-4 or S-8
or any successor form), unless the managing underwriters of the registered
public offering otherwise agree, and (ii) to use all reasonable efforts to cause
each holder of at least 5% (on a fully-diluted basis) of its equity securities,
or any securities convertible, exchangeable or exercisable for or into such
securities, to agree not to effect any public sale or distribution of any such
securities during such period (except as part of such underwritten registration,
if otherwise permitted), unless the managing underwriters of the registered
public offering otherwise agree.
7. Registration Procedures. If and whenever the Company is required to use
reasonable best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
shall:
(a) prepare and file with the SEC a Registration Statement with respect to
such Registrable Securities on any form for which the Company then qualifies or
which counsel for the Company shall deem appropriate, and which form shall be
available for the sale of the Registrable Securities in accordance with the
intended methods of distribution thereof, and use its reasonable best efforts to
cause such Registration Statement to become and remain effective;
(b) prepare and file with the SEC amendments and post-effective amendments
to such Registration Statement and such amendments and supplements to the
Prospectus used in connection therewith as may be necessary to maintain the
effectiveness of such registration or as may be required by the rules,
regulations or instructions applicable to the registration form utilized by the
Company or by the Securities Act or the rules and regulations thereunder
necessary to keep such Registration Statement effective (i) in the case of a
firm commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it and (ii) in the
case of any other registration, for up to 130 days (or longer period in the
event of a Registration Hold Period during such offering, as provided in this
Section 7) and cause the Prospectus as so supplemented to be filed pursuant to
Rule 424 under the Securities Act, and to otherwise comply with provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement until the earlier of (x) such 130th day (or such
longer period) and (y) such time as all Registrable Securities covered by
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such Registration Statement have ceased to be Registrable Securities;
(c) furnish to each Holder of such Registrable Securities such number of
copies of such Registration Statement and of each amendment and post-effective
amendment thereto, any Prospectus or Prospectus supplement and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities by such Holder (the Company hereby
consenting to the use (subject to the limitations set forth in the last
paragraph of this Section 7) of the Prospectus or any amendment or supplement
thereto in connection with such disposition);
(d) use its reasonable best efforts to register or qualify such
Registrable Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
Holder, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this Section 7(d), it would not be obligated
to be so qualified, to subject itself to taxation in any such jurisdiction, or
to consent to general service of process in any such jurisdiction;
(e) notify each Holder of any such Registrable Securities covered by such
Registration Statement, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act within the appropriate period
mentioned in Section 7(b), of the Company's becoming aware that the Prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing (the period during which the Holders
are required to refrain from effecting public sales or distributions in such
case being referred to as a "Section 7(e) Period"), and prepare and furnish to
such Holder a reasonable number of copies of an amendment to such Registration
Statement or related Prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such Prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and the time
during which such Registration Statement shall remain effective pursuant to
Section 7(b) shall be extended by the number of days in the Section 7(e)
Period;
(f) notify each Holder of Registrable Securities covered by such
Registration Statement at any time,
(i) when the Prospectus or any Prospectus supplement or supplement
or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective;
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(ii) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order of which the
Company or its counsel is aware or should be aware suspending the
effectiveness of the Registration Statement or any order preventing the
use of a related Prospectus, or the initiation or any threats of any
proceedings for such purposes; and
(iv) of the receipt by the Company of any written notification of
the suspension of the qualification of any of the Registrable Securities
for sale in any jurisdiction or the initiation or any threats of any
proceeding for that purpose;
(g) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
stockholders an earnings statement which shall satisfy the provisions of Section
11 (a) of the Securities Act, provided that the Company shall be deemed to have
complied with this paragraph if it has complied with Rule 158 under the
Securities Act;
(h) use its reasonable best efforts to cause all such Registrable
Securities to be listed on any securities exchange or automated quotation system
on which the Common Stock is then listed, if such Registrable Securities are not
already so listed and if such listing is then permitted under the rules of such
exchange or automated quotation system, and to provide a transfer agent and
registrar and CUSIP number for such Registrable Securities covered by such
Registration Statement no later than the effective date of such Registration
Statement;
(i) if the registration is an underwritten registration, enter into a
customary underwriting agreement, and in connection therewith:
(i) make such representations and warranties to the underwriters in
form, substance and scope as are customarily made by issuers to
underwriters in comparable underwritten offerings;
(ii) obtain opinions of counsel to the Company (in form, scope and
substance reasonably satisfactory to the managing underwriters), addressed
to the underwriters, and covering the matters customarily covered in
opinions requested in comparable underwritten offerings;
(iii) use its best efforts to obtain "cold comfort" letters and
bring-downs thereof from the Company's independent certified public
accountants addressed to the underwriters, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters by independent accountants in connection with
underwritten offerings;
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(iv) if requested, provide indemnification in accordance with the
provisions and procedures of Section 10 hereof to all parties to be
indemnified pursuant to said Section;
(v) deliver such documents and certificates as may be reasonably
requested by the managing underwriters to evidence compliance with clause
(f) above and with any customary conditions contained in the underwriting
agreement; and
(vi) take customary actions (including participating in "road
shows") as may be reasonably requested by the managing underwriters to
expedite or facilitate the disposition of the Registrable Securities in
connection with such underwritten offering.
(j) in the case of registration pursuant to a Demand Request, if the
registration is not an underwritten registration (and at the expense of the
relevant Requesting Demand Holder(s) to the extent that such expense amount,
when aggregated with costs of Counsel to the Holders, exceeds $50,000):
(i) use its best efforts to obtain "cold comfort" letters and
bring-downs thereof from the Company's independent certified public
accountants addressed to each Demand Holder of Registrable Securities
covered by such Registration Statement, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters by independent accountants in connection with
underwritten offerings; and
(ii) obtain opinions of counsel to the Company, addressed to each
Demand Holder of Registrable Securities covered by such Registration
Statement, and covering the matters customarily covered in opinions
requested in comparable underwritten offerings.
(k) cooperate with the Holders of Registrable Securities covered by such
Registration Statement and the managing underwriter or underwriters or agents,
if any, to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing the securities to be sold under
such Registration Statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters or agents, if any, or such Holders may request;
(l) if reasonably requested by the managing underwriter or underwriters or
a Holder of Registrable Securities being sold in connection with an underwritten
offering, incorporate in a Prospectus supplement or post-effective amendment
such information as the managing underwriters and (x) in the case of a
registration pursuant to Section 3 (where the Initiating Holder is not a Demand
Holder), the Holders of a majority in number of the Registrable Securities being
sold agree or (y) in the case of a registration pursuant to Section 4, the
relevant Required Demand Holder(s) agrees should be included therein relating to
the plan of distribution
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<PAGE>
with respect to such Registrable Securities, including, without limitation,
information with respect to the principal amount of Registrable Securities being
sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten offering of
the Registrable Securities to be sold in such offering and make all required
filings of such Prospectus supplement or post-effective amendment as promptly as
practicable upon being notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(m) provide any Holder of Registrable Securities included in such
Registration Statement, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
agent retained by any such Holder or underwriter (collectively, the
"Inspectors") with reasonable access during normal business hours to appropriate
officers of the Company and the Company's subsidiaries to ask questions and to
obtain information reasonably requested by any such Inspector and make available
for inspection all financial and other records and other information, pertinent
corporate documents and properties of any of the Company and its subsidiaries
and affiliates (collectively, the "Records"), as shall be reasonably necessary
to enable them to exercise their due diligence responsibility; provided,
however, that the Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors in writing are confidential
shall not be disclosed to any Inspector unless such Inspector signs or is
otherwise bound by a confidentiality agreement reasonably satisfactory to the
Company; and
(n) in the event of the issuance of any stop order of which the Company or
its counsel is aware or should be aware suspending the effectiveness of the
Registration Statement or of any order suspending or preventing the use of any
related Prospectus or suspending the qualification of any Registrable Securities
included in the Registration Statement for sale in any jurisdiction, the Company
will use its reasonable best efforts promptly to obtain its withdrawal; and the
period for which the Registration Statement shall be kept effective shall be
extended by a number of days equal to the number of days between the issuance
and withdrawal of any stop orders (a "Section 7(n) Period").
The Company may require each Holder of Registrable Securities as to which
any registration is being effected to furnish the Company with information
regarding such Holder that is pertinent to the disclosure requirements relating
to the registration and the distribution of such securities as the Company may
from time to time reasonably request.
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Sections 7(e) or 7(m), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Prospectus or Registration Statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 7(e) or the
withdrawal of any stop order contemplated by Section 7(m), and, if so directed
by the Company, such Holder will deliver to the Company all copies, other than
permanent file copies then in such
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Holder's possession, of the Prospectus covering such Registrable Securities at
the time of receipt of such notice.
8. Registration Expenses. The Company will pay all Registration Expenses
in connection with all registrations of Registrable Securities pursuant to
Sections 3 and 4, and each Holder shall pay (a) any fees or disbursements of
counsel to such Holder (other than Counsel to the Holders; provided that fees
and disbursements of Counsel to the Holders exceeding $50,000 shall be paid by
the Holders pro rata in accordance with each Holders share of Registrable
Securities included in the relevant registration) and (b) all underwriting
discounts and commissions and transfer taxes, if any, and documentary stamp
taxes, if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Registration Statement.
9. Reports Under the Exchange Act. The Company agrees to:
(a) file with the SEC in a timely manner all reports and other documents
required of the Company under the Exchange Act; and
(b) Furnish to any Holder, during the Effective Period, forthwith upon
request (i) a written statement by the Company that it has complied with the
current public information and reporting requirements of Rule 144 under the
Securities Act and the Exchange Act and (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company with the SEC under the Exchange Act.
10. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder of Registrable Securities, its officers, directors,
agents, trustees, stockholders and each person who controls such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act), against all losses, claims, damages, liabilities and expenses (including
reasonable attorneys' fees, disbursements and expenses, as incurred)
(collectively, "Losses") incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or preliminary Prospectus, or any
amendment or supplement to any of the foregoing or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a Prospectus or a
preliminary Prospectus, in light of the circumstances then existing) not
misleading, except in each case insofar as the same arise out of or are based
upon any such untrue statement or omission made in reliance on and in conformity
with information with respect to such indemnified party furnished in writing to
the Company by such indemnified party or its counsel expressly for use therein.
In connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers, directors, agents, trustees, stockholders
and each person who controls such underwriters (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) to the same
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extent as provided above with respect to the indemnification of the Holders of
Registrable Securities. Notwithstanding the foregoing provisions of this Section
10(a), the Company will not be liable to any person who participates as an
underwriter in the offering or sale of Registrable Securities or any other
person, if any, who controls such underwriter (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act), under the indemnity
agreement in this Section 10(a) for any such Losses that arise out of such
person's failure to send or deliver a copy of the final Prospectus to the person
asserting an untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of the Registrable
Securities to such person if such statement or omission was corrected in such
final Prospectus and the Company has previously furnished copies thereof to such
Holder or other person in accordance with this Agreement.
(b) Indemnification by Holders of Registrable Securities. In connection
with any Registration Statement filed pursuant hereto, each Holder of
Registrable Securities to be covered thereby will furnish to the Company in
writing such information with respect to such Holder, including, without
limitation, the name, address and the amount of Registrable Securities held by
such Holder, as the Company reasonably requests for use in such Registration
Statement or the related Prospectus and agrees severally and not jointly to
indemnify and hold harmless the Company, all other Holders or any underwriter,
as the case may be, and their respective directors, officers, agents, trustees,
stockholders and controlling persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), against any Losses incurred
by such party pursuant to any actual or threatened action, suit, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in, or any omission or alleged omission
of a material fact required to be stated in, such Registration Statement,
Prospectus or preliminary Prospectus or any amendment or supplement to any of
the foregoing or necessary to make the statements therein (in case of a
Prospectus or preliminary Prospectus, in the light of the circumstances then
existing) not misleading, but only to the extent that any such untrue statement
or omission is made in reliance on and in conformity with information with
respect to such Holder furnished in writing to the Company by such holder or its
counsel specifically for inclusion therein; provided, however, that the
liability of each Holder hereunder shall be limited to the proportion of any
such Losses that are equal to the proportion that the net proceeds from the sale
of shares sold by such Holder under such registration statement bears to the
total net proceeds from the sale of all securities sold thereunder, but not in
any event to exceed the net proceeds received by such Holder from the sale of
Registrable Securities covered by such Registration Statement.
(c) Conduct of Indemnification Proceedings. Any person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such indemnified party of any written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party may claim
indemnification or contribution pursuant to this Agreement (provided that
failure to give such notification shall not affect the obligations of the
indemnifying party pursuant to this Section 10 except to the extent the
indemnifying party shall have been actually prejudiced as a result of such
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failure). In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under these
indemnification provisions for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation, unless in the reasonable judgment of any indemnified party a
conflict of interest is likely to exist, based on the written opinion of
counsel, between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party shall
not be liable for the fees and expenses of (i) more than one counsel for all
Holders of Registrable Securities who are indemnified parties, selected by a
majority of the Holders of Registrable Securities who are indemnified parties
(which choice shall be reasonably satisfactory to the Company), (ii) more than
one counsel for the underwriters or (iii) more than one counsel for the Company
in connection with any one action or separate but similar or related actions. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claims, unless in the reasonable judgment of any indemnified party based on
the written opinion of counsel a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels. No indemnifying party, in
defense of any such action, suit, proceeding or investigation, shall, except
with the consent of each indemnified party, consent to the entry of any judgment
or entry into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such action, suit, proceeding or
investigation to the extent the same is covered by the indemnity obligation set
forth in this Section 10. No indemnified party shall consent to entry of any
judgment or enter into any settlement without the consent of each indemnifying
party.
(d) Contribution. If the indemnification from the indemnifying party
provided for in this Section 10 is unavailable to an indemnified party hereunder
in respect of any Losses referred to herein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such Losses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which resulted in
such Losses, as well as any other relevant equitable considerations; provided,
however, that the liability of each Holder hereunder shall be limited to the
proportion of any such Losses that are equal to the proportion that the net
proceeds from the sale of shares sold by such Holder under such Registration
Statement bears to the total net proceeds from the sale of all securities sold
thereunder, but not in any event to exceed the net proceeds received by such
Holder from the sale of Registrable
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Securities covered by such Registration Statement. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the Losses referred
to above shall be deemed to include, subject to the limitations set forth in
Section 10(c), any legal and other fees and expenses reasonably incurred by such
indemnified party in connection with any investigation or proceeding.
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.
If indemnification is available under this Section 10, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 10(a) or (b), as the case may be, without regard to the relative fault
of said indemnifying parties or indemnified party or any other equitable
consideration provided for in this Section 10(d).
(e) The provisions of this Section 10 shall be in addition to any
liability which any indemnifying party may have to any indemnified party and
shall survive the termination of this Agreement.
11. Participation in Underwritten Offerings. No Holder of Registrable
Securities may participate in any underwritten offering pursuant to Section 3
hereunder unless such Holder (a) agrees to the sale of such Holder's securities
on the basis provided in any underwriting arrangements approved by the Company
in its reasonable discretion and (b) completes and executes all questionnaires,
powers of attorney, custody agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
12. Miscellaneous.
(a) Remedies. The parties acknowledge that money damages are not an
adequate remedy for violations of this Agreement and that any party may, in its
sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
(b) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the
-17-
<PAGE>
written consent of (i) each of the Required Demand Holders and (ii) the other
Holders which hold Registrable Securities representing at such time at least a
majority (by number of shares) of the Registrable Securities held by all such
other Holders.
(c) Notices. Any notice required to be given hereunder shall be sufficient
if in writing, and set by facsimile transmission and by courier service (with
proof of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed as follows:
If to the Company, to:
Triton Group Ltd.
[Address in San Diego or in Connecticut]
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Telecopier No.: (212) 309-6273
Telephone No.: (212) 309-6000
Attention: David P. Blea, Esq.
If to the Canaan Holders, to:
Canaan Partners
105 Rowayton Avenue
Rowayton, Connecticut 06853
Telecopier No.: (203) 854-9117
Telephone No.: (203) 855-0400
Attention: Stephen L. Green
-18-
<PAGE>
If to Triumph, to:
Triumph-Connecticut Limited Partnership
Sixty State Street
21st Floor
Boston, Massachusetts 02109
Telecopier: (617) 557-6022
Telephone: (617) 557-6000
Attention: Thomas W. Janes
with a copy to:
Cummings & Lockwood
4 Stamford Plaza
Stamford, Connecticut
Telecopier: (203) 351-4499
Telephone: (203) 327-1700
Attention: Thomas J. Freed, Esq.
If to the Alis Holders, to:
c/o Simpson Estates
30 North LaSalle Street
Suite 1232
Chicago, Illinois 60602-2504
Telecopier: (312) 726-3143
Telephone: (312) 726-3110
Attention: Patrick J. Herbert
If to the other Holders, to:
[Names]
[Addresses]
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
-19-
<PAGE>
(d) Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and permitted assigns of the parties hereto whether
so expressed or not; in addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of Holders of
Registrable Securities on the date hereof are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities, except to the
extent reserved to or by the transferor in connection with any such transfer;
provided (i) that the demand registration rights of any party hereto set forth
in Section 4 hereof, or any right attendant thereto contained herein shall not
be assignable to subsequent purchasers of Registrable Securities without the
prior written consent of the Company, which consent shall not be unreasonably
withheld or delayed, and (ii) that the benefits of this Agreement shall inure to
and be enforceable by any permitted assignee or transferee of Registrable
Securities so long as such transferee shall have executed a Registration Rights
Joinder Agreement in the form of Exhibit A hereto. Any purported assignment or
transfer in violation of this Section 12(d) shall be null and void.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
(f) 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.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(h) Severability. If any term of this Agreement or the application thereof
to any party or circumstance shall be held invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such term to the
other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law, provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
(i) Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TRITON GROUP LTD.
By:_____________________________
Name:
Title:
CANAAN VENTURE LIMITED
PARTNERSHIP
By:_____________________________
Name:
Title:
CANAAN VENTURE OFFSHORE LIMITED
PARTNERSHIP, CV
By:_____________________________
Name:
Title:
TRIUMPH-CONNECTICUT LIMITED
PARTNERSHIP
By:_____________________________
Name:
Title:
ALIS & CO.
By:_____________________________
Name:
Title:
-21-
<PAGE>
THORNE-BARNES DONNELLEY 1994 TRUST
By:_____________________________
Name:
Title:
OTHER HOLDERS:
____________________________________
John C. Stiska
____________________________________
Richard Nevins
____________________________________
Michael M. Earley
____________________________________
Mark G. Foletta
____________________________________
Richard R. Tarte
____________________________________
Michael E. Cahr
____________________________________
Barbara Tarte
PATRICOF & CO.
By:_____________________________
Name:
Title:
-22-
<PAGE>
[LATHAM & WATKINS LETTERHEAD]
March 14, 1997
Triton Group Ltd.
550 West "C" Street, Suite 1880
San Diego, California 92101
Re: Registration Statement on Form S-4;
2,923,371 Shares of Common Stock, Par Value $.0001 Per Share
Ladies and Gentlemen:
In connection with the registration by Triton Group Ltd., a Delaware
corporation (the "Company"), of 2,923,371 shares (giving effect to a one-for-ten
reverse stock split to be effected prior to consummation of the merger
transaction described in the Registration Statement (as defined below)) of
common stock, par value $.0001 per share (the "Shares"), of the Company under
the Securities Act of 1933, as amended, on a Registration Statement on Form S-4
filed with the Securities and Exchange Commission on March 14, 1997 (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization, issuance and sale of the Shares,
and for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
<PAGE>
Triton Group Ltd.
March 14, 1997
Page 2
We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or any other laws, or as to any matters of
municipal law or the laws of any other local agencies within the state.
Subject to the foregoing, it is our opinion that the Shares have been
duly authorized, and, upon issuance, delivery and payment therefor in the manner
contemplated by the Registration Statement, will be validly issued, fully paid
and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters."
Very truly yours,
/s/ Latham & Watkins
<PAGE>
ERNST & YOUNG LLP
March 4, 1997
Board of Directors
Security Systems Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
Pursuant to your request, this letter provides our opinion concerning certain
Federal income tax consequences which could arise from consummation of the
merger (the "Merger") set forth in the Agreement and Plan of Merger dated as of
December 23, 1996, by and among Triton Group Ltd. ("Triton"), Triton
Acquisition Corp. ("Merger Sub"), and Security Systems Holdings, Inc.
("Alarmguard") ("the Plan of Merger"). Unless otherwise indicated or the
context otherwise requires, as used in this opinion, the term "Holdings"
refers to Alarmguard Holdings, Inc. (formerly known as Triton) and its
subsidiaries after the consummation of the Merger.
In rendering this opinion, we have relied upon: the Plan of Merger; the
Statements of Facts and Representations received from the managements of
Alarmguard and Triton; and the draft Proxy Statement/Prospectus and
accompanying materials filed with the Securities and Exchange Commission on
December 24, 1996 (the "Proxy Statement") (collectively, "the Documents"). Any
defined terms used herein and not otherwise defined herein have the meaning set
forth in the Documents.
You have represented to us that the Documents provide an accurate and complete
description of the facts and circumstances concerning the Merger, that the
copies provided to us are accurate and the signatures genuine. We have made no
independent determination regarding such facts and circumstances and,
therefore, have relied upon the Documents with regard thereto for purposes of
this letter.
We understand that you will include a reference to Ernst & Young LLP, and a
summarization of our opinion and a copy of our opinion as an attachment to the
final Proxy Statement to be filed with the Securities and Exchange Commission.
We consent to such reference and summarization and the inclusion of our opinion
therein.
<PAGE>
Board of Directors March 4, 1997
Security Systems Holdings, Inc. Page 2
FEDERAL INCOME TAX CONSEQUENCES
Based upon the information contained in the Documents, we are of the opinion
that the following Federal income tax consequences will result from the Merger:
(1) No gain or loss will be recognized by a holder of Alarmguard Common
Stock or Alarmguard Preferred Stock upon the conversion of such holder's
shares of Alarmguard Common Stock or Alarmguard Preferred Stock into the
Merger Shares. A holder of Alarmguard Common Stock or Alarmguard
Preferred Stock who receives cash in lieu of a fractional interest in a
share of Holdings Common Stock will recognize gain or loss, which will
be capital gain or loss, equal to the difference between the amount of
cash received and the ratable portion of the holder's tax basis in the
shares of Alarmguard Common Stock or Alarmguard Preferred Stock being
converted pursuant to the Merger that is allocated to such fractional
interest. A holder of Alarmguard Preferred Stock who receives cash in
exchange for the right to receive dividends will recognize ordinary
income to the extent of Alarmguard's and Triton's current and
accumulated earnings and profits;
(2) The tax basis of the shares of Holdings Common Stock received by a
former holder of Alarmguard Common Stock or Alarmguard Preferred Stock
pursuant to the Merger in the aggregate will be the same as the holder's
tax basis in the shares of Alarmguard Common Stock or Alarmguard
Preferred Stock being converted pursuant to the Merger, reduced by the
ratable portion of such tax basis that is allocable to any fractional
interest in a share of Holdings Common Stock with respect to which the
cash is being received; and
(3) The holding period of the shares of Holdings Common Stock received by a
former holder of Alarmguard Common Stock or Alarmguard Preferred Stock
pursuant to the Merger will include the holder's holding period with
respect to the shares of Alarmguard Common Stock or Alarmguard Preferred
Stock being converted pursuant to the Merger.
(4) Neither Holdings nor the existing shareholders of Triton will recognize
any gain or loss as a result of the Merger. In addition, neither Merger
Sub nor Alarmguard will recognize any gain or loss as a result of the
Merger.
<PAGE>
Board of Directors March 4, 1997
Security Systems Holdings, Inc. Page 4
SCOPE OF OPINION
The scope of this opinion is expressly limited solely to the Federal income tax
issues specifically addressed in (1) through (4) in the section entitled
"FEDERAL INCOME TAX CONSEQUENCES", above. Specifically, our opinion has not
been requested, and we have made no determination nor expressed any opinion on
any other issues, including, but not limited to, any state and local, foreign,
consolidated return, employee benefit, and Code Section 382 issues, or
alternative minimum tax consequences to the parties to this transaction.
Further, no opinion is expressed as to the qualification of the Merger as a
statutory merger under state law, or concerning the Reverse Stock Split.
Our opinion, as stated above, is based upon our analysis of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations, current case law,
and published Internal Revenue Services ("IRS") authorities. The foregoing are
subject to change, and such change may be retroactively effective. No
assurance can be provided as to the effect of any such change upon our opinion.
In addition, our opinion is based on the information contained in the
Documents. Any variation or differences in the Documents may affect our
opinion, perhaps in an adverse manner. We have undertaken no obligation to
update this opinion for changes in facts or law occurring subsequent to the date
thereof.
This letter represents our views as to the interpretation of existing law and
is not binding on the IRS or the courts. No assurance can be given that, if
the matter were contested, the IRS or a court would agree with these opinions.
Very truly yours,
/s/ Ernst & Young LLP
<PAGE>
Exihibit 10.20
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT, dated as of the ___ day of __________, 1997 (this
"Agreement"), among Triton Group Ltd., a Delaware corporation (the "Company"),
Russell R. MacDonnell (the "Executive"), and, solely for purposes of Section 17
of this Agreement, Securities Systems Holdings, Inc., a Delaware corporation
("SSH").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties; and
WHEREAS, the Executive is a party to the Employment Agreement with SSH
dated as of September 1, 1992, and the Amended and Restated Non-Compete
Agreement with SSH dated as of August 6, 1993 (the "Prior Agreements"); and
WHEREAS, pursuant to an Agreement and Plan of Merger, dated December __,
1996 (the "Merger Agreement"), by and among the Company, Triton Acquisition
Corp., a Delaware corporation ("Merger Sub"), and SSH, as of the date hereof,
Merger Sub will be merged with and into SSH, with SSH as the surviving entity
(the "Merger") and as a wholly owned subsidiary of the Company; and
WHEREAS, the Executive shall become employed by the Company as of the
Effective Time (as defined in the Merger Agreement); and
WHEREAS, the Company, SSH and the Executive desire that the Prior
Agreements be terminated, and that the terms and conditions set forth herein
apply to the Executive in connection with his employment with the Company from
and after the Effective Time.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained and in further consideration of services to be performed by the
Executive for the Company, the Company, the Executive, and, solely for purposes
of Section 15, SSH do hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
<PAGE>
(a) "Award" shall mean any award granted pursuant to the terms of
the Plan, including but not limited to stock options, stock appreciation
rights ("SARs") (including Limited SARs), restricted stock, deferred
stock, stock granted as a bonus or in lieu of other awards, dividend
equivalents, and other stock-based awards.
(b) "Cause" shall mean: (i) the willful and continued failure by the
Executive to substantially perform his duties for the Company (other than
any such failure resulting from the Executive's incapacity due to physical
or mental illness, or any such actual or anticipated failure after the
Executive announces his intention to resign for Good Reason), and such
failure is not cured by the Executive within seven days from the date the
Company notifies the Executive thereof, (ii) the willful engaging by the
Executive in misconduct which is materially and financially injurious to
the Company, or (iii) the Executive's conviction of a felony. No act, or
failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company.
(c) "Change in Control" shall be deemed to have occurred upon:
(i) the date of the acquisition by any "person" (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
excluding the Company or any of its subsidiaries or affiliates or
any employee benefit plan sponsored by any of the foregoing, of
beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 50% or more of either (x) the then outstanding
shares of common stock of the Company or (y) the then outstanding
voting securities entitled to vote generally in the election of
directors; or
(ii) the date the individuals who constitute the Board as of
the date of this Agreement (the "Incumbent Board") cease for any
reason to constitute at least a majority of the members of the
Board, provided that any individual becoming a director subsequent
to the effective time of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than any individual whose nomination for
election to Board membership was not endorsed by the Company's
management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent
Board; or
(iii) the consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the Company's assets, a reverse stock split
of outstanding voting securities, the issuance of shares of stock of
the Company in connection with the acquisition of the stock or
assets
2
<PAGE>
of another entity, provided, however, that a Change in Control shall
not occur under this clause (iii) if consummation of the transaction
would result in at least 50% of the total voting power represented
by the voting securities of the Company (or, if not the Company, the
entity that succeeds to all or substantially all of the Company's
business) outstanding immediately after such transaction being
beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least 50% of the holders of
outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially
altered in the transaction.
(d) "Disability" shall mean the Executive's incapacity due to
physical or mental illness to substantially perform his duties on a
full-time basis for six consecutive months; provided, however, that if the
Executive shall not agree with a determination to terminate him because of
Disability, the question of the Executive's Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company
and the Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In the absence
of agreement between the Company and the Executive (or the Executive's
representative, as the case may be), each party shall nominate a qualified
medical doctor and the two doctors shall select a third doctor, who shall
make the determination as to Disability.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time. References to any provision of the Exchange
Act shall be deemed to include rules thereunder and successor provisions
and rules thereto.
(f) "Good Reason" shall mean (i) the assignment to the Executive by
the Company of duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company as in effect on the date of
this Agreement or such later date on which the Executive agrees in writing
to a change in such position, duties, responsibilities and/or status, or
any removal of the Executive from or any failure to reelect the Executive
to any of such positions; or (ii) any reduction by the Company in the
Executive's base salary as in effect on the date hereof or as the same may
be increased from time to time; or (iii) any failure by the Company to
continue in effect as to the Executive, without a substantially comparable
replacement, any material compensation or benefit plan or program in which
the Executive was participating; or (iv) any attempted relocation of the
Executive's place of employment to a location more than 50 miles from the
location of such employment on the date of such attempted relocation; or
(v) any material breach by the Company of any provision of this Agreement.
The Executive shall not be deemed to have resigned for Good Reason
hereunder without (i) written notice by the Executive to the Company
setting forth the reasons for the Executive's intention to resign for Good
Reason, and (ii) an opportunity for the Company to cure the reasons which
give rise to such claim within seven (7) days after the date of such
written notice.
3
<PAGE>
(g) "Plan" shall mean the 1997 Long-Term Stock Incentive Plan of
Triton Group Ltd.
2. Termination Without Cause or Resignation with Good Reason. In the event
of (i) the termination of the employment of the Executive without Cause (for any
reason other than by death or Disability) or (ii) the resignation of the
Executive from the Company for Good Reason, the Company shall pay or provide to
the Executive the following:
(a) any earned and accrued but unpaid installment of base salary
through the date of the Executive's resignation or termination at the rate
in effect at the time of such resignation or termination (or, if greater,
immediately prior to the occurrence of an event that constitutes Good
Reason) and all other unpaid amounts to which the Executive is entitled as
of such date under any compensation plan or program of the Company,
including, without limitation, all accrued vacation time; such payments to
be made in a lump sum within 30 days following the date of resignation or
termination; and
(b) in lieu of any further salary payments to the Executive for
periods subsequent to his date of resignation or termination, an amount
equal to the sum of (i) the Executive's annual base salary in effect as of
the date of the Executive's resignation or termination (or, if greater,
the Executive's annual base salary in effect immediately prior to the
occurrence of an event that constitutes Good Reason) and (ii) the average
of the annual bonus amounts that were earned by the Executive as bonus
compensation from the Company and/or SSH for the most recent three years
in which bonuses were paid to the Executive which occurred prior to the
year in which the Executive's resignation or termination occurred; such
payment to be made in a lump sum within 30 days following the date of
Executive's resignation or termination; and
(c) for a period of not less than one year following the Executive's
date of resignation or termination, the Company shall reimburse the
Executive for the reasonable expenses incurred by him in seeking
employment with another employer including the fees of a reputable
outplacement organization, up to a maximum of $25,000; and
(d) the Company shall maintain in full force and effect for one year
following the date of the Executive's resignation or termination, for the
continued benefit of the Executive, all employee welfare benefit plans and
perquisite programs in which the Executive was entitled to participate
immediately prior to the Executive's resignation or termination, provided
that the Executive's continued participation is possible under the general
terms and provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the
Company shall, at its sole cost and expense, arrange to provide the
Executive with benefits substantially similar to those which the Executive
would otherwise have been entitled to receive under such plans and
programs from which his continued participation is barred; and
4
<PAGE>
(e) with respect to any Award granted to the Executive pursuant to
the Plan which is subject to future vesting and/or other restrictions
regarding the exercisability or full enjoyment of the Award as of the date
of the Executive's resignation or termination (if any), then,
notwithstanding the terms of the Plan or the certificate evidencing the
Award thereunder, the continued vesting or lapse of restrictions with
respect to such Award shall not cease with reference to such termination
or resignation, but shall continue during the duration of the term of the
Award in accordance with the schedule set forth in the certificate
evidencing such Award as if the Executive's employment with the Company
had continued throughout such vesting and/or lapse of restriction period.
In addition, with respect to each Award granted to the Executive pursuant
to the Plan (whether or not fully vested or free of restrictions at the
time of termination or resignation hereunder), the exercisability and the
full enjoyment of such Award shall not terminate with reference to such
termination or resignation, but shall be extended for the duration of the
entire term of the Award in accordance with the Plan and/or the
certificate evidencing such Award as if the Executive's employment with
the Company had continued during such entire term, notwithstanding the
terms of the Plan or the certificate evidencing the Award thereunder.
3. Termination for Death. In the event of the termination of the
employment of the Executive by reason of his death, the Company shall pay to the
Executive's designated beneficiary or estate the amounts set forth in paragraphs
(a) and (b) of Section 2 above, pursuant to which the date of the Executive's
death shall be considered the date of his termination thereunder. In addition,
with respect to any Award granted to the Executive pursuant to the Plan, in the
event that such Award is subject to future vesting or other restrictions
regarding the exercisability or full enjoyment of the Award as of the date of
the Executive's death, then, notwithstanding the terms of the Plan or the Award
Agreement thereunder, all restrictions thereon shall immediately lapse, and each
such Award shall be deemed immediately and fully vested and exercisable under
the Plan, as of the date of such death.
4. Termination for Cause or Disability or Resignation without Good Reason.
In the event of the Executive's termination of employment for Cause or
Disability or his resignation without Good Reason, only the amount set forth in
paragraph (a) of Section 2 shall be payable to the Executive, except that, in
the case of the Executive's termination for Disability hereunder, the Executive
shall also receive the benefits set forth in Section 2(e) hereof . Other than in
the case of the Executive's conviction of a felony, the Executive shall not be
deemed to have been terminated for Cause by the Company hereunder without (i)
notice to the Executive setting forth the reasons for the Company's intention to
terminate the Executive for Cause, (ii) an opportunity for the Executive,
together with his counsel, to be heard before the Board, and (iii) delivery to
the Executive of written notice from the Board finding that in the reasonable
good faith opinion of the Board, the Executive was guilty of conduct set forth
in the definition of Cause in Section 1 hereof, and specifying the particulars
thereof in detail.
5
<PAGE>
5. Termination or Resignation in connection with a Change in Control.
(a) Notwithstanding the provisions of Sections 2 and 4, in the event
of the termination of the employment of the Executive for any reason other
than death, whether initiated by the Company with or without Cause, or
initiated by the Executive with or without Good Reason, which termination
occurs within the one year period following the date of a Change in
Control, then, in lieu of the amounts and benefits specified in Sections 2
and 4, the Executive shall be entitled to receive (i) the amount set forth
in Section 2(a), (ii) the amount set forth in Section 2(b), and (iii) the
benefits provided for in Sections 2(c) and (d).
(b) Notwithstanding the provisions of Section 2, in the event of the
resignation or termination of the employment of the Executive for any
reason specified therein, and such resignation or termination occurs
within the four month period (i) prior to the date of a Change in Control,
(ii) following commencement (within the meaning of Rule 14d-2 as
promulgated under the Exchange Act) of a "tender offer" for stock of the
Company subject to Section 14(d)(2) of the Exchange Act, which if
consummated, would result in an acquisition described in clause (i) of
Section 1(b), (iii) following the execution by the Company of an agreement
the consummation of which would constitute a Change in Control, (iv)
following the solicitation of proxies for the election of directors by
anyone other than the Company, or (v) following the approval by the
Company's stockholders of any transaction described in Section 1(b)(iii),
then, in lieu of the amounts and benefits specified in Section 2:
(x) the Executive shall be entitled to receive the amounts and
benefits specified in Section 5(a), and
(y) with respect to any Award granted to the Executive pursuant to
the Plan, in the event that such Award is subject to future vesting
or other restrictions regarding the exercisability or full enjoyment
of the Award as of the date of such resignation or termination,
then, notwithstanding the terms of the Plan or the Award Agreement
thereunder, the accelerated vesting and lapse of restriction
provisions set forth in Section 7(g) of the Plan shall be applicable
with respect to such Awards as if a Change in Control had occurred
on the date of such resignation or termination.
Amounts and benefits payable by reason of clause (b)(i) of this Section 5
shall be paid within ten days following the date of the Change in Control,
but shall be offset by any amounts previously paid pursuant to Section 2.
6. Certain Taxes.
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(a) In addition to any amounts payable under this Agreement, the
Company shall pay to the Executive an amount that, on an after-tax basis
(including federal income and excise taxes, and state and local income
taxes) equals the excise tax imposed by Section 4999 of the Code upon
the Executive by reason of amounts payable under this Agreement (including
this Section 6(a)), as well as amounts payable outside of this Agreement
by the Company that are described in Section 280G(b)(2)(A)(i) of the Code,
such payment to be made within ten days following the Executive's
termination of employment. For purposes of this Section 6(a), the
Executive shall be deemed to pay federal, state and local income taxes at
the highest marginal rate of taxation.
(c) The Company shall have the right to deduct from any amounts
payable under this Agreement an amount necessary to satisfy its
obligation, under applicable laws, to withhold income or other taxes of
the Executive attributable to payments made hereunder.
7. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as the result of
employment by another employer after the date of resignation or termination, or
otherwise. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights the Executive may acquire in
the future, under any employee benefit plan, incentive plan, employment
agreement or other contract, plan or arrangement.
8. Indemnification. The Company shall indemnify the Executive within 60
days after receipt of a request therefor against all judgments, fines,
settlements, payments and expenses, including reasonable attorneys' fees, paid
or incurred in connection with any claim, action, suit or proceeding, civil,
criminal, administrative or investigatory ("Proceeding"), to which the Executive
may be made a party or with which he may be threatened by reason of his being or
having been an employee, officer or director of the Company or, at the Company's
request, an employee, officer or director of any other corporation, firm,
association or other organization, or by reason of any action or omission by the
Executive in such capacity, whether or not the Executive continues to hold such
position or act in such capacity at the time of incurring such expenses or at
the time the indemnification is made, other than in connection with actions
taken by the Executive which constitute gross negligence in the performance of
his duties for the Company which the Executive has undertaken without the
reasonable good faith belief that such actions were in the best interest of the
Company. The foregoing right of indemnification shall not be exclusive of other
rights to which the Executive may otherwise be entitled. The Company shall pay
the reasonable expenses (including reasonable attorneys' fees) incurred by the
Executive in defending any Proceeding in advance of the final disposition
thereof. The Company shall advance all such expenses by or on behalf of the
Executive within
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15 days after receipt of his request therefor, accompanied or preceded by
reasonable evidence of such expenses. The Executive will also be named as an
insured under any directors and officers or similar insurance policy that the
Company may purchase.
9. Successor to the Company. The Company will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. For
purposes of clarity, any failure of the Company to obtain such agreement prior
to the effectiveness of any such succession or assignment shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment for Good Reason. As used in this Agreement, the term
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
10. Enforcement.
(a) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amounts are still payable to him
hereunder, all such amounts shall be paid in accordance with the terms of
this Agreement to the Executive's estate or beneficiary.
(b) In the event that the Company shall fail or refuse to make
payment of any amounts due the Executive hereunder within the appropriate
time period, the Company shall pay to the Executive, in addition to the
payment of any other sums provided in this Agreement, interest, compounded
daily, on any amount remaining unpaid from the date payment is required
until paid to the Executive, at the rate from time to time announced by
Chase Manhattan Bank as its "prime rate" plus 2%, each change in such rate
to take effect on the effective date of the change in such prime rate.
(c) The Company shall pay all reasonable fees and expenses
(including attorneys' fees) that the Executive may incur as a result of
the Company's contesting the validity, enforceability, or the Executive's
interpretation of, this Agreement (regardless of the outcome of any
litigation to enforce this Agreement).
11. Non-Competition.
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(a) The Executive hereby acknowledges that the services which he
will perform for the Company are of a special and unique nature, and that
the Company would find it extremely difficult or impossible to replace the
Executive. Accordingly, the Executive agrees that, in consideration of
this Agreement and the payments to be received by him hereunder in the
event the occurrence of certain actions as specified herein, the Executive
will not (i) from and after the date hereof through the period during
which the Executive continues to be employed by the Company (the
"Employment Period"), and (ii) in the event of the Executive's termination
or resignation hereunder pursuant to the provisions set forth in Sections
2 and 4 hereof, for the one-year period thereafter (the "Non-Competition
Period"), directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, lender, consultant or
otherwise ("Participate" or a "Participation") with, any business or
organization in any part of the United States in which the Company sells
products or provides services, which Competes with the Company (as
hereinafter defined), except with the Company's prior written consent,
provided, however, that it is explicitly acknowledged and agreed by the
parties hereto that the Executive may Participate in Sonitrol Services of
New York, Inc., Rapid Response Monitoring Services Incorporated and SPS
Inc., subject to and conditioned upon the mutual understanding of the
parties hereto that the Executive shall devote substantially all of his
business time to the business and affairs of the Company during the
Employment Period, and any such Participation by the Executive shall not
cause the Executive to be deemed to Participate in a business or
organization which Competes with the Company hereunder. For purposes of
this Agreement, a business or organization shall be deemed to "Compete
with the Company" if such business or entity is engaged in the residential
and/or commercial security business, and the residential and/or commercial
security business constitutes the majority of such business or
organization's business operations; provided, however, that with respect
to a business or organization in which the residential and/or commercial
security business constitutes less than the majority of such business or
organization's business operations, the Executive shall be prohibited
hereunder from Participating in the division, segment or other portion of
such business or entity which is engaged in the residential and/or
commercial security business during the Non-Competition Period. Nothing in
this paragraph shall prohibit the Executive from owning for investment
purposes an aggregate of up to 3% of the publicly traded securities of any
corporation listed on the New York or American Stock Exchange or whose
securities are quoted on the NASDAQ National Market, provided that there
shall be no limitation on the percentage of ownership of the Company or
any successor thereto that may be owned by the Executive hereunder.
Notwithstanding anything which may be to the contrary herein, the
Executive shall not be required to cease Participation in any business or
organization which begins to Compete with the Company subsequent to the
time when the Executive commences such Participation, provided that such
business or organization began to Compete with the Company through no
action, assistance, or plan of the Executive.
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(b) It is the desire and intent of the parties that the provisions
of Section 11 of this Agreement shall be enforced under the laws and
public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of Section 11 of this
Agreement is adjudicated to be invalid or unenforceable or shall for any
reason be held to be excessively broad as to duration, geographic scope,
activity or subject, it shall be construed by limiting and reducing it, so
as to be enforceable to the extent compatible with applicable law and such
provision shall be deemed modified and amended to the extent necessary to
render such provision enforceable in such jurisdiction.
(c) In the event of a breach or threatened breach by the Executive
of the provisions of Section 11(a), in addition to other remedies
available to the Company at law (the amount of which shall be limited by
this Section 11(c)) or in equity, the Company shall be entitled to a
temporary or permanent injunction or injunctions, or temporary restraining
orders or orders to prevent breaches thereof, in each case, without the
need to post any security or bond. All remedies available for breach of
this Agreement are cumulative, and the pursuit of any remedy shall not be
construed as an election of such remedy or as prohibiting the Company from
or limiting the Company in pursuing any other remedies available for any
breach or threatened breach of this Agreement. The parties hereto agree
and stipulate in advance that in any action brought by or on behalf of the
Company to recover damages against the Executive for a breach of the
provisions of Section 11(a) hereof, the maximum damages that may be
awarded in the event that the Executive is ultimately adjudged to have
breached such provisions shall be limited to the Executive's most recent
annual salary multiplied by a fraction, the numerator of which shall be
the number of full months that the Executive was finally adjudged to have
been in breach of this covenant, and the denominator of which shall be
twelve.
12. Confidentiality. The Executive acknowledges that the Company will be
engaged in a business involving Confidential Information (as hereinafter
defined) that is proprietary to the Company. In addition, the Executive
acknowledges that through employment with the Company, he will have access to,
and will acquire or assist in the development of, Confidential Information
regarding the Company and its technologies, customers and plans, the disclosure
of which to others would cause the Company to suffer substantial damage. In
consideration of the obligations undertaken by the Company as set forth herein,
the Executive will not, at any time during or after the Employment Period,
publish, disclose or use, or authorize any other person or entity to publish,
disclose or use, any Confidential Information of or about the Company of which
the Executive has already become, or becomes, aware or informed during his
employment with the Company, whether or not developed by him, except (i) as
required by law (including but not limited to judicial or administrative
process), (ii) in the performance of the Executive's duties for the Company, or
(iii) in the event that the Confidential Information becomes generally known to
the public through no actions (either directly or indirectly) of the Executive.
For purposes hereof, the term "Confidential Information" shall include, without
limitation, matters of a technical nature, "know-how," formulas, secret
processes, works of authorship, computer programs,
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materials, patent applications, new product plans, technical improvements, test
data, progress reports and research projects, and matters of a business nature,
such as business plans, prospects, financial information, marketing plans and
strategies, proprietary information about costs, profits, markets, sales, lists
of customers and suppliers of the Company, procurement and promotional
information, credit and financial data concerning customers or suppliers of the
Company, information relating to the management and operation of the Company,
and other information of a similar nature to the extent not available to the
public.
13. Non-Solicitation. During (a) the Employment Period, and (b) in the
event of the Executive's termination or resignation hereunder pursuant to the
provisions set forth in Sections 2 and 4 hereof, for the two-year period
thereafter (the "Non-Solicitation Period"), the Executive shall not, directly or
indirectly (i) solicit, entice or induce any individual that currently (i.e.,
currently at the time of any such restricted action during the Non-Solicitation
Period) is an employee of the Company to become employed by any individual,
business or entity other than the Company, or (ii) approach any such employee
for such purpose, or authorize or participate or assist with the taking of such
actions by any other individual, business or entity.
14. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Triton Group Ltd.
[Address]
If to the Executive:
Mr. Russell R. MacDonnell
5 Molly Lane
Darien, CT 06820
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
15. Modifications and Waivers. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the parties hereto. No waiver by any party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed to be a waiver of similar or dissimilar provision or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
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16. Validity. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
17. Termination of Prior Agreements. The Prior Agreements are hereby
terminated, and shall be considered null and void as of the date first above
written.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
TRITON GROUP LTD.
By:_______________________________
Name:
Title:
RUSSELL R. MACDONNELL
__________________________________
SOLELY FOR PURPOSES OF SECTION 17:
SECURITIES SYSTEMS HOLDINGS, INC.
By:_______________________________
Name:
Title:
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Exihibit 10.21
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT, dated as of the ___ day of __________, 1997 (this
"Agreement"), among Triton Group Ltd., a Delaware corporation (the "Company"),
David Heidecorn (the "Executive"), and, solely for purposes of Section 17 of
this Agreement, Securities Systems Holdings, Inc., a Delaware corporation
("SSH").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties; and
WHEREAS, the Executive is a party to the "Death and Severance Benefit
Agreement" with SSH, dated as of August 8, 1995 (the "Prior Severance
Agreement"); and
WHEREAS, pursuant to an Agreement and Plan of Merger, dated __________ __,
199_ (the "Merger Agreement"), by and among the Company, Triton Acquisition
Corp., a Delaware corporation ("Merger Sub"), and SSH, as of the date hereof,
Merger Sub will be merged with and into SSH, with SSH as the surviving entity
(the "Merger") and as a wholly owned subsidiary of the Company; and
WHEREAS, the Executive shall become employed by the Company as of the
Effective Date (as defined in the Merger Agreement); and
WHEREAS, the Company, SSH and the Executive desire that the Prior
Severance Agreement be terminated, and that the terms and conditions set forth
herein apply to the Executive in connection with his employment with the Company
from and after the Effective Date.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained and in further consideration of services to be performed by the
Executive for the Company, the Company, the Executive, and, solely for purposes
of Section 15, SSH do hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
<PAGE>
(a) "Award" shall mean any award granted pursuant to the terms of
the Plan, including but not limited to stock options, stock appreciation
rights ("SARs") (including Limited SARs), restricted stock, deferred
stock, stock granted as a bonus or in lieu of other awards, dividend
equivalents, and other stock-based awards.
(b) "Cause" shall mean: (i) the willful and continued failure by the
Executive to substantially perform his duties for the Company (other than
any such failure resulting from the Executive's incapacity due to physical
or mental illness, or any such actual or anticipated failure after the
Executive announces his intention to resign for Good Reason), and such
failure is not cured by the Executive within seven days from the date the
Company notifies the Executive thereof, (ii) the willful engaging by the
Executive in misconduct which is materially and financially injurious to
the Company, or (iii) the Executive's conviction of a felony. No act, or
failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company.
(c) "Change in Control" shall be deemed to have occurred upon:
(i) the date of the acquisition by any "person" (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
excluding the Company or any of its subsidiaries or affiliates or
any employee benefit plan sponsored by any of the foregoing, of
beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 50% or more of either (x) the then outstanding
shares of common stock of the Company or (y) the then outstanding
voting securities entitled to vote generally in the election of
directors; or
(ii) the date the individuals who constitute the Board as of
the date of this Agreement (the "Incumbent Board") cease for any
reason to constitute at least a majority of the members of the
Board, provided that any individual becoming a director subsequent
to the effective date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than any individual whose nomination for
election to Board membership was not endorsed by the Company's
management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent
Board; or
(iii) the consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the Company's assets, a reverse stock split
of outstanding voting securities, the issuance of shares of stock of
the Company in connection with the acquisition of the stock or
assets
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of another entity, provided, however, that a Change in Control shall
not occur under this clause (iii) if consummation of the transaction
would result in at least 50% of the total voting power represented
by the voting securities of the Company (or, if not the Company, the
entity that succeeds to all or substantially all of the Company's
business) outstanding immediately after such transaction being
beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least 50% of the holders of
outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially
altered in the transaction.
(d) "Disability" shall mean the Executive's incapacity due to
physical or mental illness to substantially perform his duties on a
full-time basis for six consecutive months; provided, however, that if the
Executive shall not agree with a determination to terminate him because of
Disability, the question of the Executive's Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company
and the Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In the absence
of agreement between the Company and the Executive (or the Executive's
representative, as the case may be), each party shall nominate a qualified
medical doctor and the two doctors shall select a third doctor, who shall
make the determination as to Disability.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time. References to any provision of the Exchange
Act shall be deemed to include rules thereunder and successor provisions
and rules thereto.
(f) "Good Reason" shall mean (i) the assignment to the Executive by
the Company of duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company as in effect on the date of
this Agreement or such later date on which the Executive agrees in writing
to a change in such position, duties, responsibilities and/or status, or
any removal of the Executive from or any failure to reelect the Executive
to any of such positions; or (ii) any reduction by the Company in the
Executive's base salary as in effect on the date hereof or as the same may
be increased from time to time; or (iii) any failure by the Company to
continue in effect as to the Executive, without a substantially comparable
replacement, any material compensation or benefit plan or program in which
the Executive was participating; or (iv) any attempted relocation of the
Executive's place of employment to a location more than 50 miles from the
location of such employment on the date of such attempted relocation; or
(v) any material breach by the Company of any provision of this Agreement.
The Executive shall not be deemed to have resigned for Good Reason
hereunder without (i) written notice by the Executive to the Company
setting forth the reasons for the Executive's intention to resign for Good
Reason, and (ii) an opportunity for the Company to cure the reasons which
give rise to such claim within seven (7) days after the date of such
written notice.
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(g) "Plan" shall mean the 1997 Long-Term Stock Incentive Plan of
Triton Group Ltd.
2. Termination Without Cause or Resignation with Good Reason. In the event
of (i) the termination of the employment of the Executive without Cause (for any
reason other than by death or Disability) or (ii) the resignation of the
Executive from the Company for Good Reason, the Company shall pay or provide to
the Executive the following:
(a) any earned and accrued but unpaid installment of base salary
through the date of the Executive's resignation or termination at the rate
in effect at the time of such resignation or termination (or, if greater,
immediately prior to the occurrence of an event that constitutes Good
Reason) and all other unpaid amounts to which the Executive is entitled as
of such date under any compensation plan or program of the Company,
including, without limitation, all accrued vacation time; such payments to
be made in a lump sum within 30 days following the date of resignation or
termination; and
(b) in lieu of any further salary payments to the Executive for
periods subsequent to his date of resignation or termination, an amount
equal to the sum of (i) the Executive's annual base salary in effect as of
the date of the Executive's resignation or termination (or, if greater,
the Executive's annual base salary in effect immediately prior to the
occurrence of an event that constitutes Good Reason) and (ii) the average
of the annual bonus amounts that were earned by the Executive as bonus
compensation from the Company and/or SSH for the most recent three years
in which bonuses were paid to the Executive which occurred prior to the
year in which the Executive's resignation or termination occurred; such
payment to be made in a lump sum within 30 days following the date of
Executive's resignation or termination; and
(c) for a period of not less than one year following the Executive's
date of resignation or termination, the Company shall reimburse the
Executive for the reasonable expenses incurred by him in seeking
employment with another employer including the fees of a reputable
outplacement organization, up to a maximum of $25,000; and
(d) the Company shall maintain in full force and effect for one year
following the date of the Executive's resignation or termination, for the
continued benefit of the Executive, all employee welfare benefit plans and
perquisite programs in which the Executive was entitled to participate
immediately prior to the Executive's resignation or termination, provided
that the Executive's continued participation is possible under the general
terms and provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the
Company shall, at its sole cost and expense, arrange to provide the
Executive with benefits substantially similar to those which the Executive
would otherwise have been entitled to receive under such plans and
programs from which his continued participation is barred; and
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<PAGE>
(e) with respect to any Award granted to the Executive pursuant to
the Plan which is subject to future vesting and/or other restrictions
regarding the exercisability or full enjoyment of the Award as of the date
of the Executive's resignation or termination (if any), then,
notwithstanding the terms of the Plan or the certificate evidencing the
Award thereunder, the continued vesting or lapse of restrictions with
respect to such Award shall not cease with reference to such termination
or resignation, but shall continue during the duration of the term of the
Award in accordance with the schedule set forth in the certificate
evidencing such Award as if the Executive's employment with the Company
had continued throughout such vesting and/or lapse of restriction period.
In addition, with respect to each Award granted to the Executive pursuant
to the Plan (whether or not fully vested or free of restrictions at the
time of termination or resignation hereunder), the exercisability and the
full enjoyment of such Award shall not terminate with reference to such
termination or resignation, but shall be extended for the duration of the
entire term of the Award in accordance with the Plan and/or the
certificate evidencing such Award as if the Executive's employment with
the Company had continued during such entire term, notwithstanding the
terms of the Plan or the certificate evidencing the Award thereunder.
3. Termination for Death. In the event of the termination of the
employment of the Executive by reason of his death, the Company shall pay to the
Executive's designated beneficiary or estate the amounts set forth in paragraphs
(a) and (b) of Section 2 above, pursuant to which the date of the Executive's
death shall be considered the date of his termination thereunder. In addition,
with respect to any Award granted to the Executive pursuant to the Plan, in the
event that such Award is subject to future vesting or other restrictions
regarding the exercisability or full enjoyment of the Award as of the date of
the Executive's death, then, notwithstanding the terms of the Plan or the Award
Agreement thereunder, all restrictions thereon shall immediately lapse, and each
such Award shall be deemed immediately and fully vested and exercisable under
the Plan, as of the date of such death.
4. Termination for Cause or Disability or Resignation without Good Reason.
In the event of the Executive's termination of employment for Cause or
Disability or his resignation without Good Reason, only the amount set forth in
paragraph (a) of Section 2 shall be payable to the Executive, except that, in
the case of the Executive's termination for Disability hereunder, the Executive
shall also receive the benefits set forth in Section 2(e) hereof . Other than in
the case of the Executive's conviction of a felony, the Executive shall not be
deemed to have been terminated for Cause by the Company hereunder without (i)
notice to the Executive setting forth the reasons for the Company's intention to
terminate the Executive for Cause, (ii) an opportunity for the Executive,
together with his counsel, to be heard before the Board, and (iii) delivery to
the Executive of written notice from the Board finding that in the reasonable
good faith opinion of the Board, the Executive was guilty of conduct set forth
in the definition of Cause in Section 1 hereof, and specifying the particulars
thereof in detail.
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<PAGE>
5. Termination or Resignation in connection with a Change in Control.
(a) Notwithstanding the provisions of Sections 2 and 4, in the event
of the termination of the employment of the Executive for any reason other
than death, whether initiated by the Company with or without Cause, or
initiated by the Executive with or without Good Reason, which termination
occurs within the one year period following the date of a Change in
Control, then, in lieu of the amounts and benefits specified in Sections 2
and 4, the Executive shall be entitled to receive (i) the amount set forth
in Section 2(a), (ii) the amount set forth in Section 2(b), and (iii) the
benefits provided for in Sections 2(c) and (d).
(b) Notwithstanding the provisions of Section 2, in the event of the
resignation or termination of the employment of the Executive for any
reason specified therein, and such resignation or termination occurs
within the four month period (i) prior to the date of a Change in Control,
(ii) following commencement (within the meaning of Rule 14d-2 as
promulgated under the Exchange Act) of a "tender offer" for stock of the
Company subject to Section 14(d)(2) of the Exchange Act, which if
consummated, would result in an acquisition described in clause (i) of
Section 1(b), (iii) following the execution by the Company of an agreement
the consummation of which would constitute a Change in Control, (iv)
following the solicitation of proxies for the election of directors by
anyone other than the Company, or (v) following the approval by the
Company's stockholders of any transaction described in Section 1(b)(iii),
then, in lieu of the amounts and benefits specified in Section 2:
(x) the Executive shall be entitled to receive the amounts and
benefits specified in Section 5(a), and
(y) with respect to any Award granted to the Executive pursuant to
the Plan, in the event that such Award is subject to future vesting
or other restrictions regarding the exercisability or full enjoyment
of the Award as of the date of such resignation or termination,
then, notwithstanding the terms of the Plan or the Award Agreement
thereunder, the accelerated vesting and lapse of restriction
provisions set forth in Section 7(g) of the Plan shall be applicable
with respect to such Awards as if a Change in Control had occurred
on the date of such resignation or termination.
Amounts and benefits payable by reason of clause (b)(i) of this Section 5
shall be paid within ten days following the date of the Change in Control,
but shall be offset by any amounts previously paid pursuant to Section 2.
6. Certain Taxes.
6
<PAGE>
(a) In addition to any amounts payable under this Agreement, the
Company shall pay to the Executive an amount that, on an after-tax basis
(including federal income and excise taxes, and state and local income
taxes) equals the excise tax imposed by Section 4999 of the Code upon
the Executive by reason of amounts payable under this Agreement (including
this Section 6(a)), as well as amounts payable outside of this Agreement
by the Company that are described in Section 280G(b)(2)(A)(i) of the Code,
such payment to be made within ten days following the Executive's
termination of employment. For purposes of this Section 6(a), the
Executive shall be deemed to pay federal, state and local income taxes at
the highest marginal rate of taxation.
(b) The Company shall have the right to deduct from any amounts
payable under this Agreement an amount necessary to satisfy its
obligation, under applicable laws, to withhold income or other taxes of
the Executive attributable to payments made hereunder.
7. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as the result of
employment by another employer after the date of resignation or termination, or
otherwise. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights the Executive may acquire in
the future, under any employee benefit plan, incentive plan, employment
agreement or other contract, plan or arrangement.
8. Indemnification. The Company shall indemnify the Executive within 60
days after receipt of a request therefor against all judgments, fines,
settlements, payments and expenses, including reasonable attorneys' fees, paid
or incurred in connection with any claim, action, suit or proceeding, civil,
criminal, administrative or investigatory ("Proceeding"), to which the Executive
may be made a party or with which he may be threatened by reason of his being or
having been an employee, officer or director of the Company or, at the Company's
request, an employee, officer or director of any other corporation, firm,
association or other organization, or by reason of any action or omission by the
Executive in such capacity, whether or not the Executive continues to hold such
position or act in such capacity at the time of incurring such expenses or at
the time the indemnification is made, other than in connection with actions
taken by the Executive which constitute gross negligence in the performance of
his duties for the Company which the Executive has undertaken without the
reasonable good faith belief that such actions were in the best interest of the
Company. The foregoing right of indemnification shall not be exclusive of other
rights to which the Executive may otherwise be entitled. The Company shall pay
the reasonable expenses (including reasonable attorneys' fees) incurred by the
Executive in defending any Proceeding in advance of the final disposition
thereof. The Company shall advance all such expenses by or on behalf of the
Executive within
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15 days after receipt of his request therefor, accompanied or preceded by
reasonable evidence of such expenses. The Executive will also be named as an
insured under any directors and officers or similar insurance policy that the
Company may purchase.
9. Successor to the Company. The Company will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. For
purposes of clarity, any failure of the Company to obtain such agreement prior
to the effectiveness of any such succession or assignment shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment for Good Reason. As used in this Agreement, the term
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
10. Enforcement.
(a) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amounts are still payable to him
hereunder, all such amounts shall be paid in accordance with the terms of
this Agreement to the Executive's estate or beneficiary.
(b) In the event that the Company shall fail or refuse to make
payment of any amounts due the Executive hereunder within the appropriate
time period, the Company shall pay to the Executive, in addition to the
payment of any other sums provided in this Agreement, interest, compounded
daily, on any amount remaining unpaid from the date payment is required
until paid to the Executive, at the rate from time to time announced by
Chase Manhattan Bank as its "prime rate" plus 2%, each change in such rate
to take effect on the effective date of the change in such prime rate.
(c) The Company shall pay all reasonable fees and expenses
(including attorneys' fees) that the Executive may incur as a result of
the Company's contesting the validity, enforceability, or the Executive's
interpretation of, this Agreement (regardless of the outcome of any
litigation to enforce this Agreement).
11. Non-Competition.
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(a) The Executive hereby acknowledges that the services which he
will perform for the Company are of a special and unique nature, and that
the Company would find it extremely difficult or impossible to replace the
Executive. Accordingly, the Executive agrees that, in consideration of
this Agreement and the payments to be received by him hereunder in the
event the occurrence of certain actions as specified herein, the Executive
will not (i) from and after the date hereof through the period during
which the Executive continues to be employed by the Company (the
"Employment Period"), and (ii) in the event of the Executive's termination
or resignation hereunder pursuant to the provisions set forth in Sections
2 and 4 hereof, for the one-year period thereafter (the "Non-Competition
Period"), directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, lender, consultant or
otherwise ("Participate" or a "Participation") with, any business or
organization in any part of the United States in which the Company sells
products or provides services, which Competes with the Company (as
hereinafter defined), except with the Company's prior written consent,
provided, however, that it is acknowledged that the Executive's children
beneficially own common equity in SPS Inc. in an amount less than 3% of
the total common equity of SPS Inc., and such ownership shall not cause
the Executive to be in breach of this Agreement. For purposes of this
Agreement, a business or organization shall be deemed to "Compete with the
Company" if such business or entity is engaged in the residential and/or
commercial security business, and the residential and/or commercial
security business constitutes the majority of such business or
organization's business operations; provided, however, that with respect
to a business or organization in which the residential and/or commercial
security business constitutes less than the majority of such business or
organization's business operations, the Executive shall be prohibited
hereunder from Participating in the division, segment or other portion of
such business or entity which is engaged in the residential and/or
commercial security business during the Non-Competition Period. Nothing in
this paragraph shall prohibit the Executive from owning for investment
purposes an aggregate of up to 3% of the publicly traded securities of any
corporation listed on the New York or American Stock Exchange or whose
securities are quoted on the NASDAQ National Market, provided that there
shall be no limitation on the percentage of ownership of the Company or
any successor thereto that may be owned by the Executive hereunder.
Notwithstanding anything which may be to the contrary herein, the
Executive shall not be required to cease Participation in any business or
organization which begins to Compete with the Company subsequent to the
time when the Executive commences such Participation, provided that such
business or organization began to Compete with the Company through no
action, assistance, or plan of the Executive.
(b) It is the desire and intent of the parties that the provisions
of Section 11 of this Agreement shall be enforced under the laws and
public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of Section 11 of this
Agreement is adjudicated to be invalid or unenforceable or shall for
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any reason be held to be excessively broad as to duration, geographic
scope, activity or subject, it shall be construed by limiting and reducing
it, so as to be enforceable to the extent compatible with applicable law
and such provision shall be deemed modified and amended to the extent
necessary to render such provision enforceable in such jurisdiction.
(c) In the event of a breach or threatened breach by the Executive
of the provisions of Section 11(a), in addition to other remedies
available to the Company at law (the amount of which shall be limited by
this Section 11(c)) or in equity, the Company shall be entitled to a
temporary or permanent injunction or injunctions, or temporary restraining
orders or orders to prevent breaches thereof, in each case, without the
need to post any security or bond. All remedies available for breach of
this Agreement are cumulative, and the pursuit of any remedy shall not be
construed as an election of such remedy or as prohibiting the Company from
or limiting the Company in pursuing any other remedies available for any
breach or threatened breach of this Agreement. The parties hereto agree
and stipulate in advance that in any action brought by or on behalf of the
Company to recover damages against the Executive for a breach of the
provisions of Section 11(a) hereof, the maximum damages that may be
awarded in the event that the Executive is ultimately adjudged to have
breached such provisions shall be limited to the Executive's most recent
annual salary multiplied by a fraction, the numerator of which shall be
the number of full months that the Executive was finally adjudged to have
been in breach of this covenant, and the denominator of which shall be
twelve.
12. Confidentiality. The Executive acknowledges that the Company will be
engaged in a business involving Confidential Information (as hereinafter
defined) that is proprietary to the Company. In addition, the Executive
acknowledges that through employment with the Company, he will have access to,
and will acquire or assist in the development of, Confidential Information
regarding the Company and its technologies, customers and plans, the disclosure
of which to others would cause the Company to suffer substantial damage. In
consideration of the obligations undertaken by the Company as set forth herein,
the Executive will not, at any time during or after the Employment Period,
publish, disclose or use, or authorize any other person or entity to publish,
disclose or use, any Confidential Information of or about the Company of which
the Executive has already become, or becomes, aware or informed during his
employment with the Company, whether or not developed by him, except (i) as
required by law (including but not limited to judicial or administrative
process), (ii) in the performance of the Executive's duties for the Company, or
(iii) in the event that the Confidential Information becomes generally known to
the public through no actions (either directly or indirectly) of the Executive.
For purposes hereof, the term "Confidential Information" shall include, without
limitation, matters of a technical nature, "know-how," formulas, secret
processes, works of authorship, computer programs, materials, patent
applications, new product plans, technical improvements, test data, progress
reports and research projects, and matters of a business nature, such as
business plans, prospects, financial information, marketing plans and
strategies, proprietary information about costs, profits, markets, sales, lists
of customers and suppliers of the Company, procurement
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and promotional information, credit and financial data concerning customers or
suppliers of the Company, information relating to the management and operation
of the Company, and other information of a similar nature to the extent not
available to the public.
13. Non-Solicitation. During (a) the Employment Period, and (b) in the
event of the Executive's termination or resignation hereunder pursuant to the
provisions set forth in Sections 2 and 4 hereof, for the two-year period
thereafter (the "Non-Solicitation Period"), the Executive shall not, directly or
indirectly (i) solicit, entice or induce any individual that currently (i.e.,
currently at the time of any such restricted action during the Non-Solicitation
Period) is an employee of the Company to become employed by any individual,
business or entity other than the Company, or (ii) approach any such employee
for such purpose, or authorize or participate or assist with the taking of such
actions by any other individual, business or entity.
14. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Triton Group Ltd.
[Address]
If to the Executive:
Mr. David Heidecorn
4 Gifford Lake Drive
Armonk, NY 10504
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
15. Modifications and Waivers. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the parties hereto. No waiver by any party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed to be a waiver of similar or dissimilar provision or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
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16. Validity. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
17. Termination of Prior Severance Agreement. The Prior Severance
Agreement is hereby terminated, and shall be considered null and void as of the
date first above written.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
TRITON GROUP LTD.
By:_______________________________
Name:
Title:
DAVID HEIDECORN
__________________________________
SOLELY FOR PURPOSES OF SECTION 17:
SECURITIES SYSTEMS HOLDINGS, INC.
By:_______________________________
Name:
Title:
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Exihibit 10.22
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT, dated as of the ___ day of __________, 1997 (this
"Agreement"), among Triton Group Ltd., a Delaware corporation (the "Company"),
Gregory J. Westhoff (the "Executive"), and, solely for purposes of Section 17 of
this Agreement, Securities Systems Holdings, Inc., a Delaware corporation
("SSH").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties; and
WHEREAS, the Executive is a party to the "Death and Severance Benefit
Agreement" with SSH, dated as of August 8, 1995 (the "Prior Severance
Agreement"); and
WHEREAS, pursuant to an Agreement and Plan of Merger, dated __________ __,
199_ (the "Merger Agreement"), by and among the Company, Triton Acquisition
Corp., a Delaware corporation ("Merger Sub"), and SSH, as of the date hereof,
Merger Sub will be merged with and into SSH, with SSH as the surviving entity
(the "Merger") and as a wholly owned subsidiary of the Company; and
WHEREAS, the Executive shall become employed by the Company as of the
Effective Date (as defined in the Merger Agreement); and
WHEREAS, the Company, SSH and the Executive desire that the Prior
Severance Agreement be terminated, and that the terms and conditions set forth
herein apply to the Executive in connection with his employment with the Company
from and after the Effective Date.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained and in further consideration of services to be performed by the
Executive for the Company, the Company, the Executive, and, solely for purposes
of Section 15, SSH do hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
<PAGE>
(a) "Award" shall mean any award granted pursuant to the terms of
the Plan, including but not limited to stock options, stock appreciation
rights ("SARs") (including Limited SARs), restricted stock, deferred
stock, stock granted as a bonus or in lieu of other awards, dividend
equivalents, and other stock-based awards.
(b) "Cause" shall mean: (i) the willful and continued failure by the
Executive to substantially perform his duties for the Company (other than
any such failure resulting from the Executive's incapacity due to physical
or mental illness, or any such actual or anticipated failure after the
Executive announces his intention to resign for Good Reason), and such
failure is not cured by the Executive within seven days from the date the
Company notifies the Executive thereof, (ii) the willful engaging by the
Executive in misconduct which is materially and financially injurious to
the Company, or (iii) the Executive's conviction of a felony. No act, or
failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by him not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company.
(c) "Change in Control" shall be deemed to have occurred upon:
(i) the date of the acquisition by any "person" (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act),
excluding the Company or any of its subsidiaries or affiliates or
any employee benefit plan sponsored by any of the foregoing, of
beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of 50% or more of either (x) the then outstanding
shares of common stock of the Company or (y) the then outstanding
voting securities entitled to vote generally in the election of
directors; or
(ii) the date the individuals who constitute the Board as of
the date of this Agreement (the "Incumbent Board") cease for any
reason to constitute at least a majority of the members of the
Board, provided that any individual becoming a director subsequent
to the effective date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than any individual whose nomination for
election to Board membership was not endorsed by the Company's
management prior to, or at the time of, such individual's initial
nomination for election) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent
Board; or
(iii) the consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the Company's assets, a reverse stock split
of outstanding voting securities, the issuance of shares of stock of
the Company in connection with the acquisition of the stock or
assets
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of another entity, provided, however, that a Change in Control shall
not occur under this clause (iii) if consummation of the transaction
would result in at least 50% of the total voting power represented
by the voting securities of the Company (or, if not the Company, the
entity that succeeds to all or substantially all of the Company's
business) outstanding immediately after such transaction being
beneficially owned (within the meaning of Rule 13d-3 promulgated
pursuant to the Exchange Act) by at least 50% of the holders of
outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing
holder relative to other such continuing holders not substantially
altered in the transaction.
(d) "Disability" shall mean the Executive's incapacity due to
physical or mental illness to substantially perform his duties on a
full-time basis for six consecutive months; provided, however, that if the
Executive shall not agree with a determination to terminate him because of
Disability, the question of the Executive's Disability shall be subject to
the certification of a qualified medical doctor agreed to by the Company
and the Executive or, in the event of the Executive's incapacity to
designate a doctor, the Executive's legal representative. In the absence
of agreement between the Company and the Executive (or the Executive's
representative, as the case may be), each party shall nominate a qualified
medical doctor and the two doctors shall select a third doctor, who shall
make the determination as to Disability.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time. References to any provision of the Exchange
Act shall be deemed to include rules thereunder and successor provisions
and rules thereto.
(f) "Good Reason" shall mean (i) the assignment to the Executive by
the Company of duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company as in effect on the date of
this Agreement or such later date on which the Executive agrees in writing
to a change in such position, duties, responsibilities and/or status, or
any removal of the Executive from or any failure to reelect the Executive
to any of such positions; or (ii) any reduction by the Company in the
Executive's base salary as in effect on the date hereof or as the same may
be increased from time to time; or (iii) any failure by the Company to
continue in effect as to the Executive, without a substantially comparable
replacement, any material compensation or benefit plan or program in which
the Executive was participating; or (iv) any attempted relocation of the
Executive's place of employment to a location more than 50 miles from the
location of such employment on the date of such attempted relocation; or
(v) any material breach by the Company of any provision of this Agreement.
The Executive shall not be deemed to have resigned for Good Reason
hereunder without (i) written notice by the Executive to the Company
setting forth the reasons for the Executive's intention to resign for Good
Reason, and (ii) an opportunity for the Company to cure the reasons which
give rise to such claim within seven (7) days after the date of such
written notice.
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(g) "Plan" shall mean the 1997 Long-Term Stock Incentive Plan of
Triton Group Ltd.
2. Termination Without Cause or Resignation with Good Reason. In the event
of (i) the termination of the employment of the Executive without Cause (for any
reason other than by death or Disability) or (ii) the resignation of the
Executive from the Company for Good Reason, the Company shall pay or provide to
the Executive the following:
(a) any earned and accrued but unpaid installment of base salary
through the date of the Executive's resignation or termination at the rate
in effect at the time of such resignation or termination (or, if greater,
immediately prior to the occurrence of an event that constitutes Good
Reason) and all other unpaid amounts to which the Executive is entitled as
of such date under any compensation plan or program of the Company,
including, without limitation, all accrued vacation time; such payments to
be made in a lump sum within 30 days following the date of resignation or
termination; and
(b) in lieu of any further salary payments to the Executive for
periods subsequent to his date of resignation or termination, an amount
equal to the sum of (i) the Executive's annual base salary in effect as of
the date of the Executive's resignation or termination (or, if greater,
the Executive's annual base salary in effect immediately prior to the
occurrence of an event that constitutes Good Reason) and (ii) the average
of the annual bonus amounts that were earned by the Executive as bonus
compensation from the Company and/or SSH for the most recent three years
in which bonuses were paid to the Executive which occurred prior to the
year in which the Executive's resignation or termination occurred; such
payment to be made in a lump sum within 30 days following the date of
Executive's resignation or termination; and
(c) for a period of not less than one year following the Executive's
date of resignation or termination, the Company shall reimburse the
Executive for the reasonable expenses incurred by him in seeking
employment with another employer including the fees of a reputable
outplacement organization, up to a maximum of $25,000; and
(d) the Company shall maintain in full force and effect for one year
following the date of the Executive's resignation or termination, for the
continued benefit of the Executive, all employee welfare benefit plans and
perquisite programs in which the Executive was entitled to participate
immediately prior to the Executive's resignation or termination, provided
that the Executive's continued participation is possible under the general
terms and provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the
Company shall, at its sole cost and expense, arrange to provide the
Executive with benefits substantially similar to those which the Executive
would otherwise have been entitled to receive under such plans and
programs from which his continued participation is barred; and
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(e) with respect to any Award granted to the Executive pursuant to
the Plan which is subject to future vesting and/or other restrictions
regarding the exercisability or full enjoyment of the Award as of the date
of the Executive's resignation or termination (if any), then,
notwithstanding the terms of the Plan or the certificate evidencing the
Award thereunder, the continued vesting or lapse of restrictions with
respect to such Award shall not cease with reference to such termination
or resignation, but shall continue during the duration of the term of the
Award in accordance with the schedule set forth in the certificate
evidencing such Award as if the Executive's employment with the Company
had continued throughout such vesting and/or lapse of restriction period.
In addition, with respect to each Award granted to the Executive pursuant
to the Plan (whether or not fully vested or free of restrictions at the
time of termination or resignation hereunder), the exercisability and the
full enjoyment of such Award shall not terminate with reference to such
termination or resignation, but shall be extended for the duration of the
entire term of the Award in accordance with the Plan and/or the
certificate evidencing such Award as if the Executive's employment with
the Company had continued during such entire term, notwithstanding the
terms of the Plan or the certificate evidencing the Award thereunder.
3. Termination for Death. In the event of the termination of the
employment of the Executive by reason of his death, the Company shall pay to the
Executive's designated beneficiary or estate the amounts set forth in paragraphs
(a) and (b) of Section 2 above, pursuant to which the date of the Executive's
death shall be considered the date of his termination thereunder. In addition,
with respect to any Award granted to the Executive pursuant to the Plan, in the
event that such Award is subject to future vesting or other restrictions
regarding the exercisability or full enjoyment of the Award as of the date of
the Executive's death, then, notwithstanding the terms of the Plan or the Award
Agreement thereunder, all restrictions thereon shall immediately lapse, and each
such Award shall be deemed immediately and fully vested and exercisable under
the Plan, as of the date of such death.
4. Termination for Cause or Disability or Resignation without Good Reason.
In the event of the Executive's termination of employment for Cause or
Disability or his resignation without Good Reason, only the amount set forth in
paragraph (a) of Section 2 shall be payable to the Executive, except that, in
the case of the Executive's termination for Disability hereunder, the Executive
shall also receive the benefits set forth in Section 2(e) hereof . Other than in
the case of the Executive's conviction of a felony, the Executive shall not be
deemed to have been terminated for Cause by the Company hereunder without (i)
notice to the Executive setting forth the reasons for the Company's intention to
terminate the Executive for Cause, (ii) an opportunity for the Executive,
together with his counsel, to be heard before the Board, and (iii) delivery to
the Executive of written notice from the Board finding that in the reasonable
good faith opinion of the Board, the Executive was guilty of conduct set forth
in the definition of Cause in Section 1 hereof, and specifying the particulars
thereof in detail.
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5. Termination or Resignation in connection with a Change in Control.
(a) Notwithstanding the provisions of Sections 2 and 4, in the event
of the termination of the employment of the Executive for any reason other
than death, whether initiated by the Company with or without Cause, or
initiated by the Executive with or without Good Reason, which termination
occurs within the one year period following the date of a Change in
Control, then, in lieu of the amounts and benefits specified in Sections 2
and 4, the Executive shall be entitled to receive (i) the amount set forth
in Section 2(a), (ii) the amount set forth in Section 2(b), and (iii) the
benefits provided for in Sections 2(c) and (d).
(b) Notwithstanding the provisions of Section 2, in the event of the
resignation or termination of the employment of the Executive for any
reason specified therein, and such resignation or termination occurs
within the four month period (i) prior to the date of a Change in Control,
(ii) following commencement (within the meaning of Rule 14d-2 as
promulgated under the Exchange Act) of a "tender offer" for stock of the
Company subject to Section 14(d)(2) of the Exchange Act, which if
consummated, would result in an acquisition described in clause (i) of
Section 1(b), (iii) following the execution by the Company of an agreement
the consummation of which would constitute a Change in Control, (iv)
following the solicitation of proxies for the election of directors by
anyone other than the Company, or (v) following the approval by the
Company's stockholders of any transaction described in Section 1(b)(iii),
then, in lieu of the amounts and benefits specified in Section 2:
(x) the Executive shall be entitled to receive the amounts and
benefits specified in Section 5(a), and
(y) with respect to any Award granted to the Executive pursuant to
the Plan, in the event that such Award is subject to future vesting
or other restrictions regarding the exercisability or full enjoyment
of the Award as of the date of such resignation or termination,
then, notwithstanding the terms of the Plan or the Award Agreement
thereunder, the accelerated vesting and lapse of restriction
provisions set forth in Section 7(g) of the Plan shall be applicable
with respect to such Awards as if a Change in Control had occurred
on the date of such resignation or termination.
Amounts and benefits payable by reason of clause (b)(i) of this Section 5
shall be paid within ten days following the date of the Change in Control,
but shall be offset by any amounts previously paid pursuant to Section 2.
6. Certain Taxes.
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<PAGE>
(a) In addition to any amounts payable under this Agreement, the
Company shall pay to the Executive an amount that, on an after-tax basis
(including federal income and excise taxes, and state and local income
taxes) equals the excise tax imposed by Section 4999 of the Code upon
the Executive by reason of amounts payable under this Agreement (including
this Section 6(a)), as well as amounts payable outside of this Agreement
by the Company that are described in Section 280G(b)(2)(A)(i) of the Code,
such payment to be made within ten days following the Executive's
termination of employment. For purposes of this Section 6(a), the
Executive shall be deemed to pay federal, state and local income taxes at
the highest marginal rate of taxation.
(b) The Company shall have the right to deduct from any amounts
payable under this Agreement an amount necessary to satisfy its
obligation, under applicable laws, to withhold income or other taxes of
the Executive attributable to payments made hereunder.
7. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as the result of
employment by another employer after the date of resignation or termination, or
otherwise. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights the Executive may acquire in
the future, under any employee benefit plan, incentive plan, employment
agreement or other contract, plan or arrangement.
8. Indemnification. The Company shall indemnify the Executive within 60
days after receipt of a request therefor against all judgments, fines,
settlements, payments and expenses, including reasonable attorneys' fees, paid
or incurred in connection with any claim, action, suit or proceeding, civil,
criminal, administrative or investigatory ("Proceeding"), to which the Executive
may be made a party or with which he may be threatened by reason of his being or
having been an employee, officer or director of the Company or, at the Company's
request, an employee, officer or director of any other corporation, firm,
association or other organization, or by reason of any action or omission by the
Executive in such capacity, whether or not the Executive continues to hold such
position or act in such capacity at the time of incurring such expenses or at
the time the indemnification is made, other than in connection with actions
taken by the Executive which constitute gross negligence in the performance of
his duties for the Company which the Executive has undertaken without the
reasonable good faith belief that such actions were in the best interest of the
Company. The foregoing right of indemnification shall not be exclusive of other
rights to which the Executive may otherwise be entitled. The Company shall pay
the reasonable expenses (including reasonable attorneys' fees) incurred by the
Executive in defending any Proceeding in advance of the final disposition
thereof. The Company shall advance all such expenses by or on behalf of the
Executive within
7
<PAGE>
15 days after receipt of his request therefor, accompanied or preceded by
reasonable evidence of such expenses. The Executive will also be named as an
insured under any directors and officers or similar insurance policy that the
Company may purchase.
9. Successor to the Company. The Company will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. For
purposes of clarity, any failure of the Company to obtain such agreement prior
to the effectiveness of any such succession or assignment shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment for Good Reason. As used in this Agreement, the term
"Company" shall mean the Company as hereinbefore defined and any successor or
assign to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
10. Enforcement.
(a) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amounts are still payable to him
hereunder, all such amounts shall be paid in accordance with the terms of
this Agreement to the Executive's estate or beneficiary.
(b) In the event that the Company shall fail or refuse to make
payment of any amounts due the Executive hereunder within the appropriate
time period, the Company shall pay to the Executive, in addition to the
payment of any other sums provided in this Agreement, interest, compounded
daily, on any amount remaining unpaid from the date payment is required
until paid to the Executive, at the rate from time to time announced by
Chase Manhattan Bank as its "prime rate" plus 2%, each change in such rate
to take effect on the effective date of the change in such prime rate.
(c) The Company shall pay all reasonable fees and expenses
(including attorneys' fees) that the Executive may incur as a result of
the Company's contesting the validity, enforceability, or the Executive's
interpretation of, this Agreement (regardless of the outcome of any
litigation to enforce this Agreement).
11. Non-Competition.
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<PAGE>
(a) The Executive hereby acknowledges that the services which he
will perform for the Company are of a special and unique nature, and that
the Company would find it extremely difficult or impossible to replace the
Executive. Accordingly, the Executive agrees that, in consideration of
this Agreement and the payments to be received by him hereunder in the
event the occurrence of certain actions as specified herein, the Executive
will not (i) from and after the date hereof through the period during
which the Executive continues to be employed by the Company (the
"Employment Period"), and (ii) in the event of the Executive's termination
or resignation hereunder pursuant to the provisions set forth in Sections
2 and 4 hereof, for the one-year period thereafter (the "Non- Competition
Period"), directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, lender, consultant or
otherwise ("Participate" or a "Participation") with, any business or
organization in any part of the United States in which the Company sells
products or provides services, which Competes with the Company (as
hereinafter defined), except with the Company's prior written consent. For
purposes of this Agreement, a business or organization shall be deemed to
"Compete with the Company" if such business or entity is engaged in the
residential and/or commercial security business, and the residential
and/or commercial security business constitutes the majority of such
business or organization's business operations; provided, however, that
with respect to a business or organization in which the residential and/or
commercial security business constitutes less than the majority of such
business or organization's business operations, the Executive shall be
prohibited hereunder from Participating in the division, segment or other
portion of such business or entity which is engaged in the residential
and/or commercial security business during the Non-Competition Period.
Nothing in this paragraph shall prohibit the Executive from owning for
investment purposes an aggregate of up to 3% of the publicly traded
securities of any corporation listed on the New York or American Stock
Exchange or whose securities are quoted on the NASDAQ National Market,
provided that there shall be no limitation on the percentage of ownership
of the Company or any successor thereto that may be owned by the Executive
hereunder. Notwithstanding anything which may be to the contrary herein,
the Executive shall not be required to cease Participation in any business
or organization which begins to Compete with the Company subsequent to the
time when the Executive commences such Participation, provided that such
business or organization began to Compete with the Company through no
action, assistance, or plan of the Executive.
(b) It is the desire and intent of the parties that the provisions
of Section 11 of this Agreement shall be enforced under the laws and
public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of Section 11 of this
Agreement is adjudicated to be invalid or unenforceable or shall for any
reason be held to be excessively broad as to duration, geographic scope,
activity or subject, it shall be construed by limiting and reducing it, so
as to be enforceable to the extent compatible with applicable law and such
provision shall be deemed modified and amended to the extent necessary to
render such provision enforceable in such jurisdiction.
9
<PAGE>
(c) In the event of a breach or threatened breach by the Executive
of the provisions of Section 11(a), in addition to other remedies
available to the Company at law (the amount of which shall be limited by
this Section 11(c)) or in equity, the Company shall be entitled to a
temporary or permanent injunction or injunctions, or temporary restraining
orders or orders to prevent breaches thereof, in each case, without the
need to post any security or bond. All remedies available for breach of
this Agreement are cumulative, and the pursuit of any remedy shall not be
construed as an election of such remedy or as prohibiting the Company from
or limiting the Company in pursuing any other remedies available for any
breach or threatened breach of this Agreement. The parties hereto agree
and stipulate in advance that in any action brought by or on behalf of the
Company to recover damages against the Executive for a breach of the
provisions of Section 11(a) hereof, the maximum damages that may be
awarded in the event that the Executive is ultimately adjudged to have
breached such provisions shall be limited to the Executive's most recent
annual salary multiplied by a fraction, the numerator of which shall be
the number of full months that the Executive was finally adjudged to have
been in breach of this covenant, and the denominator of which shall be
twelve.
12. Confidentiality. The Executive acknowledges that the Company will be
engaged in a business involving Confidential Information (as hereinafter
defined) that is proprietary to the Company. In addition, the Executive
acknowledges that through employment with the Company, he will have access to,
and will acquire or assist in the development of, Confidential Information
regarding the Company and its technologies, customers and plans, the disclosure
of which to others would cause the Company to suffer substantial damage. In
consideration of the obligations undertaken by the Company as set forth herein,
the Executive will not, at any time during or after the Employment Period,
publish, disclose or use, or authorize any other person or entity to publish,
disclose or use, any Confidential Information of or about the Company of which
the Executive has already become, or becomes, aware or informed during his
employment with the Company, whether or not developed by him, except (i) as
required by law (including but not limited to judicial or administrative
process), (ii) in the performance of the Executive's duties for the Company, or
(iii) in the event that the Confidential Information becomes generally known to
the public through no actions (either directly or indirectly) of the Executive.
For purposes hereof, the term "Confidential Information" shall include, without
limitation, matters of a technical nature, "know-how," formulas, secret
processes, works of authorship, computer programs, materials, patent
applications, new product plans, technical improvements, test data, progress
reports and research projects, and matters of a business nature, such as
business plans, prospects, financial information, marketing plans and
strategies, proprietary information about costs, profits, markets, sales, lists
of customers and suppliers of the Company, procurement and promotional
information, credit and financial data concerning customers or suppliers of the
Company, information relating to the management and operation of the Company,
and other information of a similar nature to the extent not available to the
public.
10
<PAGE>
13. Non-Solicitation. During (a) the Employment Period, and (b) in the
event of the Executive's termination or resignation hereunder pursuant to the
provisions set forth in Sections 2 and 4 hereof, for the two-year period
thereafter (the "Non-Solicitation Period"), the Executive shall not, directly or
indirectly (i) solicit, entice or induce any individual that currently (i.e.,
currently at the time of any such restricted action during the Non-Solicitation
Period) is an employee of the Company to become employed by any individual,
business or entity other than the Company, or (ii) approach any such employee
for such purpose, or authorize or participate or assist with the taking of such
actions by any other individual, business or entity.
14. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Triton Group Ltd.
[Address]
If to the Executive:
Mr. Gregory J. Westhoff
689 Mimosa Tree Lane
West Chester, PA 19380
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
15. Modifications and Waivers. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the parties hereto. No waiver by any party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed to be a waiver of similar or dissimilar provision or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be governed by and construed
in accordance with the laws of the State of Connecticut.
16. Validity. The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
11
<PAGE>
17. Termination of Prior Severance Agreement. The Prior Severance
Agreement is hereby terminated, and shall be considered null and void as of the
date first above written.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date and year first above written.
TRITON GROUP LTD.
By:_______________________________
Name:
Title:
GREGORY J. WESTHOFF
__________________________________
SOLELY FOR PURPOSES OF SECTION 17:
SECURITIES SYSTEMS HOLDINGS, INC.
By:_______________________________
Name:
Title:
12
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is entered into as of
____________, 1996, by and between TRITON GROUP LTD., a Delaware corporation
("Triton"), and TRITON GROUP MANAGEMENT LLC, a ____________ limited liability
company ("TGM").
RECITALS
A. Triton desires to engage TGM to assume the costs and maintain the
capability of the San Diego office of Triton and to provide management and
consulting services to Triton following the consummation of the merger (the
"Merger") of Triton Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Triton ("Merger Sub"), with and into Security Systems Holdings,
Inc., a Delaware corporation ("SSH"), pursuant to that certain Agreement and
Plan of Merger dated as of December ___, 1996 by and among Triton, Merger Sub
and SSH.
B. TGM desires to accept such engagement by Triton upon the terms and
subject to the conditions herein provided.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. Position and Duties. TGM shall provide such management and consulting
services to Triton as Triton's management may reasonably request, primarily
associated with the liquidation of Triton's remaining assets and liabilities and
the transition of the surviving entity in the Merger into a public company. TGM
shall pay in a timely manner the normal and recurring expenses and obligations
of Triton's San Diego corporate office, including personnel and occupancy costs,
to the extent consistent with Triton's past practice.
2. Compensation. Triton shall pay TGM as compensation for its services
hereunder cash in the aggregate amount of Five Hundred Forty Thousand Dollars
($540,000) in the following payments: (a) upon consummation of the Merger, Three
Hundred Thousand Dollars ($300,000), and (b) within five business days following
the end of each month of the Term (as defined below), Twenty Thousand Dollars
($20,000).
1
<PAGE>
3. Expenses. During the Term, TGM shall be entitled to receive monthly
reimbursement for all reasonable business-related travel expenses incurred by
TGM and its representatives in connection with this Agreement.
4. Term. The term of TGM's engagement hereunder shall commence on the
closing date of the Merger and shall continue until the first anniversary of
such date (the "Term").
5. Independent Contractor. In connection with this Agreement, each party
hereto is an independent contractor and as such will not have any authority to
bind or commit the other. Nothing herein shall be deemed or construed to create
a joint venture, partnership, agency or employment relationship between the
parties for any purpose.
6. Entire Agreement. This Agreement contains the entire understanding and
sole and entire agreement between the parties with respect to the subject matter
hereof, and supersedes any and all prior agreements, negotiations and
discussions between the parties hereto with respect to the subject matter
covered hereby. This Agreement may not be modified or amended by oral agreement,
but rather only by an agreement in writing signed by Triton and by TGM which
specifically states the intent of the parties to amend this Agreement.
7. Assignment. Neither this Agreement nor the rights or obligations
hereunder shall be assignable by Triton or TGM without the prior written consent
of the other party.
8. Arbitration. The parties hereto agree that any and all disputes
(contract, tort, or statutory, whether under federal, state or local law)
between Triton and TGM (including their respective employees, officers,
directors, stockholders and representatives) arising out of TGM's engagement
hereunder, the termination of such engagement, or this Agreement, shall be
submitted to final and binding arbitration, which shall take place in the County
of San Diego. Unless the parties mutually agree otherwise, such arbitration
shall be conducted before the American Arbitration Association, according to its
Commercial Arbitration Rules. Judgment on the award the arbitrator renders may
be entered in any court having jurisdiction over the parties. Arbitration shall
be initiated in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
9. Attorneys' Fees. In the event of any arbitration brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees, as well as all other litigation costs and
expenses as an element of damages.
10. No Waiver. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed or be construed as a further or continuing waiver of any such term,
provision or condition, or as a waiver of any other term, provision or condition
of this Agreement.
2
<PAGE>
11. Notices. Any notice, request, demand or other communication required
or permitted hereunder shall be deemed to be properly given when personally
served in writing, or when deposited in the United States mail, postage
pre-paid, addressed to Triton or TGM at its last known address. Each party may
change its address by written notice in accordance with this Section.
Address for Triton:
Triton Group Ltd.
Attn:
Address for TGM:
Triton Group Management LLC
Attn:
12. Severability. The provisions of this Agreement are severable. If any
provision of this Agreement shall be held to be invalid or otherwise
unenforceable, in whole or in part, the remainder of the provisions or
enforceable parts hereof shall not be affected thereby and shall be enforced to
the fullest extent permitted by law.
13. Governing Law; Rules of Construction. This Agreement has been
negotiated and executed in, and shall be governed by and construed in accordance
with the laws of, the State of Delaware. Captions of the several Sections of
this Agreement are for convenience of reference only, and shall not be
considered or referred to in resolving questions of interpretation with respect
to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
TRITON GROUP LTD.
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE>
TRITON GROUP MANAGEMENT LLC
By:___________________________________
Name:_________________________________
Title:________________________________
4
<PAGE>
October 31, 1996*
David Heidecorn
Chief Financial Officer
Alarmguard, Inc.
125 Frontage Road
Orange, Connecticut 06477
Re: $60,000,000 Converting Revolving Credit Facility
Dear Mr. Heidecorn:
We are pleased to advise you that, subject to the terms and conditions set
forth herein, Bank of Boston Connecticut ("BKBCT") hereby commits to extend a
$60,000,000 converting revolving credit facility on the terms and conditions set
forth herein. The proposed credit facility will be extended by BKBCT, The First
National Bank of Boston and/or its affiliates (collectively, "FNBB") and other
banks and financial institutions acceptable to BKBCT, FNBB and you (BKBCT, FNBB
and such other financial institutions being collectively referred to herein as
the "Lenders"), with BKBCT serving as the agent for the Lenders (BKBCT being
referred to in such capacity as the "Agent"). Based upon our discussions and on
the financial statements, projections and other business and financial
information which you have provided to us, this letter, and the accompanying
Schedule of Principal Terms and Conditions, sets forth the principal terms and
conditions on which BKBCT has committed to extend the proposed credit facility.
While the Schedule of Principal Terms and Conditions sets forth the
principal terms and conditions of the proposed credit facility, you should
understand that BKBCT reserves the right to propose additional or modified terms
and conditions which will not materially change or modify the terms and
conditions set forth in this letter and the Schedule of Principal Terms and
Conditions; provided, that such additional terms and conditions are mutually
agreeable to BKBCT and you. In addition, neither this letter nor the Schedule of
Principal Terms and Conditions purports to set forth all of the representations,
warranties, covenants, events of default, conditions precedent, definitions and
other terms which will be contained in the definitive loan and security
documentation for the proposed credit facility or which will need to be
satisfied prior to the closing thereof; provided, however, that in any event,
such definitive documentation and conditions must be satisfactory in form and
substance to BKBCT, you and our respective legal counsel.
*As amended by the letter agreement between
the Bank of Boston Connecticut and
Alarmguard, Inc. dated March 5, 1997
<PAGE>
David Heidecorn
October 31, 1996
Page 2
As set forth above, you acknowledge that BKBCT anticipates syndicating a
portion of the proposed credit facility to one or more banks and financial
institutions acceptable to BKBCT, FNBB and you although BKBCT hereby
acknowledges that it will hold for its own account at least $20,000,000 in
respect of the committed credit facility. You hereby agree that your approval of
any such proposed banks and financial institutions shall not be unreasonably
withheld or delayed. To this end, you hereby agree to assist BKBCT in commencing
and concluding a timely syndication (both before and after any closing of the
proposed credit facility) which is acceptable to BKBCT. You hereby acknowledge
that BKBCT expects to commence the syndication process upon your acceptance of
this letter and that your assistance therein shall include, but not be limited
to, direct communication and attendance at meetings, arranged by BKBCT, by your
senior officers and managers, significant shareholders, legal counsel,
accountants and other representatives with representatives of participating
banks and financial institutions, provision of information regarding your
present and projected business operations and financial condition, and response
to questions and inquiries regarding such business operations and financial
condition. In addition, you hereby agree to promptly provide, or cause your
legal counsel, accountants or other advisors to provide, to us, upon request,
but subject to appropriate confidentiality protections, with any and all
business and financial information deemed necessary or appropriate by us to
commence and conclude the syndication process, including, but not being limited
to, all information prepared or obtained by you in connection with the
transactions of which the proposed credit facility is intended to constitute a
part.
You hereby acknowledge and agree that BKBCT, with your cooperation as
aforesaid, shall manage all aspects of the syndication process, including, but
not being limited to, decisions as to the banks and financial institutions to be
offered the opportunity to participate in the proposed credit facility, the
timing and manner of any such offer (including any titles or roles), when
commitments from any such offerees will be accepted, which commitments will be
accepted from such offerees (provided that such offerees are reasonably
acceptable to you as aforesaid), the final allocation of commitments and
commitment percentages, the voting rights of participating banks and financial
institutions and the allocation or distribution of fees and, further, that BKBCT
shall have the right, on your behalf, to accept commitments from any such
offerees. You further acknowledge and agree that, if BKBCT deems it advisable or
appropriate in order to ensure a successful syndication, that BKBCT may propose
to you that the structure, amount and terms and conditions of the proposed
credit facility be changed or modified as aforesaid.
You hereby represent and warrant that (i) all written business and
financial information that has been or will be provided to us or the Banks by
you or your legal counsel, accountants or other representatives in connection
with the proposed credit facility is and will be, when considered as a whole,
complete and correct in all material respects as of the date of delivery thereof
and, to your knowledge, all financial information (other than financial
projections which are the subject of clause (ii) below) so provided fairly
presents in all material respects the
<PAGE>
David Heidecorn
October 31, 1996
Page 3
financial condition, as of the date(s) thereof, results of operations, for the
periods covered thereby, of the entities covered thereby and (ii) all financial
projections so provided for any such entities that have been or will be prepared
in good faith based upon assumptions deemed reasonable by you at the time of
preparation but which themselves do not constitute a guarantee or representation
or warranty about future performance. You hereby acknowledge and agree to revise
and update any such business and financial information or projections from time
to time in order to ensure that the foregoing representations and warranties
remain true in all material respects. You hereby acknowledge that BKBCT and the
Banks shall be employing and relying upon the foregoing information and
projections without any independent verification thereof.
You further agree (i) to pay all fees which are the subject of our
separate fee letter to you of even date herewith (the "Fee Letter"), (ii) that
all reasonable fees, costs and expenses incurred by us in connection with this
letter and the Schedule of Principal Terms and Conditions, the proposed credit
facility, the syndication thereof and our continuing due diligence in connection
therewith (including, without being limited to, attorney's fees and expenses,
compliance examinations and other related fees, costs and expenses) shall be
paid by you whether or not the proposed credit facility proceeds to a closing
and (iii) to indemnify and hold BKBCT, the Lenders and their respective
shareholders, directors, agents, officers, employees, subsidiaries and
affiliates harmless from and against any and all damages, losses, obligations,
payments, liabilities, claims, actions or causes of action, fees or expenses
(including legal fees) and other matters incurred, sustained or paid by BKBCT or
the Lenders in connection with or as a result of the proposed credit facility or
the other transactions contemplated by this letter, except to the extent that
any of the foregoing matters result from the gross negligence or willful
misconduct of BKBCT, the Lenders or any other indemnified party.
This letter, the Schedule of Principal Terms and Conditions and the Fee
Letter are for your confidential use only and that you shall not disclose the
same prior to your acceptance thereof to any person (including any other bank or
financial institution in competition with BKBCT for the extension of the
proposed credit facility) other than (i) your officers, employees, legal counsel
and accountants; (ii) your other advisors to the extent that their review
thereof is necessary to permit you to accept this letter; (iii) by applicable
law and (iv) as necessary to complete the contemplated merger transaction with
Triton.
You hereby acknowledge and agree that you may not assign this letter, and
any attempted assignment shall be null and void and without legal effect.
Any amendments to this letter or the Schedule of Principal Terms and
Conditions must be in writing and signed as to acceptance by BKBCT and you.
No delays on the part of BKBCT or the Lenders in exercising any of their
rights under this letter shall operate as a waiver thereof.
<PAGE>
David Heidecorn
October 31, 1996
Page 4
This letter, the Schedule of Principal Terms and Conditions and the Fee
Letter constitute the entire obligation and agreement of BKBCT, supersede all
prior agreements or understandings, whether written or oral, relating to the
proposed credit facility, and no covenant, promise, agreement, waiver,
representation or undertaking of any kind, whether written or oral, not
specifically set forth herein shall be binding upon BKBCT or the Lenders.
This letter shall automatically terminate at BKBCT's option and BKBCT and
the Lenders shall not be obligated to extend the proposed credit facility if:
a. You shall fail to accept and return this letter, the Schedule of
Principal Terms and Conditions and the Fee Letter by November 18, 1996;
b. You shall fail to close the proposed credit facility on or before
April 15, 1997;
c. You shall fail to satisfy or meet any of your obligations set
forth in this letter relative to the provision of information or cooperation in
the syndication process; or
d. Any of the following events shall occur: (i) there is a material
misstatement in or omission from the written information, projections or other
materials which have been or will be provided to us for our review, (ii) there
shall be, in our judgment, a material adverse change in your ability to perform
your obligations to BKBCT and the lenders in respect of the proposed credit
facility and (iii) there shall be a material change in governmental regulation
or policy affecting us or you prior to the closing of the proposed credit
facility.
This letter and the proposed credit facility shall be governed by, and
construed in accordance with, the laws of the State of Connecticut.
This letter may be executed in any number of counterparts, each of which
shall be an original and all of which, when taken together, constitute one and
the same agreement.
If the foregoing is acceptable to you, please indicate your acceptance
thereof in the space provided below and return this letter, the Schedule of
Principal Terms and Conditions and the Fee Letter to my attention at the address
set forth below.
Very truly yours,
BANK OF BOSTON CONNECTICUT
<PAGE>
David Heidecorn
October 31, 1996
Page 5
By: /s/ Roger J. Roche, Jr.
----------------------------
Roger J. Roche, Jr.
Its Director
This letter and the accompanying Schedule of Principal Terms and
Conditions are accepted and agreed to this 18th day of November, 1996.
ALARMGUARD, INC.
By: /s/ David Heidecorn
----------------------------
David Heidecorn
Its Chief Financial Officer
<PAGE>
SCHEDULE OF PRINCIPAL TERMS AND CONDITIONS
(AS OF OCTOBER 31, 1996)
1. BORROWER. Alarmguard, Inc. ("Alarmguard") and all subsidiaries of
Alarmguard, whether now existing or hereinafter formed or acquired (the
"Subsidiaries"). Alarmguard and the Subsidiaries are sometimes referred to in
this Schedule of Principal Terms and Conditions individually, collectively or
jointly and severally, as the "Borrower".
2. COMMITMENT. BKBCT will commit to extend the Facility (as hereinafter
defined) on a fully underwritten basis. BKBCT shall serve as syndication,
administrative and documentation agent.
3. CAPITALIZED TERMS. All capitalized terms used but not otherwise defined
in this Schedule of Principal Terms and Conditions shall have the meanings
ascribed to such terms in the commitment letter of even date herewith of which
this Schedule of Principal Terms and Conditions is a part.
4. THE CREDIT FACILITY.
a. Type. A revolving line of credit converting to a term loan
(the "Facility").
b. Amount. The lesser of $60,000,000 or the Borrowing Base (as
hereinafter defined).
c. Borrowing Base. Loans, advances and other extensions of credit
under the Facility shall be limited to an amount equal to
22.5x the Borrower's "Recurring Monthly Revenue" or "RMR" (as
hereinafter defined as "Absolute Rate"). For purposes hereof,
the term "Absolute Rate" shall mean, for any period, the
aggregate amount of revenues from customer contracts between
the Borrower and its customers (i) for regular and ongoing
monitoring and maintenance services, (ii) for the leasing of
equipment related thereto and (iii) for other similar ongoing
services (excluding revenues from contracts between the
Borrower and its customers relating to installation charges or
other one-time charges), to the extent that such Absolute Rate
is calculated by the Borrower in accordance with its historic
procedures therefor.
d. Multi-Use Facility. The Facility will be a multi-use credit
facility providing for direct loans and advances, documentary
and stand-by letters of credit and other extensions of credit
acceptable to the Agent and the Lenders at all times prior to
the Conversion Date (as hereinafter defined); provided,
however, that the issuance of letters of credit shall be
limited to $1,000,000.00 and the issuance of stand-by letters
of credit shall be in the sole and absolute discretion of the
Agent and the Lenders.
<PAGE>
2
e. Conversion Date. The Facility shall convert from a revolving
line of credit to a term loan two (2) years following the
Closing Date (as hereinafter defined)(the "Conversion Date");
provided, however, that letters of credit shall expire no
later than thirty (30) days prior to the Maturity Date (as
hereinafter defined).
f. Maturity. Five (5) years following the Conversion Date (the
"Maturity Date"), at which time all outstanding principal,
accrued and unpaid interest and any other amounts due to the
Agent and the Lenders shall be immediately due and payable.
g. Closing Date. The Facility shall be closed in full compliance
with the terms and conditions set forth in this Schedule of
Principal Terms and Conditions no later than April 15, 1997
(the "Closing Date").
h. Repayment. Following the Conversion Date, the outstanding
principal amount of the Facility as of the Conversion Date
shall be repaid in equal, consecutive quarterly installments
in an amount equal to the following percentages of such
principal amount during each of the following years:
Amount of Quarterly Year After Conversion Date
Payment as a Percentage
3.75 1
5 2
5 3
5 4
6.25 5
i. Mandatory Prepayments. In addition to scheduled quarterly
payments of principal, the Borrower shall make mandatory
prepayments in respect of the outstanding principal amount of
the Facility as follows:
a. Proceeds from the issuance of any additional
indebtedness (other than certain permitted
indebtedness).
b. 50% of the Borrower's Excess Cash Flow (as defined by
mutual agreement of the Agent and the Borrower on the
Closing Date) following the Conversion Date.
c. Proceeds from the sale of properties and assets outside
of the ordinary course of business in excess of
$100,000.00 per year of
<PAGE>
3
RMR unless such proceeds are reinvested in RMR within
120 days of the date of any such sale.
Any such prepayments shall be applied to the Facility in
inverse order of maturity and shall not be subject to any
prepayment penalty or premium (although the Borrower shall be
obligated to pay any costs associated with the early
termination of Eurodollar Loans (as hereinafter defined)).
j. Use of Proceeds. The proceeds of loans, advances and other
extensions of credit under the Facility shall be used to
retire existing indebtedness of the Borrower to banks and
other financial institutions, to finance Permitted
Acquisitions (as hereinafter defined), to pay amounts to
Security Systems Holdings, Inc. ("SSH") to be used to retire
certain subordinated indebtedness and to pay certain
transaction costs related to the Merger (as hereinafter
defined), to promote the Direct Marketing Program (as
hereinafter defined) in an amount not to exceed $12,500,000
and to support the Borrower's ongoing working capital
requirements.
k. Security. See Section 7.
l. Facility Fee. The Borrower shall pay a facility fee equal to
one-half of one percent per annum (1/2%) of the average daily
unused portion of the Facility. The facility fee shall be
payable monthly in arrears.
m. Letter of Credit Fees. The Borrower shall pay the customary
fees and commissions charged by the Agent in connection with
the issuance, renewal, drawing or amendment of, or other
service relating to, any letters of credit.
n. Assignments & Participations. Usual and customary for
transactions of this type and size. Each Lender may assign all
or a portion of its loans and commitments under the Facility,
or sell participations therein to another person or persons,
provided that each such assignment shall be in a minimum
amount of $5,000,000 and shall be subject to certain
conditions, including but not limited to, the approval of the
Borrower (prior to the occurrence of an event of default) and
the Agent, such approvals not to be unreasonably withheld.
5. INTEREST RATE. All or a portion of the Facility may bear interest,
at the option of the Borrower, at a floating rate equal to the
Adjusted Base Rate (as hereinafter defined) plus the Base Rate
Margin (as hereinafter defined) ("Base Rate Loans") or at a rate
equal to the Adjusted Eurodollar Rate (as hereinafter defined)
quoted for maturities of 1, 2, 3 or 6 months plus the Eurodollar
Margin (as hereinafter defined) for loans and advances in integral
multiples of $100,000 ("Eurodollar Loans").
<PAGE>
4
The term "Adjusted Base Rate" means the greater of (i) the rate of
interest announced from time to time by FNBB at its head office as
its Base Rate or (ii) the Federal Funds Effective Rate plus one/half
of one percent per annum (rounded upwards, if necessary, to the next
one/eighth of one percent).
The term "Adjusted Eurodollar Rate" means a rate per annum
determined by FNBB pursuant to the following formula:
AER = [ IOR ] *
[1.00 - RP]
AER = Adjusted Eurodollar Rate
IOR = Interbank Offered Rate
RP = Reserve Percentage
* The amount in brackets shall be rounded upwards, if
necessary to the next higher 1/100 of 1%.
Where:
"Interbank Offered Rate" means the rate of interest determined by FNBB to
be the prevailing rate per annum at which deposits in U.S. dollars are
offered to FNBB by first-class banks in the interbank market in which it
regularly participates on or about 10:00 a.m. (Boston time) two business
days before the date of the requested Eurodollar loan in an amount
approximately equal to the principal amount of the requested Eurodollar
loan for a period of time approximately equal to the requested interest
period.
"Reserve Percentage" means the rate (expressed as a decimal) applicable to
FNBB under regulations issued from time to time by the Board of Governors
of the Federal Reserve System for determining the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency or marginal reserve requirement) of FNBB with respect to
"eurocurrency liabilities" as that terms is defined under such
regulations.
On the Closing Date, the "Base Rate Margin" and the "Eurodollar Margin"
shall be established by reference to the Borrower's Leverage Ratio (as
hereinafter defined) as of the Closing Date as set forth below. Commencing
with the end of the first fiscal quarter subsequent to the Closing Date,
the "Base Rate Margin" and the "Eurodollar Margin" shall be re-established
by reference to the Leverage Ratio set forth below. The "Leverage Ratio"
shall mean, for any period, the ratio of Borrower's Consolidated Total
Debt (as hereinafter defined) for such period to Consolidated EBITDA (as
hereinafter defined) for such period.
<PAGE>
5
If the Leverage Ratio is equal to or greater than 3.75 to 1.0 then the
Base Rate Margin shall be one and one-half of one percentage points
(1.50%) and the Eurodollar Margin shall be three percentage points
(3.00%).
If the Leverage Ratio is equal to or greater than 3.50 to 1.0 but not
greater than 3.74 to 1.0 then the Base Rate Margin shall be one and
one-quarter of one percentage points (1.25%) and the Eurodollar Margin
shall be two and three-quarters of one percentage points (2.75%).
If the Leverage Ratio is equal to or greater than 3.00 to 1.0 but not
greater than 3.49 to 1.0 then the Base Rate Margin shall be one percentage
point (1.00%) and the Eurodollar Margin shall be two and one-half of one
percentage points (2.50%).
If the Leverage Ratio is less than 3.00 to 1.0 then the Base Rate Margin
shall be three-quarters of one percentage point (.75%) and the Eurodollar
Margin shall be two and one-quarter of one percentage points (2.25%).
For purposes of the determination of the Base Rate Margin and the
Eurodollar Margin, Consolidated EBITDA will be calculated on an annualized
basis by reference to the fiscal quarter then ending multiplied by 4.
Interest applicable to Base Rate Loans shall be due and payable monthly in
arrears on the last business day of each month and interest applicable to
Eurodollar Loans shall be payable in arrears at the end of the applicable
Eurodollar period, but at least quarterly.
Interest shall be calculated on the basis of a 360-day year and according
to the actual number of days elapsed in each accrual period.
6. GENERAL PROVISIONS APPLICABLE TO CREDIT FACILITIES.
a. Default Rate. The interest rate may be increased up to two
percentage points (2%) above the rate of interest otherwise in
effect upon the occurrence of a default or event of default
(as defined in the documentation to be delivered pursuant
hereto).
b. Cross Default and Cross Collateralization. The credit
facilities contemplated by this commitment shall be cross
defaulted and cross collateralized by all security provided
therefor.
c. GAAP. The Borrower's compliance with all financial covenants
required by this commitment shall be determined by reference
to generally accepted accounting principles, consistently
applied ("GAAP"); provided, however,
<PAGE>
6
that for purposes of calculating RMR, the Borrower shall be
permitted to calculate RMR in accordance with the definition
of "Absolute Rate" set forth in Section 4(c) hereof.
d. Consolidation. Unless otherwise provided in this commitment,
all financial covenants, ratios and formulas applicable to the
Borrower shall be calculated on a consolidated basis.
e. Interest Rate Protection. The Borrower shall obtain interest
rate protection arrangements satisfactory to the Agent and the
Lenders for a minimum of thirty percent (30%) of the Facility
within one (1) year of the Closing Date.
7. SECURITY.
a. A first lien on all tangible and intangible personal property
of Alarmguard and the Subsidiaries, now existing or hereafter
acquired and wherever located, including without limitation,
accounts receivable, inventory, machinery and equipment,
general intangibles and contract rights. Any other liens or
encumbrances must be released or subordinated to the liens of
the Lenders.
b. A pledge of all capital stock of the Subsidiaries owned by
Alarmguard.
c. A pledge of a certain promissory note evidencing all
indebtedness due to Alarmguard from SSH and all security, if
any, therefor.
d. The unconditional, joint and several, guaranty of SSH and
Triton Group, Ltd. ("Triton" and collectively with SSH, the
"Guarantors"). The guaranty of SSH shall be secured by a
pledge of all capital stock of Alarmguard and any intermediate
subsidiary of SSH. The guaranty of any other intermediate
subsidiary of Triton or SSH shall also be required. The
guaranty of SSH (and any other intermediate subsidiary) shall
contain such non-financial operating covenants as the Agent,
the Borrower and any such guarantor shall mutually agree.
8. DOCUMENTATION. The Agent shall require such documentation to
evidence and secure the Facility as is deemed necessary by the Agent
and its legal counsel in their sole and reasonable discretion, which
documentation shall contain terms, conditions, representations,
warranties, events of default, affirmative and negative operating
covenants and other provisions required by the Agent's internal
policies and procedures for similar credits, and be acceptable in
form and substance to the Lenders and their legal counsel, in their
sole and reasonable discretion.
9. COVENANTS.
<PAGE>
7
a. Permitted Acquisitions. Alarmguard shall be permitted to
purchase the properties and assets, capital stock or other
interests of any other person as follows ("Permitted
Acquisitions"):
If the aggregate consideration for such acquisition is less
than $2,500,000, Alarmguard can effect such acquisition
without the consent of the Agent and the Lenders if (i) the
person to be acquired is in the same line of business as
Alarmguard and (ii) prior to and after giving effect to the
proposed acquisition, no default or event of default shall
exist under the Facility. If the aggregate consideration for
such acquisition is equal to or greater than $2,500,000,
Alarmguard can effect such acquisition upon the satisfaction
of the foregoing conditions and its receipt of the prior
written consent of the Agent and 66.67% of the commitment
percentages of the Lenders.
b. Direct Marketing Program. Alarmguard shall be permitted to
create additional RMR pursuant to an internal marketing
program to be called the "Direct Marketing Program;" provided,
that all costs and expenses associated with such program are
properly identified and segregated for accounting purposes in
a manner satisfactory to the Agent. The Creation Multiple (as
such term is defined by mutual agreement of the Agent and the
Borrower on the Closing Date) shall not exceed 35x cash on
cash (defined, for any period, as all direct costs of the
Direct Marketing Program during such period net of any
installation revenue for such period) for more than three
consecutive months. Prior to any advances under the Facility
to support the Direct Marketing Program, the Borrower must
certify that no default or event of default exists under the
Facility.
c. Debt Service Coverage. The ratio of Consolidated EBITDA (as
hereinafter defined) to Consolidated Total Debt Service (as
hereinafter defined) shall not be less than 1.20 to 1.0 as of
the end of each month. Borrower's compliance with this
covenant shall be determined on a rolling twelve (12) month
basis by reference to the month then ending. "Consolidated
EBITDA" shall mean, for any period, Borrower's consolidated
earnings for such period before any provision for (i) interest
expense for such period, (ii) income taxes paid or required to
be paid during such period and (iii) amounts in respect of
depreciation and amortization for such period. "Consolidated
Total Debt Service" means, for any period, Borrower's
consolidated aggregate obligation to make payments of
principal, interest and other amounts in respect of
Consolidated Total Debt during such period. "Consolidated
Total Debt" means, as of any date as of which the amount
thereof shall be determined, all indebtedness of Borrower as
of such date but excluding the so-called Steffanato
indebtedness.
<PAGE>
8
d. Interest Coverage Ratio. The ratio of Consolidated EBITDA to
Consolidated Total Interest (as hereinafter defined) shall not
be less than 2.0 to 1.0 as of the end of each month.
Borrower's compliance with this covenant shall be determined
on a rolling twelve (12) month basis by reference to the month
then ending. "Consolidated Total Interest" shall mean, for any
period, the Borrower's aggregate obligation to make payments
of interest in respect of Consolidated Total Debt during such
period.
e. RMR Ratio. The ratio of Consolidated Total Debt (adjusted to
include the Total Debt of SSH and Triton) to RMR shall not
exceed 30 to 1.0. at any time.
f. Adjusted RMR Ratio. The ratio of Consolidated Senior Debt (as
hereinafter defined) to RMR shall not exceed 22.5 to 1.0 at
any time. For purposes of this clause (f), "Consolidated
Senior Debt" shall mean, as of any date as of which the amount
thereof shall be determined, the aggregate outstanding
principal amount of the Facility (including any outstanding
letters of credit and unpaid reimbursement obligations in
respect of letters of credit) as of such date.
g. Leverage Ratio. The ratio of Consolidated Senior Debt to
Consolidated EBITDA shall not exceed 5.0 to 1.0 as of the end
of each month (with Consolidated EBITDA for such month being
determined by multiplying Consolidated EBITDA for such month
and the prior two (2) months by 4). For purposes of this
clause (g), "Consolidated Senior Debt" shall mean, as of any
date as of which the amount thereof shall be determined, the
aggregate outstanding principal amount of the Facility
(including any outstanding letters of credit and unpaid
reimbursement obligations relating to letters of credit) as of
such date.
h. Adjusted Leverage Ratio. The ratio of Consolidated Senior Debt
to Consolidated EBITDA shall not exceed 4.50 to 1.0 as of the
end of each month (with Consolidated EBITDA for such month
being determined by multiplying Consolidated EBITDA for such
month and the prior two (2) months by 4). For purposes of this
clause (h), "Consolidated Senior Debt" shall mean, as of any
date as of which the amount thereof shall be determined, the
aggregate outstanding principal amount of the Facility
(including any outstanding letters of credit and unpaid
reimbursement obligations in respect of letters of credit) as
of such date but excluding any loans or advances under the
Facility in respect of the Direct Marketing Program or
Permitted Acquisitions extended during the three-month period
ending on such date.
<PAGE>
9
i. Operating Covenants. Usual and customary for transactions and
borrowers of a similar ------------------- type and amount,
including, but not being limited to, the following: Maximum
Capital Expenditures, Restrictions on Dividends, Limitations
on Indebtedness and Contingent Liabilities, Limitations on
Investments and Acquisitions, Limitations on Asset Sales,
Restrictions on Changes in Control, Restrictions on
Redemptions of Securities and Restrictions on Mergers and
Consolidations. The exact operating covenants shall be
determined prior to the closing of the Facility by the mutual
agreement of the Agent and the Borrower.
j. Financial Reporting. The Borrower, the Guarantors and the
Subsidiaries, as applicable, will provide the following
financial reports as soon as available but no later than dates
as may be mutually established by the Borrower, the Agent and
the Lenders: annual audited financial statements prepared on a
consolidated basis including other financial information as
deemed appropriate by the Agent on a consolidating basis,
quarterly and monthly management prepared financial
statements, periodic RMR, borrowing base and other collateral
reports, periodic covenant compliance certificates, annual
financial forecasts and all reports provided to the SEC and to
shareholders. The form and content of such reports shall be
determined by the Borrower and the Agent on a mutual basis
prior to the closing of the Facility.
10. CONDITIONS PRECEDENT.
The obligation of the Lenders to extend the Facility is subject to
the satisfaction of the following conditions (in addition to those
conditions precedent set forth in the Commitment Letter) by the
Borrower, the Guarantors or the Subsidiaries in a manner acceptable
to the Agent and/or its legal counsel.
a. Triton shall have received a minimum capital contribution of
$14,000,000.00.
b. The contemplated merger with Triton (the "Merger") shall have
been completed on terms and conditions previously disclosed to
and approved by the Agent.
c. The satisfactory completion by the Agent of its customary
legal and financial due diligence.
d. The negotiation, execution and delivery of definitive
documentation to evidence and secure the Facility as required
by Section 8 hereof in a form acceptable to the Agent and its
legal counsel.
<PAGE>
10
e. The receipt of any and all regulatory approvals, including
federal and state securities laws, as to the Merger and the
transactions contemplated by this commitment.
f. The receipt of any and all creditor, lessor and other third
party consents and approvals which the Agent and its legal
counsel determines are necessary to effectuate the Merger
and/or the closing of the Facility.
g. The absence of any litigation or other proceeding affecting
the Borrower, the Guarantors or any Subsidiary which is
reasonably likely, in the judgment of the Agent, to impair or
prevent the closing of the Facility, the Merger or such
parties' ability to perform their obligations in respect
thereof.
h. The delivery to the Agent of any and all statements, reports
and filings made with the Securities and Exchange Commission
or submitted to its shareholders by the Borrower or any
Guarantor in connection with the Merger.
i. The execution and delivery among the Agent, the Lenders and
creditors of the Borrower and/or the Subsidiaries holding
indebtedness in excess of $600,000 of intercreditor agreements
in a form acceptable to the Agent and its legal counsel.
j. The delivery to the Agent of the final report by Price,
Waterhouse & Co. as to its examination of the Borrower and the
Subsidiaries to verify current RMR in a form acceptable to the
Agent and the satisfactory review thereof by the Agent.
k. The satisfactory completion by the Agent of its customary
environmental due diligence relative to the Merger.
l. The satisfaction by the Borrower, the Guarantors or the
Subsidiaries of such other conditions as may be required by
the Agent and its legal counsel and which are customary for
transactions similar to the Facility the delivery of evidence
of corporate power and authority, the delivery of appropriate
legal opinions by legal counsel to the Borrower, the
Subsidiaries and the Guarantors, the valid, binding and legal
effect of all documentation required by this commitment, the
absence of any violation of Federal, state or local law and
the filing and recording of security documents.
11. GOVERNING LAW. This commitment and the loan documents to be
delivered pursuant hereto shall be construed under the laws of the
State of Connecticut.
<PAGE>
11
12. PREJUDGMENT REMEDY WAIVER. The documentation to be delivered
pursuant hereto will require that the Borrower, the Guarantors and
the Subsidiaries shall waive such rights as may exist under state or
federal laws to a hearing prior to the Lenders exercising their
rights to attach any property after the occurrence of an event of
default.
13. WAIVER OF TRIAL BY JURY. The documentation to be delivered pursuant
hereto will require that the Borrower, the Guarantors and the
Subsidiaries shall waive their right to a trial by jury in any suit,
action or proceeding in connection with the Facility.
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT*
THIS AGREEMENT (the "Agreement") is made as of this 20th day of
December, 1996, by and between Steven Levine, an individual, ("Levine") Fritzie
Levine, an individual, Walter Levine as trustee of The Lori Levine Esposito
Trust, (the "Lori Trust") and Walter Levine as trustee of The Leslie Levine
Oxfeld Trust (the "Leslie Trust") (each a "Seller" and collectively "Sellers"),
on the one hand, and Security Systems Holdings, Inc., a Delaware corporation
("Purchaser"), on the other hand. The Lori Levine Esposito Trust and the Leslie
Levine Oxfeld Trust are herein referred to as the "Trusts." Levine and Fritzie
Levine are sometimes referred to herein collectively as the "Principal Sellers."
W I T N E S S E T H:
WHEREAS, the Sellers collectively own 100% of the issued and
outstanding capital shares of Protective Alarms, Inc., a Connecticut
corporation, which owns two subsidiaries, Interstate Central Systems, Inc., a
Connecticut corporation, d/b/a Central Alert Center, Inc., and Protective Alarms
of Canada, Inc., an Ontario corporation (collectively the "Subsidiaries") (the
Subsidiaries and Protective Alarms, Inc. are collectively referred to herein as
"Protective");
WHEREAS, Protective is engaged in the burglar and fire alarm
business in the tri-state, metropolitan New York area; and
WHEREAS, Sellers desire to sell to Purchaser, and Purchaser desires
to purchase from Sellers, all of the issued and outstanding shares of
Protective.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, and for other good and valuable consideration, the parties hereto agree
as follows:
1. Shares to be Sold; Purchase Price and Payment.
1.1. Shares. Each Seller agrees to sell, assign and deliver to Purchaser,
and Purchaser agrees to purchase from each Seller free and clear of all
restrictions or encumbrances, the number of shares set forth opposite their
respective names which, in the aggregate, constitute all of the issued and
outstanding shares of Protective Alarms, Inc.'s capital stock (the "Shares").
Seller Number of Shares Percent
------ ---------------- -------
Steven Levine 50 50%
Fritzie Levine 40 40%
Lori Trust 5 5%
Leslie Trust 5 5%
* Restated to reflect the Amendment to Stock Purchase and Sale
Agreement dated as of February 28, 1997.
1
<PAGE>
1.2. Purchase Price.
1.2.1. Amount of Purchase Price. The Purchase Price is to be based,
in part, upon, (a) Protective's Net Monthly Recurring Revenue (as defined in
Section 1.2.2(a) except that it may include up to 10% recurring revenue which
would be Net Monthly Recurring Revenue as defined in Section 1.2.2(a) but for
the fact that it is not billed under Customer Contracts); and including no more
than $6,500 of recurring revenue for monitoring customers of other alarm dealers
("Wholesale Services") as of the Closing Date ("Existing Revenue") (b)
additional Net Monthly Recurring Revenue installed after the Closing Date under
certain contracts for such installations which are or will be in effect with
national customers, ("1997 National Account Revenue"), (c) additional Net
Monthly Recurring Revenue under Customer Contracts associated with work in
process existing prior to the Closing Date and installed after the Closing Date
("WIP NMRR") and (d) additional Net Monthly Recurring Revenue as defined in
Section 1.2.2 (b) under Customer Contracts for extended service, which are more
fully defined below. The Purchase Price shall be less the amount of (i) the
obligation to State Street Bank & Trust Company evidenced by a secured
promissory Note (the "State Street Note") and (ii) the obligation to Mortgage
Invest Group III, both reflected on the Financial Statements (including all
accrued interest, penalties and late-payment fees and all prepayment penalties,
if any) outstanding at the Closing Date which equal $1,712,000 as of September
30, 1996.
(a) Purchaser shall pay 45 times the Existing Revenue, plus or
less, as the case may be, Protective's Working Capital (as defined in
Section 1.2.3), all as of the Closing Date. If the Existing Revenue
includes any customer accounts acquired by the Company in purchasing
accounts from any of Knight Security of Norwalk, CT (with approximately
$6,000 of Net Monthly Recurring Revenue), Guardian Systems of Danbury, CT
(with approximately $40,000 of Net Monthly Recurring Revenue), Reliant
Security of New Haven, CT (with approximately $7,000 of Net Monthly
Recurring Revenue) or Nortech Security of Westchester County, NY (with
approximately $2,500 of Net Monthly Recurring Revenue), then Purchaser
shall not pay 45 times such net recurring revenue, but instead shall pay
one-half the difference between the multiple of Net Monthly Recurring
Revenue paid by Protective for such customer accounts and 45. If the
Existing Revenue includes any other customer accounts acquired from other
alarm dealers between September 1, 1996 and the Closing Date, Sellers and
Purchaser shall reach separate agreement on the purchase price to be paid
for those accounts. Customer accounts acquired from Knight Security,
Guardian Systems, Reliant Security or Nortech Security or from other
sources between September 1, 1996 and the Closing Date agreed to by
Sellers and Purchaser are referred to as "Newly Acquired Accounts".
(b) Sellers hereby represent and warrant the following to
Purchaser: (i) Protective currently has, or will have at Closing, Customer
Contracts to provide security systems and services for the primary
national accounts referred to on the list attached hereto as Exhibit A
("National Accounts") and (ii) the National Accounts have, or prior to the
Closing Date will have, signed contracts for the installation of a total
of approximately
2
<PAGE>
1,788 additional locations, of which approximately 842 are expected to
be scheduled to be installed in the twelve months following the Closing
Date ("1997 National Account Locations") with a corresponding additional
Net Monthly Recurring Revenue by the end of such twelve month period of
approximately $50,000 (which together with Net Monthly Recurring Revenue
to be received from additional national accounts which exist today or may
be added in the future prior to the Closing (to be identified and agreed
to by Sellers and Purchaser and thereupon included in the "National
Accounts" are referred to as "1997 National Account Revenue")). Purchaser
will pay 36 times the 1997 National Account Revenue installed on or before
the date twelve months after the Closing Date, up to a maximum of $80,000
(a maximum additional purchase price of $2,880,000), less losses, if any,
incurred in installing the 1997 National Account Locations (installation
revenues less cost of materials, direct labor and any applicable sales
commissions)."
(c) At Closing, Sellers will deliver to Purchaser a schedule
of Protective's work in process as of the Closing Date, which schedule
shall set forth in reasonable detail, the name, address, the purchase
price and/or installation fee, deposit received, work performed the WIP
NMRR, and anticipated installation completion date for each account
included in the work in process (each a "WIP Account") (but excluding the
National Accounts), the Purchase Price will be increased by an amount
equal to 45 times the WIP NMRR less losses, if any, incurred by Purchaser
in installing the WIP Accounts (installation revenues less cost of
materials, direct labor and any applicable sales commissions) and payable
as set forth in Section 1.3.
(d) At Closing, Sellers will deliver to Purchaser a schedule
of Protective's extended service contracts under which Net Monthly
Recurring Revenue as defined in Section 1.2.2(b) will be billable when
effective which contracts are signed contracts as of the Closing Date and
the Purchase Price shall be increased by 45 times the amount of such Net
Monthly Recurring Revenue, adjusted and payable as set forth in Section
1.3.
1.2.2. Net Monthly Recurring Revenue. (a) "Net Monthly Recurring
Revenue" means the total recurring regular monthly amounts billed under Customer
Contracts to Protective's customers with installed systems as of a given date
(billings made other than on a monthly basis shall be adjusted to the equivalent
monthly amount) for electrical protection, monitoring, repair service, extended
repair service, key-holder service, closed circuit television, access control
services, fire and police panel charges and equipment lease rental and charges
and fire testing, and related recurring services, less all monthly charges
incurred by Protective as of such date (charges billed to Protective other than
on a monthly basis shall be adjusted to the equivalent monthly amount)
(collectively, "Charges") for signal-circuit ("private") telephone lines used to
transmit alarm signals, antenna rental charges for radio frequency alarm
systems, third party monitoring, answering services, false alarm charges, city
franchise and police panel fees, and charges paid by Protective for receiving
alarms applicable to such accounts. Charges for third party monitoring for the
accounts listed on Exhibit N shall not be deducted from Net Monthly Recurring
Revenue, provided such accounts are reprogrammed to annunciate at Purchaser's
central station within 45 days after the Closing Date (at Sellers' expense) and
any
3
<PAGE>
third party monitoring fees incurred until such reprogramming are paid by
Sellers. (b) Net Monthly Recurring Revenue shall also include the total
recurring regular monthly amounts, less applicable Charges, billable under
written extended service contracts which are Customer Contracts with a term of
not less than 3 years, entered into with customers prior to the Closing Date and
which become effective within 1 year after the Closing Date. (c) The following
shall be excluded from Net Monthly Recurring Revenue as defined in subparts (a)
and (b) of this Section 1.2.2: pending cancellations of which Protective
received either written notice before the Closing Date or oral notice, provided
such has been noted in Protective's records, and which cancellations shall be
effective prior to the Adjustment Date. For purposes of this Section, charges
shall be determined (i) under contracts in existence on the date as of which
determined and (ii) from invoices to pay Charges received by Purchaser or
Protective, as the case may be, prior the date as of which determined for the
monthly period (or greater period including the monthly period) in which such
date occurs.
1.2.3. Working Capital.
(a) The "Working Capital" of Protective shall mean the amount
by which "Current Assets" of Protective as of the Closing Date are greater
or less than its "Liabilities" as of the Closing Date. Current Assets and
Liabilities shall, except as otherwise provided herein, be determined in
accordance with generally accepted accounting principles from Protective's
books and records consistently applied. Current Assets shall mean the
following Assets: cash and cash equivalents, marketable securities,
deposits with third parties, accounts receivable (without deduction for
any bad debt reserve reflected on Protective's Financial Statements);
inventory as agreed by Purchaser and Sellers, determined by physical
count, valued at 100% of Protective's cost for new useable inventory, in
appropriate quantities, and at the value agreed by Purchaser and Sellers
for used but useable inventory; prepaid expenses and prepaid taxes.
Liabilities shall mean all liabilities including, but not limited to,
Deferred Service Revenue (meaning billing for customer services that are
to be performed after the date as of which determined), deposits by
customers with Protective, accounts payables, lease obligations, income
and other taxes and other accrued liabilities, but shall not include
certain leases and installment sale contracts listed on Schedule 1.2.3, or
as agreed by Sellers and Purchaser on the Closing Date.
(b) For purposes of determining Working Capital, personal
property taxes and assessments for the current tax year, utility services
and all other expenses incurred by Protective in the ordinary course of
the operation of its business (collectively "Expenses") shall be prorated
between the parties as of the Closing Date on the basis of actual days
elapsed. For amounts which are not able to be precisely calculated on the
Closing Date, Sellers shall use their best estimates, which shall be
updated on the Adjustment Date. At Closing Sellers will deliver to
Purchaser a closing balance sheet as of January 31, 1997 and the Working
Capital shall be determined from such balance sheet, except for items
readily ascertainable at closing.
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1.3. Payment of Purchase Price. All payments on account of the Purchase
Price shall be made to the Sellers in proportion to their share ownership as set
forth in Section 1.1.
1.3.1. Deposit. Purchaser has previously made a good faith deposit
payment to Sellers of $100,000 and has made, upon signing this Agreement, an
additional deposit of $150,000 for a total deposit on account of the Purchase
Price of $250,000 (the "Deposit").
1.3.2. Payments Based on Existing Revenue. On the Closing Date,
Purchaser shall pay to Sellers 90% of the portion of the Purchase Price
determined under Section 1.2.1(a) using values of Protective's Net Monthly
Recurring Revenue and 100% of the estimated Working Capital certified by Sellers
(including the value of inventory as agreed by Purchaser and Sellers in
accordance with Section 1.2.3) on the Closing Date, less the amount of the
Deposit, by wire transfer of immediately available funds. Payment of the balance
of the portion of the Purchase Price determined under Sections 1.2.1(a) (the
"Deferred Payment") shall be either: (i) evidenced by a promissory note
substantially in the form of Exhibit B attached with interest at 10% (the
"Note") and secured by an irrevocable letter of credit in a form satisfactory to
Sellers' counsel, or (ii) placed in an interest bearing escrow account with a
bank or other institutional escrow holder, pursuant to an escrow agreement in a
form satisfactory to Sellers' counsel, and will be due after adjustment in
accordance with Sections 1.4.1, 1.4.3 and 1.4.4 below. Purchaser shall notify
Sellers at least one month prior to the Closing Date which means of payment for
the Deferred Payment will be used. If the adjustments called for under Section
1.4 result in a decrease in the portion of the Purchase Price determined under
Section 1.2.1(a) by an amount which is greater than the Deferred Payment,
Sellers shall promptly repay the difference. Any reduction in the portion of the
Purchase Price determined under Section 1.2.1(a) shall be retroactive to the
Closing Date and shall result in a credit to the Purchaser in the amount of
interest earned on the amount of such reduction.
1.3.3. Payments Based on 1997 National Account Revenue. On the
Closing Date, Purchaser shall pay Sellers, on account of the portion of the
Purchase Price determined under Section 1.2.1(b), $1,300,000. The balance shall
be paid in 4 installments, starting 3 months and 10 days after the Closing Date.
The first installment shall be in the amount of $395,000. The second, third and
fourth installments (each 3 months after the preceding payment) shall be based
upon the actual installations of 1997 National Account Locations and
corresponding 1997 National Account Revenue. The second installment shall be
$250,000, plus or less 36 times the amount by which National Account Revenue
installed by 6 months after the Closing Date is more or less than $25,000.
Provided, that if the amount of National Account Revenue installed by such date
is less than $20,000, no installment payment shall be due. The third installment
shall be $250,000, plus or less 36 times the amount by which National Account
Revenue installed by 9 months after the Closing Date is more or less than
$47,000. Provided, that if the amount of National Account Revenue installed by
such date is less than $42,000, no installment payment shall be due. Provided
also, that if the amount of National Account Revenue installed by such date is
at least $42,000 but was less than $20,000 on the date 6 months after the
Closing Date, an additional $250,000 shall be paid. The final installment shall
be 36 times the National Account Revenue (not in excess of $80,000) installed by
one year after the Closing Date, less the amount
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of all prior payments. If the payments made prior to that date for payment of
the last installment exceed the amount due, Sellers will promptly refund the
excess.
1.3.4. Payment Based on WIP NMRR. Payment for WIP NMRR described in
Section 1.2.1(c) shall be made within 10 business days after the end of each
month between the Closing Date and the Adjustment Date as to accounts which have
been installed and activated during each of such months.
1.3.5. Payment Based on Extended Service Contracts. Payment for Net
Monthly Recurring Revenue described in Section 1.2.1 (d) for extended service
contracts shall be made 50% on the Closing Date (based on the schedule provided
by Sellers under Section 1.2.1(d)) and the balance on the date 15 business days
after the Extended Service Adjustment Date, adjusted as provided in Section
1.4.2.
1.3.6. Payment of State Street Note. Prior to Closing, Sellers shall
cause Purchaser to have received from the holder of the State Street Note a
"payoff letter" or equivalent documentation, pursuant to which such holder shall
have agreed to accept from Protective or Purchaser for the account of
Protective, at the Closing payment in full of all amounts owed with respect to
such State Street Note and to release all collateral and guarantees, if any, for
such obligation. At the Closing, Purchaser shall cause Protective to have paid,
or Purchaser shall have paid for the benefit of Protective, in full the State
Street Note obligations (including all accrued interest, penalties and
late-payment fees and all prepayment penalties, if any) and to obtain the
releases contemplated by the previous sentence. Purchaser acknowledges that the
Shares are pledged as collateral to State Street Bank and payment of the State
Street Note is a condition precedent to Purchaser acquiring such Shares.
1.4. Post-Closing Adjustment of Purchase Price. (a) The actual portion of
the Purchase Price determined under Section 1.2.1(a) shall be determined 9
months after the Closing Date (the "Adjustment Date") in accordance with the
provisions of this Section 1.4. Purchaser shall initially calculate the amount
of the Revenue Adjustment, the Asset Adjustment and the Revenue Guarantee
Adjustment, using information as of the Closing Date. Sellers or their
designated representatives shall have the right to review originals and make
copies of such books and records and other documents or information which are
reasonably necessary in order to verify Purchaser's calculations of the Revenue
Adjustment, Asset Adjustment, and Revenue Guarantee Adjustment.
(b) The actual portion of the Purchase Price determined under
Section 1.2.1(d) shall be determined one year after the Closing Date (the
"Extended Service Adjustment Date") in accordance with the provisions of this
Section 1.4. Purchaser shall initially calculate the amount of the Extended
Service Contract Adjustment. Sellers or their designated representatives shall
have the right to review originals and make copies of such books and records and
other documents or information which are reasonably necessary in order to verify
Purchaser's calculations of the Extended Service Contract Adjustment.
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1.4.1. Revenue Adjustment. The Purchase Price shall be adjusted (the
"Revenue Adjustment") upward or downward by $45 (or the applicable lesser
multiple of Net Monthly Recurring Revenue paid for Newly Acquired Accounts) for
each $1 that Net Monthly Recurring Revenue (as used in Section 1.2.1(a)) from
active customers of Protective on the Closing Date was more or less than the
amount of Net Monthly Recurring Revenue (as used in Section 1.2.1(a)) certified
by Sellers on the Closing Date. A customer shall be considered active on the
Closing Date only if either (i) it is not more than 90 days past due as to any
invoice from Protective for Net Monthly Recurring Revenue or (ii) it is more
than 90 days past due as to any invoice from Protective for Net Monthly
Recurring Revenue and at least one payment of Net Monthly Recurring Revenue has
been received from such customer between the Closing Date and the Adjustment
Date.
1.4.2. Extended Service Contract Adjustment. The Purchase Price
shall be reduced (the "Extended Service Contract Adjustment") by $45 for each $1
that Net Monthly Recurring Revenue (as used in Section 1.2.1(d)) under contracts
with customers which are still customers of Protective on the date one year
after the Closing Date was less than the amount of Net Monthly Recurring Revenue
(as used in Section 1.2.1(d)) certified by Sellers on the Closing Date.
1.4.3. Asset Adjustment. The Purchase Price shall be adjusted upward
or downward, as the case may be, by the amount by which the "Working Capital"
(as defined below) of Protective on the Closing Date is greater or less than the
amount of Working Capital certified on the Closing Date for purposes of
calculating the payment on account to be made on that date (the "Asset
Adjustment"). The determination of the Working Capital by Purchaser shall be
done on a consistent basis with the determination used by Sellers on the Closing
Date except that accounts receivable shall be determined on the Adjustment Date
based upon the amounts actually collected between the Closing Date and the
Adjustment Date. The agreed-upon amounts determined by the parties as of the
Closing Date for inventory shall not be subject to adjustment pursuant to this
Section 1.4.3 or otherwise after the Closing Date. Payments received from
customers after the Closing shall be applied to the oldest outstanding invoice
unless different instructions are received in writing from the customer.
1.4.4. Revenue Guarantee Adjustment. The portion of the Purchase
Price determined under Sections 1.2.1(a) shall be reduced by $45 (or the
applicable lesser multiple of Net Monthly Recurring Revenue paid for Newly
Acquired Accounts) times the amount by which Net Monthly Recurring Revenue (as
used in Section 1.2.1(a)) from customers purchased from Protective as of the
date 8 months after the Closing Date is less than 92% of the Net Monthly
Recurring Revenue (as used in Section 1.2.1(a)) from customers as of the Closing
Date, as finally determined under Section 1.4.1. Customers which terminate
service between the Closing Date and the date 8 months after the Closing Date
due to (i) a move out of the monitored location and which are replaced as
customers by the new occupant of such location prior to the end of the 8 month
period; (ii) price increases instituted by Purchaser; or (iii) unacceptable
service by Protective or Purchaser under normal industry standards (which shall
include service interruptions due to relocation of central station facilities)
shall not be counted as reductions in Net Monthly Recurring Revenue for purposes
of this Section 1.4.4. Purchaser shall not cancel or
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terminate service with any customer for non-payment unless (a) the customer is
more than 120 days past due in the payment of Net Monthly Recurring Revenue, (b)
Levine, so long as he is still employed as the President of Protective (or
comparable position with respect to the customer accounts of Protective if
Protective should be merged with Purchaser or any affiliate of Purchaser after
the Closing Date), shall have oversight over collections and cancellations of
Protective's customers and (c) Purchaser has given Levine not less than 3
business day's prior notice of Purchaser's or Protective's decision to terminate
the customer and has given Levine an opportunity to save the customer by having
the customer cure the delinquency. No such notice to Levine shall be required as
long as Levine is employed as the President of Protective (or comparable
position with respect to the customer accounts of Protective if Protective
should be merged with Purchaser or any affiliate of Purchaser after the Closing
Date). Such efforts by Levine shall not include paying or offering to pay any
portion of the customer's bill, or making any concession or offering any credit
to the customer that is not reasonable and reasonably acceptable to Purchaser.
Customers who are terminated for non-payment and are resigned or reinstated by
Purchaser or Protective within the 8 month period following the Closing Date
shall not be counted as reductions in Net Monthly Recurring Revenue for purposes
of this Section 1.4.4. The Revenue Guaranty Adjustment under this Section 1.4.4
shall terminate and be of no further force or effect if Purchaser shall fail to
make any payment due under Section 1.3.3 or 1.3.4 when due and shall not cure
such failure within 5 days after receiving written notice from Sellers of such
failure and in such an event Seller shall immediately have the right to draw an
amount under the letter of credit, or withdraw any amount from escrow, as the
case may be, equal to the amount which Purchaser failed to pay, as set forth in
the Letter of Credit or escrow agreement as the case may be.
1.4.5. Adjustment Procedure.
(a) Within 15 business days after the Adjustment Date (the
"Initial Claim Date") Purchaser shall provide Sellers with written notice
of the amount of each claim for adjustment under this Section 1.4 (the
"Claim Notice") and evidence in reasonable detail specifically supporting
each claim for which adjustment is sought. In addition, Purchaser shall
pay to Sellers or authorize the escrow holder to pay to Sellers, as the
case may be, that portion of the Deferred Payment for which Purchaser does
not claim an adjustment, subject to the provisions of Section 9.1.2.
Sellers shall have up to 30 business days after the Claim Notice is sent
(the "Final Claim Date") to provide written notice to Purchaser of any
claims, and evidence in reasonable detail specifically supporting each
claim for which adjustment is sought, and to provide Purchaser notice of
any dispute of Purchaser's claims. In making a claim, Purchaser or
Sellers, as the case may be, shall be referred to as a "Claiming Party."
If the Claiming Party fails, by the applicable Claim Date, to provide such
notice and evidence with respect to any claim, such claim shall be deemed
waived by the "Claiming Party."
(b) Purchaser and Sellers shall use their best efforts and
good faith to settle any disputes regarding post-closing adjustments to
the Purchase Price as expeditiously as possible. Upon resolution of all
such disputes, Purchaser shall promptly pay Sellers the balance of the
Purchase Price, adjusted in accordance with this Section
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1.4. If the adjustments called for in this Section 1.4 reduce the Purchase
Price below the amount paid to Sellers on or prior to the Closing Date,
the difference shall promptly be repaid to Purchaser by Sellers.
(c) If Sellers contest Purchaser's calculation of the final
Purchase Price and it cannot be resolved pursuant to sub-section (b)
above, the matter shall be referred to the Certified Public Accountants of
Sellers and Purchaser, who shall jointly review Purchaser's calculations
and determine the correct amounts of the final Purchase Price, which
determination shall be final and binding on the parties. If the
accountants can not so agree, they shall appoint a third Certified Public
Accountant to make such determination, which determination shall be final
and binding on the parties. Such determination shall be delivered to the
parties within sixty (60) days from the date of Sellers' notice of
objection.
2. Closing Date. The closing of the purchase and sale of the Shares provided
for in this Agreement shall take place at the Purchaser's offices in
Greenwich, CT, on April 4, 1997, but not later than April 30, 1997, at 10:00
a.m., local time, or at such other date, time and place as the parties shall
mutually agree (the "Closing Date").
3. Individual Representations of Sellers.
In order to induce Purchaser to consummate the transactions
contemplated herein each Seller, in his, her or its individual capacity and not
on behalf of any other Shareholder, severally represents and warrants to
Purchaser (except as set forth on Schedule 4 attached hereto, identified by
applicable Section number or in any other schedule attached hereto which
Schedules may be updated at Closing) that as of the Execution Date and the
Closing Date.
3.1. Ownership of Stock.
Such Seller as of the Closing Date will be the owner, beneficially
and of record, of, and have good title to, all shares of the Stock to be
transferred by such Seller hereunder, free and clear of all liens, encumbrances,
security agreements, equities, options, claims, charges or restrictions. The
shares of Protective's Stock are, or on the Closing Date will be, owned by the
persons and in the amounts indicated in Section 1.1.
3.2. Capacity and Authority, No Violations; Consents
3.2.1. Such Seller has the requisite trust or individual (as the
case may be) power, legal capacity and authority and the right to execute and
deliver this Agreement and to carry out the terms and conditions applicable to
such Seller under this Agreement, including, but not limited to, the trust or
individual (as the case may be) power, legal capacity, legal authority and right
to sell, convey and transfer to Purchaser at the Closing the Shares to be sold
to Purchaser by such Seller. Upon consummation of the Closing, Purchaser will
acquire from such Seller legal and beneficial ownership of, good and marketable
title to, and all rights to vote the Shares
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to be sold to Purchaser by such Seller, free and clear of all liens,
encumbrances, security agreements, equities, options, claims, charges or
restrictions.
3.2.2. The execution, delivery and performance of this Agreement by
such Seller have been duly authorized by all requisite action on the part of
such Seller, and this Agreement has been duly executed and delivered by such
Seller.
3.2.3. This Agreement constitutes, and each other agreement and
instrument to be executed and delivered pursuant to the terms of this Agreement
(collectively, the "Transaction Documents") by any Seller will constitute, the
legal, valid and binding obligation of such Seller enforceable in accordance
with such Transaction Document's terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or by general equitable principles.
3.2.4. The execution and delivery of this Agreement and the other
Transaction Documents by such Seller, and such Seller's consummation of the
transactions contemplated hereby and thereby and the performance of such
Seller's obligations hereunder and thereunder, will not (a) conflict with or
result in the violation of any material applicable law or rule or regulation
affecting such Seller or the Shares owned by such Seller; (b) conflict with or
result in the violation of any judgment, order, decree or award of any court,
arbitrator, mediator or governmental agency or instrumentality to which such
Seller is a party or by which such Seller or the Shares owned by such Seller is
bound or affected; or (c) conflict with, result in the violation or termination
of, or accelerate the performance required by, any contract, indenture,
instrument or other agreement to which such Seller is a party or by which such
Seller or the Shares owned by such Seller may be bound or affected.
3.2.5. No consent, approval, authorization or other action by, or
filing or registration with, any federal, state or local governmental authority,
or any other person or entity, is required in connection with the execution and
delivery by such Seller of this Agreement and the other Transaction Documents,
the consummation by such Seller of the transactions contemplated hereby and
thereby or the performance of such Seller's obligations hereunder and
thereunder, except for (ii) filings required by the FCC related to Company's
radio licenses and arising out of the change of control of the Company and (iv)
such other consents and approvals as may be set forth on Schedule 4.
3.3. Litigation. Such Seller is not a party to, or, to the best of the
knowledge of such Seller threatened with, any litigation, governmental or other
proceeding, investigation or other controversy which might affect the validity
or consummation of this Agreement.
3.4. Disclosure. Except as may be required by law, regulation, rule, court
order or decree, such Seller has not and will not at any time disclose to any
third party the material terms upon which Purchaser has agreed to purchase the
Shares hereunder. Such Seller acknowledges that Purchaser is in the business of
acquiring companies or assets used in businesses similar to Protective and that
any such disclosure could have a material adverse impact on Purchaser. Purchaser
understands and agrees that Seller will be excused from performing this covenant
after
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the Closing in the event Purchaser defaults under the terms of this Agreement so
as to give rise to such Seller legal excuse from performing hereunder.
4. Representations and Warranties of Levine. In order to induce Purchaser to
consummate the transactions contemplated herein, Levine represents and warrants
the following to Purchaser (except as set forth on Schedule 4 attached hereto,
identified by applicable Section number or in any other schedule attached hereto
which Schedules may be updated at Closing).
4.1. Incorporation, Powers and Qualification. Protective Alarms, Inc. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Connecticut, and is duly qualified to do business in the States
of New York and New Jersey and is duly qualified to do business as a foreign
corporation in each state in which the nature of such corporation's business or
the character or location of such corporation's assets requires such
qualification, except where the failure to be so qualified has not had and would
not be reasonably expected to have a material adverse effect on its business.
Protective has all requisite corporate power to own its assets and to carry on
its business as now being conducted. Protective has no subsidiaries other than
the Subsidiaries. Each of the Subsidiaries is duly organized, validly existing
and in good standing under the laws of the state or province of its
incorporation, and is duly qualified to do business as a foreign corporation in
each state in which the nature of such corporation's business or the character
or location of such corporation's assets requires such qualification, except
where the failure to be so qualified has not had and would not be reasonably
expected to have a material adverse effect on its business.
4.2. Financial Information.
(a) Exhibit C contains financial statements with balance
sheets and statements of results of operations for Protective for the
periods ending September 30, 1995, and September 30, 1996 (the "Financial
Statements"). The Financial Statements present fairly the financial
position of Protective and the results of its operations as at the dates
thereof and for the periods covered thereby in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis. The
Financial Statements attached to this Agreement are the auditor's drafts.
(b) Protective did not have liabilities or obligations of any
nature, fixed or contingent, matured or unmatured, which were not
reflected or adequately reserved against in the Financial Statements or
discussed in the notes thereto, other than liabilities and obligations not
required to be included in the Financial Statements in accordance with
GAAP. The Deferred Service Revenue has been accounted for on Protective's
books without discounts for prompt payment which may be granted to
customers.
4.3. Absence of Changes. Since the date of the 1996 Financial Statement
the business of Protective has been operated only in the ordinary course and
there has not been:
(a) any material adverse change in Protective's condition,
financial or otherwise, or its assets, liabilities, earnings, book value,
business or prospects;
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(b) any sale, transfer or other disposition of any asset of
Protective to any party except for payments of third party obligations
incurred in the ordinary course of business in accordance with
Protective's regular payment practices, sales of inventory at normal
prices, dispositions of surplus or used equipment or other dispositions in
the ordinary course of business;
(c) any termination or waiver of any rights of material value
to the business of Protective;
(d) any increase in the compensation of employees, officers or
directors of Protective or any increase in any compensation payable to any
consultant or agent of Protective, other than salary or wage raises in the
ordinary course of business;
(e) any expenditure or commitment in excess of $50,000 for
additions to or replacements of Protective's property, plant or equipment;
(f) any change in the accounting methods or practices followed
by Protective;
(g) any declaration, payment or setting aside for any dividend
or other distribution to shareholders; or
(h) any increase in liabilities except those incurred in the
ordinary course of business.
4.4. Tax Matters. All federal, state, local and foreign tax returns and
tax reports, if any, including but not limited to all sales, use, income and
withholding tax returns for states in which Protective has or monitors
customers, required to be filed at any time prior to the date of this Agreement
with respect to the business and assets of Protective have been filed with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed, all of the foregoing are, to Levine's best
knowledge, true, correct and complete, and all amounts shown as owing thereon
have been paid.
4.5. Ownership of Property.
(a) Protective has good and marketable title to its assets
free and clear of all mortgages, liens, pledges, restrictions, charges or
encumbrances of any nature whatsoever except for the security interest in
favor of the State Street Bank.
(b) Protective owns no real estate.
(c) All of Protective's accounts receivable included in the
Working Capital are validly created obligations of each of the obligors
who incurred the same in bona fide transactions in the ordinary course of
Protective's business.
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(d) Protective owns (but has not registered) all copyrights,
trademarks, tradenames, service marks, service names, licenses and rights
therein which are reasonably necessary for the conduct of its business in
the manner in which it has been or is being conducted. Levine has no
knowledge of any infringement or unauthorized use by Protective of any
copyright, patent, trademark, tradename, service mark, service name,
license or rights therein belonging to any third party. Levine has no
knowledge of any infringement or unauthorized use by any third party of
any copyright, patent, trademark, tradename, service mark, service name,
license or right therein belonging to Protective. All such marks and names
are listed on Schedule 4.
4.6. Litigation. Protective is not a party to, or, to the best of the
knowledge of Levine threatened with, any litigation, governmental or other
proceeding, investigation, strike or other labor disputes or other controversy.
4.7. Brokers' and Finders' Fees. No agent, broker, person or firm acting
on behalf of Protective or Sellers is or will be entitled to any commission or
broker's or finder's fee from Purchaser in connection with the transaction
contemplated herein.
4.8. Labor Disputes. There is not pending, or to the best of Levine's
knowledge, threatened, any labor dispute, strike or work stoppage which affects
or which may affect the business of Protective or which may disrupt its
operations.
4.9. Copies of Documents. Levine has made available (or shall make
available upon request or shall cause Protective to make available upon request)
for inspection and copying by Purchaser true and correct copies of all documents
referred to in this Section 4. All such documents and written material furnished
to Purchaser as part of its due diligence investigation of Protective is an
original or is a true and complete copy of the original of the document of which
it purports to be a copy and, to the best of Levine's knowledge, the information
contained therein is true, correct and complete in all material respects.
4.10. Alarm Systems.
(a) All of the alarm systems designed, installed, repaired,
partially installed, or installed by Protective prior to the Closing Date,
and each supervisory alarm panel owned or operated by Protective as of the
Closing Date, has been, and will, as of the Closing Date, (where
applicable) be in good working order and condition, ordinary wear and
tear, routine service needs, subscriber negligence or mis-use and
subscriber non-use excepted, and (where applicable) will have been
installed and serviced in accordance with good and workmanlike practices
prevailing in the security alarm industry in the locality where the
installation is located at the time of installation or service, and with
respect to those alarm systems and panels where applicable, substantially
in accordance with the specifications or standards of the Insurance
Services Office, Underwriters Laboratories, Factory Mutual Insurance
Company, local authorities which are applicable to the system and, to the
best of Levine's knowledge, in substantial compliance with applicable
local telephone operating requirements. Substantially all alarm systems
installed or partially installed
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prior to the Closing Date will conform in all material respects to the
contracts pursuant to which they were installed and no installation,
repair or partial installation will have been made by Protective which was
in material violation of any material applicable law, code or regulation
when, repaired or installed.
(b) Levine does not know of any plans for changes to area codes in
areas in which Protective monitors customers.
4.11. Work in Process
All work in process in connection with the installation of alarm
systems for new customers has been sold, and through the Closing Date, will be
sold in a commercially reasonable manner and priced in accordance with
Purchaser's standard pricing policies and sales practices now in effect.
4.12. Agreements.
(a) Protective is not in material default under any contract
used in the operation of its business and, to Levine's knowledge, no other
party to any such contract is in material default thereunder other than
payment defaults by customers.
(b) Protective is not a party to any partnership or joint
venture and is not a guarantor of or otherwise liable for the obligations
of any third party.
(c) Schedule 4 describes, and Levine has delivered to
Purchaser complete and correct copies of all currently effective contracts
to which Protective is a party or by which Protective or any of its
properties or assets is bound or affected which (i) involve the payment or
receipt by Protective of more than $10,000 (other than customer
contracts); (ii) are financing documents, loan agreements or promissory
notes, (iii) are distributorship or other agreements relating to the
marketing of products, (iv) are stockholder or registration rights
agreements, (v) are leases of real property, or (vi) are employment,
consulting or non-compete agreements.
4.13. Locations; Acquisitions.
(a) Protective maintains offices or other locations at the
addresses listed on Schedule 4 and has maintained no other offices or
other locations in the past 5 years.
(b) Protective has, during the past 5 years, acquired the
capital stock of, or assets from, the persons or entities listed on
Schedule 4 showing as to each: name, address, date of acquisition and
assets or stock purchased. Protective has the benefit of the agreements
not to compete listed on Schedule 4, showing as to each: name of party,
name of business with which affiliated and nature and expiration date(s)
of non-compete obligations.
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(c) All contracts or letters of intent or memoranda or term
sheets, whether binding or not, for prospective acquisitions are listed on
Schedule 4 and identify the seller, Net Monthly Recurring Revenue,
location and payment terms for each.
4.14. Compliance; Hazardous Substances.
(a) Protective is in substantial compliance with, and has
operated its business in substantial compliance with, all federal and
state laws (including alarm company licensing or permit laws), ordinances,
regulations and orders, the failure of which would have a material adverse
effect on Protective's business. Protective is in substantial compliance
with all employment and employee benefit laws the failure of which would
have a material adverse effect on Protective's business. Protective is
licensed under applicable alarm company licensing laws in all states in
which the business it conducts or into which the goods or services it
provides requires such licensing, except as listed on Schedule 4. There
are less than 350 accounts with locations outside of Connecticut, New York
or New Jersey. Attached as Exhibit D are copies of all material licenses
or permits held by Protective and none of such licenses or permits will be
terminated or affected by, nor will any fees be payable as a result of,
the execution or consummation of this Agreement.
(b) Other than the routine storage and use of petroleum
products in its vehicles, and natural gas products for its heating
systems, and in its central station's back-up generators, neither
Protective nor any third party has engaged in the generation, use,
manufacture, treatment, transportation, storage or disposal of any
Hazardous Substance (as defined below) on or from any site owned or
occupied (now or previously) by Protective and neither Protective, nor any
third party nor any Seller has received, nor is Protective or any Seller
aware of any basis for, any notice of violation of any Applicable
Environmental Laws (as defined below) with respect to any site owned or
operated, now or previously, by Protective.
(c) "Hazardous Substance" means any substance, chemical or
waste that is listed as hazardous, toxic or dangerous under any Applicable
Environmental Law.
(d) "Applicable Environmental Law" means any federal, state or
local law, regulation or ordinance which prohibits, regulates or limits
the use of hazardous, toxic, dangerous materials, pollution of air or
water or the destruction of natural resources.
(e) There is an abandoned oil storage tank on the premises
occupied and controlled by Protective, which storage tank was not placed
on the premises by Protective and which is, to Levine's best knowledge,
empty.
4.15. Shares. Sellers are the record and beneficial holders of 100% of
Protective's issued and outstanding capital stock and no person other than
Sellers has any community property or other right to obtain any shares of
Protective's capital stock, any payment with respect to any
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such stock or otherwise with respect to the sale of Shares contemplated herein.
Protective has authorized 5,000 shares of common, no par value stock, of which
100 are issued and outstanding, none are held in Protective's treasury. All
issued and outstanding shares are fully-paid and non-assessable. There are no
options, warrants, scrip, preemptive or other rights to subscribe to or calls or
other commitments of any nature relating to Protective's securities. There are
no agreements, arrangements or understandings pursuant to which any limitation
is imposed on the voting or dividend rights of any shares of Protective's
capital stock.
4.16. Customer Lists; National Accounts.
(a) The document identified as Exhibit E dated the date of
this Agreement which was prepared by Protective and Levine and initialed
by Levine and Purchaser (for identification only) is a true and correct
list of all Protective's customers as of December 19, 1996, all of which
are being billed for services rendered by Protective. Exhibit E shows as
to each customer: name, recurring rate and billing frequency. Protective's
Net Monthly Recurring Revenue (as used in Section 1.2.2(a)) (which for
purposes of this Section 4.16 shall include recurring revenue which would
be Net Monthly Recurring Revenue as defined in Section 1.2.2(a) but for
the fact that it is not billed under Customer Contracts) , as shown
thereon, is not less than $325,000 and no less than 90% of the Net Monthly
Recurring Revenue shown thereon is billed under Customer Contracts.
Exhibit E shall identify customers from whom Protective is receiving Net
Monthly Recurring Revenue for (i) key holder services, (ii) Wholesale
Services and (iii) extended repair services and shall summarize the amount
of Net Monthly Recurring Revenue billable to each category. There has not
been an increase in customer rates since April, 1996 other than increases
to reflect changes in services or equipment or increases imposed as a
result of a contract renewal or extension or mandated by contract. Exhibit
E shall be attached to this Agreement upon the earlier of the Closing or
satisfaction or waiver of every condition precedent to the obligations of
Sellers contained in Section 7.2. Until such time, Exhibit E shall be held
in escrow by Mitchell, Silberberg & Knupp, LLP pursuant to the Escrow
Agreement attached hereto as Exhibit F. Newly Acquired Accounts shall be
listed separately or otherwise identified to facilitate proper calculation
and adjustment of the portion of the Purchase Price determined under
Section 1.2.1(a).
(b) "Customer Contracts" mean written contracts calling for
recurring payments for alarm system leasing, monitoring or maintenance or
other services, to the best knowledge of Levine duly executed by at least
one of the occupants or owners of the premises, and having either (i) an
original term of at least 3 years and month to month renewal or (ii) an
original and renewal terms of at least one year, and which will not
terminate, give rise to a right to terminate or otherwise be adversely
affected by the sale of stock contemplated by this Agreement. Copies of
the contract forms in use with Protective's customer are attached hereto
as Exhibit G. No more than 5% of all Customer Contracts in effect with
Protective's customers have month to month renewals.
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(c) Each of the contracts with the National Accounts in
existence or which will be in existence on the Closing Date is due to
expire no sooner than December 31, 1999 except for Sports Authority, which
is due to expire on or about November 3, 1998.
(d) Exhibit O attached is a list of the dealers providing
third party monitoring to Protective's customers and the monthly charges
therefor.
4.17. Customer Claims; Insurance. Protective maintains in effect insurance
covering its assets and business, and maintains in effect general liability
(including errors & omissions) and automobile liability insurance in amounts
customarily carried by persons or organizations conducting similar businesses.
There have been no unresolved material customer claims against Protective during
the past 5 years not scheduled herein, nor to Levine's best knowledge are any
pending. Levine is not aware of any circumstances or events which could give
rise to a customer claim which has not yet been asserted which would have a
material adverse effect on Protective's assets or the Shares.
4.18. Absence of Preferential Agreements. Neither Protective nor any
Sellers has entered into or agreed to enter into any agreement or arrangement
granting any preferential rights to purchase any of Protective's assets,
properties, services or rights, including inventories, or requiring the consent
of any party to the transfer and assignment of any of such assets, properties,
services or rights.
4.19. Personnel. Exhibit H attached comprises a complete and correct list
of Protective's employees. Protective has furnished Purchaser with complete and
correct copies of, (i) all employment, deferred compensation, bonus or
commission agreements, plans or programs respecting or affecting any directors,
officers or employees of Protective; (ii) the names and current salaries or
hourly rates of all directors, officers and employees of Protective and (iii)
the date and amount of the last increase in compensation for each such person.
4.20. Product Warranties. Except as set forth in Protective's standard
forms of contract and sales literature, copies of which have been delivered to
Purchaser, Protective has not made any warranties or guaranties relating to any
product it has sold, leased or installed other than those implied by law.
4.21. Employee Plans.
(a) Protective neither maintains, sponsors nor contributes to
any program or arrangement that is an "employee pension benefit plan," an
"Employee welfare benefit plan," or a "multiemployer plan" as such terms
are defined in Section 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended or any other incentive
or benefit arrangement not listed on Exhibit H.
(b) Protective has never completely or partially withdrawn
from a "multiemployer plan".
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4.22. Minutes; Stock Records. Levine has delivered to Purchaser for review
the originals or complete and correct copies of the minute books and stock
records of Protective. Such items contain a complete and correct record of all
proceedings and actions taken at all meetings of, and all actions taken by
written consent by, the holders of capital stock of Protective and its boards of
directors, and all original issuances, subsequent transfers and any repurchases
of capital stock of Protective.
4.23. Material Misstatement or Omissions. No representation or warranty by
Sellers contained in this Agreement or the Exhibits to this Agreement and no
document or certificate furnished or to be furnished to Purchaser by Sellers in
connection herewith or with the transactions contemplated hereby, contains an
untrue statement of a material fact or omits to state a material fact necessary
to make any statement of fact contained therein not misleading.
5. Representations and Warranties of Purchaser. Purchaser hereby represents and
warrants the following to Seller:
5.1. Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Purchaser has all requisite corporate power to carry on its business
as it is now conducted and is entitled to own, lease or operate the properties
and assets it now owns, leases or operates.
5.2. Authority. The execution and delivery of this Agreement by Purchaser
and the performance by Purchaser of its obligations hereunder have been approved
by all necessary corporate action and no further proceedings on the part of
Purchaser will be necessary to effect or approve the transactions contemplated
by this Agreement. This Agreement and the other Transaction Documents have been
duly executed and delivered by Purchaser. This Agreement constitutes, and each
other agreement or instrument to be executed and delivered by Purchaser pursuant
to the terms of this Agreement will constitute, the legal, valid and binding
obligations of Purchaser, enforceable against Purchaser in accordance with their
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by general equitable principles.
5.3. No Conflict. Neither the execution nor the delivery of this
Agreement, nor the consummation of the transactions covered hereby, nor the
fulfillment of the terms hereof, nor compliance with the terms and provisions
hereof, will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under any agreement or instrument,
including any judgment, order, decree, or award of any court, arbitrator,
mediator, or governmental agency to which Purchaser is a party or by which it is
bound.
5.4. Effect of Agreement. The execution of this Agreement does not, and
the consummation of this Agreement will not, violate any law, statute,
regulation, injunction, order or decree of any governmental agency or authority
or court, or conflict with or result in a material breach of or constitute a
material default under any of the terms and provisions of any commitment,
contract, instrument or obligation including any judgment, order, decree, or
award
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of any court, arbitrator, mediator, or governmental agency to which Purchaser is
a party or by which Purchaser or any of its properties may be bound.
5.5. Litigation. Purchaser is not a party to, or, to the best of the
knowledge of Purchaser, threatened with, any litigation, governmental or other
proceeding, investigation, strike or other labor disputes or other controversy
which might affect the validity or consummation of this Agreement or Purchaser's
ability to perform its obligations hereunder or under any Transaction Document.
5.6. Brokers' and Finders' Fees. No agent, broker, person or firm acting
on behalf of Purchaser is or will be entitled to any commission or broker's or
finder's fee from Sellers in connection with any of the transactions
contemplated herein.
5.7. Investment Intent. Purchaser is purchasing the Shares for its own
investment and not with a view to sale or distribution of the Shares to other
persons.
5.8. Hart Scott Rodino Act. No filing with the Federal Trade Commission by
Sellers or Purchaser is required under the Hart Scott Rodino Anti-Trust
Improvement Act of 1976.
5.9. Material Misstatements or Omissions. No representation or warranty by
Purchaser contained in this Agreement or in any document, statement or
certificate furnished or to be furnished to Sellers in connection with the
transactions contemplated hereby, contain an untrue statement of material fact
or omits to state a material fact necessary to make the statement of fact
contained therein not misleading.
6. Conduct Prior to Closing.
6.1. No Material Changes. From the date of this Agreement to the Closing,
the business of Protective will be operated only in the ordinary course (other
than as necessitated or permitted by this Agreement), and, in particular,
Sellers shall not permit Protective, without the prior written consent of
Purchaser, to:
6.1.1. be in material default under any material contract,
agreement, commitment or undertaking of any kind;
6.1.2. violate or fail to comply in any material respect with all
material laws applicable to it or its properties or business;
6.1.3. sell, transfer or otherwise dispose of, or agree to sell,
transfer or otherwise dispose of (other than in the ordinary course of
business), any of its assets, properties, services or rights, including
inventories, or cancel or otherwise terminate, or agree to cancel or otherwise
terminate, any debts or claims (other than ordinary course credits or
adjustments to accounts receivable), except the foregoing shall not prohibit the
disposition to Sellers of accounts of terminated customers which have been
turned over to collection, the stock of Security Network of
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America owned by Protective Alarms, Inc., a one year term life insurance policy
on the life of Levine in the face amount of $3,000,000 and the distribution to
Levine described in Schedule 4;
6.1.4. make or permit any amendment or termination of any material
contract, agreement or license to which it is a party or by which it or any of
its assets or properties are subject;
6.1.5. increase or agree to increase the rate of compensation
payable or to become payable to any of its shareholders, officers, directors,
consultants or employees, or adopt any new, or make any increase in any employee
benefit plan, payment or arrangement made to, for or with any of such employees
(other than routine scheduled increases to employees in the ordinary course of
Protective's business);
6.1.6. make any expenditure, commitment or accrual for the purchase,
acquisition, construction or improvement of a capital asset, which in any event,
equals or exceeds individually or in the aggregate $25,000;
6.1.7. make any change in the relationship or course of dealing
between Protective and its major suppliers or customers which could have a
material and adverse effect on the business of Protective;
6.1.8. increase or decrease any customer rates other than increases
or decreases related to (a) adjustments in the ordinary course of business or
(b) changes in service or equipment;
6.1.9. fail to maintain and repair any tangible assets (other than
equipment located at customer locations) included in its assets in accordance
with good standards of maintenance and as required in any leases or other
agreements pertaining thereto;
6.1.10. fail to provide repair service for alarm systems in
accordance with Protective's standard repair service policies and procedures;
6.1.11. merge, consolidate or agree to merge or consolidate with or
into any other corporation or entity; or
6.1.12. amend its certificate of incorporation or issue or authorize
for issuance any shares of the capital stock of Protective or any warrants,
options or rights therefor.
6.2. Insurance. Protective shall maintain or cause to be maintained, in
full force and effect, through the Closing Date, all of its insurance policies
unless replaced by substantially comparable insurance coverage. Protective shall
promptly advise Purchaser of any fire, accident or other casualty occurring on
or before the Closing Date which individually or in the aggregate affects the
value of the Assets in excess of $25,000.
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6.3. Access to Properties. Purchaser, by authorized representatives
designated by Purchaser, shall, through the Closing Date, have the right to
examine the properties, books and accounts of Protective's business at times and
places reasonably acceptable to Levine. Purchaser agrees to keep confidential
all information regarding the Assets that is obtained through such examination
in accordance with the terms of the confidentiality provisions set forth in
Section 6.4 herein. Purchaser agrees to conduct such examination in a manner so
as not to disclose this transaction to Protective's employees (other than
employee specifically identified to Purchaser by Levine) and in a manner that
will not disrupt Protective's business.
6.4. Confidentiality. All information furnished by any Seller or
Protective to Purchaser pursuant to this Agreement shall be treated as the
property of such Seller or Protective and shall be kept confidential by
Purchaser until the Closing Date. In the event the Closing shall not occur,
Purchaser shall return to Sellers or Protective all documents and other
materials containing, reflecting or referring to such information, retain no
copies, summaries, compilations or notes regarding such information, shall keep
confidential all such information, and shall not directly or indirectly use such
information for any competitive or other commercial purpose. Purchaser's
obligation to keep such information confidential and not to use such information
shall continue for a period of 5 years from the date the transactions
contemplated by this Agreement are abandoned and shall extend to the directors,
officers, employees and agents of Purchaser and Parent. Purchaser shall take all
necessary action to inform such persons of the obligation of confidentiality set
forth in this Section and shall take all necessary action to obtain their
acknowledgment of and agreement to comply with this Section. The obligation to
keep such information confidential shall not apply to any information which
Purchaser can demonstrate (a) was already in its possession prior to the
disclosure thereof by any Seller or Protective, (b) was then generally known to
the public, (c) became known to the public through no fault of Purchaser or
Parent or any of their respective directors, officers, employees or agents, or
(d) is required by Federal or state law, rule or regulation, or judicial process
to be disclosed.
7. Conditions Precedent to the Closing.
7.1. Conditions Precedent to the Obligations of Purchaser. The obligations
of Purchaser under this Agreement are subject to the satisfaction of each of the
following conditions except to the extent that any of such conditions may be
waived by Purchaser.
7.1.1. Representations and Warranties True as of Closing. The
representations and warranties of Sellers contained in Sections 3 and 4 shall be
true and correct in all material respects when made and on and as of the Closing
Date as if then made, except to the extent that such representations and
warranties are expressly made as of a specified date and, as to such
representations and warranties, the same shall be true and correct as of such
specified date. At the Closing, Purchaser shall have been furnished with a
certificate executed by Sellers with respect to the accuracy of such
representations and warranties as of the Closing Date as if then made and to the
fulfillment of the conditions stated in this Section 7 to the extent that such
conditions are precedent to the obligations of Purchaser.
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7.1.2. Obligations, Covenants, Agreement and Conditions Performed.
Sellers shall have performed all obligations required to be performed by them
under this Agreement at or prior to the Closing Date, and Purchaser shall have
received a certificate signed by Sellers, to that effect.
7.1.3. Deliveries. At the Closing, Purchaser shall have received:
(i) Schedules updating the information on any Schedule
or Exhibit to this Agreement which has changed between the date of
this Agreement and the Closing Date, as of a date no more than 2
days prior to the Closing Date, certified by Sellers as to its
accuracy and completeness.
(ii) Sellers' Certificates as to the values of Net
Monthly Recurring Revenue, WIP NMRR and Working Capital, as called
for in Section 1.3.2;
(iii) Releases in recordable form, together with fees
necessary for recording, of the security interests in favor of State
Street Bank in the assets of Protective;
(iv) Certificates, duly endorsed for transfer to
Purchaser, representing all the Shares, with signatures guaranteed
or signatures witnessed by representatives of Purchaser;
(v) Agreements Not To Compete in the form of Exhibit I
attached hereto, duly executed by each of Sellers;
(vi) An opinion of Sellers' counsel in form and
substance satisfactory to Purchaser in the form of Exhibit J
attached hereto and as to such other matters as are reasonably
requested by Purchaser;
(vii) A 5 year lease of Protective's main offices in
Greenwich, CT which conforms to the terms of the term sheet attached
hereto as Exhibit K and containing such other provisions as are
customary for a commercial lease in the Greenwich, CT area, together
with estoppel certificates from the Landlord, Condominium
Association and any mortgagee indicating that there are no defaults
then in existence, that the leasing of such offices to Protective
will not constitute any such default and a non-disturbance agreement
from any mortgagee, all in form reasonably acceptable to Purchaser.
If the lease is executed by Protective, Purchaser shall guarantee
said lease. The parties shall execute the term sheet
contemporaneously with the execution of this Agreement;
(viii)Consents of government agencies and third parties
necessary to consummate this transaction other than consents
required to be obtained by
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Purchaser (e.g., FCC approval of radio licenses) and either not
obtained by Purchaser or waived by Purchaser;
(ix) The minute books and stock records of Protective;
and
(x) Such other documents from Sellers as are reasonably
necessary or appropriate to complete the transactions herein
contemplated.
7.1.4. Adverse Change. There shall have been no material adverse
change to the business, property or affairs of Protective since the date of this
Agreement.
7.2. Conditions Precedent to the Obligations of Seller. The obligations of
Sellers under this Agreement are subject to the satisfaction of each of the
following conditions except to the extent that any of such conditions may be
waived by Sellers.
7.2.1. Representation and Warranties True as of Closing. The
representations and warranties of Purchaser contained in Section 5 shall be true
and correct when made and on and as of the Closing Date as if then made, except
to the extent that such representations and warranties are expressly made as of
a specified date and, as to such representations and warranties, the same shall
be true and correct as of such specified date. At the Closing, Sellers shall
have been furnished with a certificate executed by Purchaser with respect to the
accuracy of such representations and warranties as of the Closing Date as if
then made and to the fulfillment of the conditions stated in this Section 7 to
the extent that such conditions are precedent to the obligations of Seller.
7.2.2. Performance of Covenants and Agreements. Purchaser shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Sellers shall have received a certificate
signed by Purchaser to that effect.
7.2.3. Deliveries to Sellers. On the Closing Date, Purchaser shall
have delivered the following to Sellers:
(i) 90% of the portion of the Purchase Price
attributable to Net Monthly Recurring Revenue and 100% of the
portion of the Purchase Price attributable to the Working Capital as
provided in Section 1.3.2, by wire transfer pursuant to wire
instructions furnished to Purchaser by Sellers;
(ii) $1,300,000 on account of portion of the Purchase
Price determined under Section 1.2.1(b) as provided in Section
1.3.3, by wire transfer pursuant to wire instructions furnished to
Purchaser by Sellers;
(iii) The payment due under Section 1.3.5;
(iv) A promissory note and irrevocable letter of credit
or payment into escrow, as provided in Section 1.3.2;
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(v) Agreements Not to Compete in the form of Exhibit I
attached hereto, duly executed by Purchaser.
(vi) An Employment Agreement for Steven Levine in the
form of Exhibit L, duly executed by Purchaser;
(vii) A 5 year lease of Protective's main offices in
Greenwich, CT which conforms to the terms of the term sheet attached
hereto as Exhibit K; and
(viii) An opinion of Purchaser's counsel in form and
substance satisfactory to Sellers in the form of Exhibit M attached
hereto and as to such other matters as are reasonably requested by
Sellers;
(ix) Such other documents as are necessary to complete
the transactions herein contemplated.
7.2.4. Pay-off of State Street Bank. Payment of the obligation to
State Street Bank described in Section 4.5(a) and release of Sellers' guarantees
or other obligations arising out of such indebtedness.
7.2.5. Adverse Change. There shall have been no material adverse
change to the business, property or affairs of Purchaser since the date of this
Agreement which in the aggregate have had, or are reasonably likely to have, a
materially adverse effect on Purchaser's ability to perform its obligations
under this Agreement and the Transaction Documents.
8. Warranties and Representations. The respective representations and warranties
of Sellers and Purchaser contained herein shall survive the Closing Date to
extent set forth in Section 9.
9. Indemnification.
9.1. Indemnification by Principal Sellers.
9.1.1. Claims. Subject to the limitations set forth in Section
9.1.3, Principal Sellers (but not the Trusts), jointly and severally, hereby
agree to indemnify Purchaser against and to hold Purchaser and Protective
harmless from any and all damages, losses, liabilities, costs and expenses,
including, without limitation, reasonable attorneys' fees (collectively
"Damages") incurred or suffered by Purchaser or Protective, arising out of or
related to:
(a) any material inaccuracy or breach of any representation or
warranty made hereunder (as set forth in Articles 3 and 4) by any of
Sellers;
(b) any failure of Sellers to duly perform or observe any
covenant or agreement hereunder on the part of Sellers to be performed or
observed;
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(c) any federal, state, local or other tax of any nature
imposed on Protective with respect to any period of time prior to the
Closing Date, arising out of actions or omission by Protective prior to
the Closing (but excluding any such taxes that arise as of result of
actions, omissions or elections made by Protective or Purchaser after the
Closing, unless such actions or elections are required to be made by
Protective or Purchaser pursuant to any tax law, ruling or regulation)
including, but not limited to, any sales, excise or use tax due on
services provided or equipment purchased, sold or leased by Protective, or
any tax on income received by Protective, prior to the Closing Date, any
penalty assessed against Protective, and/or any interest assessed on
deficiencies but excluding any tax liabilities in the amounts set forth on
the Closing Financials;
(d) any penalty imposed by any governmental authority on
Protective on or after the Closing Date and before the Date nine months
after the Closing Date, arising out of Protective's not having been
qualified to do business as a foreign corporation or failure to have been
properly licensed under applicable alarm company licensing laws in effect
on or prior to the Closing Date which are imposed after Protective's
application during such period of time, for any such qualification or
license (the cost of such applications themselves shall not be damages for
which Purchaser shall be entitled to seek indemnity);
(e) any claim against Protective by, or liability of
Protective to, a third party, (including without limitation, employees,
brokers, customers and suppliers of Protective) of any nature arising out
of an event or occurrence wherein the loss or damage asserted by the third
party occurred prior to the Closing Date, other than claims or
liabilities: (i) in the amounts set forth in the Working Capital, or (ii)
as to which Purchaser expressly agrees in writing that it will not be
entitled to indemnification. The disclosure of any liability or
circumstance which may give rise to a liability in this Agreement, any
Schedule or Exhibit hereto or any written material furnished to Purchaser
by Sellers for due diligence purposes shall not be deemed to be such an
express agreement by Purchaser.
Any claim for indemnification by Purchaser or Protective pursuant to this
Section 9.1.1 shall hereinafter be referred to as a "Purchaser's Claim."
9.1.2. Notice; Offset. Purchaser agrees to give prompt notice to
Sellers of the assertion of any claim or the commencement of any suit, action or
proceeding, in respect of which indemnity may be sought hereunder. Either of
Principal Sellers may, in his or her sole discretion, assume the defense of any
such claim, suit, action or proceeding at his or her own expense and may dispose
of any such claim, suit, action or proceeding in his or her sole discretion
without any liability or expense to Purchaser. In any event, Purchaser shall
have the right to participate in or with respect to any such claim, suit, action
or proceeding with counsel of its own choice and at its own expense. If any
indemnifiable claim exists at the time payment of the Deferred Payment is due,
Purchaser shall have the right to withhold payment of a reasonable amount of the
principal until such claim is satisfied. Purchaser's rights under the
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indemnity provided for in this Agreement shall not be limited to the rights
stated in the preceding two sentences.
9.1.3. Purchaser's Claim Basket and Liability Cap.
Other than with respect to Purchaser's Claims (a) asserting a
Seller's fraud, (b) challenging any Seller's title to the Stock, (c) asserting a
claim which should have been included in the Working Capital or (d) brought
under subsection 9.1.1(c) or 9.1.1(d), Principal Sellers' obligations with
respect to indemnity pursuant to this Section 9.1 shall be limited to the extent
that the aggregate of such obligation must first exceed $75,000.00 after giving
credit for any insurance proceeds received by Protective or Purchaser as a
result of coverage by insurance of Purchaser or Protective ("Purchaser's Claim
Basket"). Except as provided hereinafter, in no event shall the total liability
of all Sellers for all Purchaser's Claims exceed $9,000,000.00 (the "Liability
Cap"). Notwithstanding the limitation of liability set forth above, any
Purchaser's Claim asserting a Seller's fraud, asserting a claim as to the title
of the Stock or asserting a claim which should have been included in the Working
Capital shall not be included in the Liability Cap described in this Section.
9.1.4. Other Limitations
After the Closing, Purchaser will not be entitled to indemnification
with respect to any matter which arises after the date of this Agreement (i) if
Purchaser expressly agrees in writing that it will not be entitled to
indemnification therefor, (ii) for those matters set forth on Exhibit P, or
(iii) if Purchaser was fully compensated for such matter pursuant to an
adjustment in the Purchase Price pursuant to Section 1.4.
9.1.5. Sole and Exclusive Remedy
After the Closing, the indemnification provided in this Section 9.1
shall be the sole and exclusive remedy of Purchaser with respect to the matters
described in this Section 9.1 without regard to whether such matter involves
claims framed in contract, tort, equity or otherwise.
9.1.6. Survivability of a Purchaser's Claim
In order for Purchaser to be entitled to indemnification for a
Purchaser's Claim as provided for in Sections 9.1.1 a notice of a Purchaser's
Claim(s) must be submitted to the Sellers' Representatives within 9 months after
the Closing Date; except that a Purchaser's Claim asserting a claim under
Section 9.1.1(c) or 9.1.1(e), a Seller's fraud, related to a Seller's title to
the Stock must be submitted to Sellers prior to the expiration of the applicable
statute of limitations.
9.2. Indemnification by Purchaser.
26
<PAGE>
9.2.1. Claims. Purchaser hereby agrees to indemnify Sellers against
and to hold them harmless from any and all damages in connection with any claim,
action, suit or proceeding incurred or suffered by Sellers arising out of or
related to (a) any misrepresentation made, or breach of any warranty, covenant
or agreement made or to be performed, by Purchaser in or pursuant to this
Agreement or (b) or the operation of the business of Protective from and after
the Closing Date.
9.2.2. Notice. Sellers agree to give prompt notice to Purchaser of
the assertion of any claim, or the commencement of any suit, action or
proceeding in respect of which indemnity may be sought hereunder. Purchaser may,
in its sole discretion, assume the defense of any such claim, suit, action or
proceeding at its own expense and may dispose of any such claim, suit, action or
proceeding, at its sole discretion without any liability or expense to Sellers.
In any event, Sellers shall have the right to participate in or with respect to
any such claim, suit, action or proceeding with counsel of their own choosing
and at their own expense.
9.2.3. Sole and Exclusive Remedy. After the Closing, the
indemnification provided in this shall be the sole and exclusive remedy of
Sellers with respect to the matters described in this Section 9.2 without regard
to whether such matter involves claims framed in contract, tort, equity or
otherwise.
10. Payment of Expenses; Taxes.
10.1. Expenses. Each party to this Agreement shall bear and pay all fees,
costs and expenses incurred by it in connection with the preparation of this
Agreement and the consummation of the transactions contemplated hereunder.
10.2. Taxes. Purchaser shall not be responsible for or be required to pay
any sales, income or other taxes imposed upon or made with respect to the
operation of Seller's business prior to the Closing Date.
11. Breach; Termination of Agreement.
11.1. Breach by Sellers.
11.1.1. Sellers acknowledge that the business of Protective is
unique and that, in the event of Sellers' breach of this Agreement, Purchaser's
damages would be difficult or impossible to determine. Therefore, Sellers agree
that, in addition to any other remedies available to Purchaser, Purchaser shall
be entitled to injunctive relief and to specific performance of this Agreement
by Sellers.
11.1.2. In addition to any other remedies available to Purchaser as
a result of Sellers' breach of this Agreement (without legal excuse) resulting
in the transactions contemplated herein not being consummated, Purchaser shall
be entitled to have the Deposit returned to it promptly upon demand therefor.
Except in the event of a breach by Sellers without legal excuse, the Deposit
shall be non-refundable.
27
<PAGE>
11.2. Breach by Purchaser. The parties agree that damages for Purchaser's
failure to consummate the transactions contemplated in this Agreement would be
difficult or impossible to ascertain either in advance or at the time of the
breach, and wish to establish agreement on liquidated damages in such event. In
the event of the Purchaser's breach of this Agreement resulting in the
transactions contemplated herein not being consummated, Sellers shall be
entitled to $250,000 as liquidated damages and not as a penalty and nothing
more. The foregoing shall not apply to a post closing breach by Purchaser.
Sellers shall retain the Deposit in payment of such liquidated damages.
Thereafter Purchaser shall have no further liability or obligation to Sellers
hereunder. Purchaser acknowledges and agrees that said amount of liquidated
damages is reasonable and does not constitute a penalty or forfeiture.
11.3 Termination. The foregoing notwithstanding, if Protective's Net
Monthly Recurring Revenue as used in Sections 1.2.1(a), 1.2.1(c) and 1.2.1(d) on
the Closing Date is less than $360,000, Sellers may elect not to consummate the
sale of stock contemplated in this Agreement, provided it gives notice to that
effect to Purchaser on or prior to the Closing Date together with the return of
the Deposit. Such action by Sellers shall not be considered a breach of this
Agreement unless, within 5 days of receipt of such notice, Purchaser shall give
Sellers notice that it will consummate the transaction contemplated in this
Agreement by paying the sum of the amounts called for in Sections 1.2.1(c) and
1.2.1(d) based on the levels of Net Monthly Recurring Revenue applicable and the
amount called for in Section 1.2.1(a) as though the Existing Revenue was an
amount equal to $360,000 less the amounts of Net Monthly Recurring Revenue used
to determine the portions of the Purchase Price under Sections 1.2.1 (c) and
1.2.1(d). If Purchaser gives such a notice to Sellers therein, which shall be no
more than 5 days after the date such notice is given.
12. Protective's Release
12.1. Effective as of the Closing, Protective agrees not to sue and fully
releases and discharges Sellers and each of them, in their respective capacities
as such, and including, without limitation, each of their respective trustees,
representatives, agents, assigns and successors, past and present, in their
respective capacities as such (collectively "Seller Releasees"), with respect to
and from any and all claims, demands, rights, liens, agreements, contracts,
covenants, actions, suits, causes of action, obligations, debts, costs,
expenses, damages, judgments, orders and liabilities of whatever kind or nature
in law, equity or otherwise, whether now known or unknown, and whether or not
concealed or hidden, all of which Protective now owns or holds or has at any
time owned or held against the Seller Releasees.
12.2. It is the intention of Protective that the release contained in
Section 12.1 be effective as a bar to each and every claim, demand and cause of
action herein above specified. In furtherance of this intention Protective
expressly agrees that this release shall be given full force and effect
according to each and all of its express terms and provisions, including as
well, those related to unknown and unsuspected claims, demands and causes of
action, if any, as those relating to any other claims, demands and causes of
action herein above specified.
28
<PAGE>
13. Post Closing Employment Matters. Protective shall not, during the first 90
days after the Closing Date, reduce the compensation (cash or non-cash benefits)
payable to any employee from the compensation in effect immediately prior to the
Closing Date, except that it may change medical coverage plans so long as such
change does not result in a lapse of coverage for any affected employee. The
foregoing shall not prevent Protective from terminating any employee at any
time.
14. Miscellaneous.
14.1. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when sent by overnight courier or by
registered or certified mail, deposited in the United States mail, postage
prepaid, return receipt requested, to the appropriate party at its or his
address below or at such other address for such party (as shall be specified by
written notice):
If to Sellers, at:
Mr. Steven Levine
%Protective Alarms, Inc.
1 River Road
Cos Cob, Ct 06807
With a copy to:
Alan L. Pepper, Esq.
Mitchell, Silberberg & Knupp, LLP
11377 West Olympic Boulevard
Los Angeles, CA 90064-1683
If to Purchaser, at:
Mr. Russell R. MacDonnell
Security Systems Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
With a copy to: if by courier:
Tracy B. Ambler, Esq. Tracy B. Ambler, Esq.
P.O. Box 435 9 Church Hill Road
Redding Ridge, CT 06876-0435 West Redding, CT 06896
14.2. Headings. The headings in this Agreement are intended solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
29
<PAGE>
14.3. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without regard to the
application of conflicts of law principles.
14.4. Assignment. This Agreement shall not be assignable by any party
hereto except with the written consent of the other party. Any other attempted
assignment shall be void. The foregoing notwithstanding, Purchaser may assign
its rights and delegate its obligations hereunder, and under any agreement or
document entered into or received hereunder, to any affiliated entity and/or as
collateral to any lender providing funds to be used in acquiring or operating
the business of Protective by Purchaser. No such delegation of obligations shall
relieve Purchaser of such obligation, however, without the express written
consent of Sellers.
14.5. Severability. If any term or provision of this Agreement or any
application thereof shall be invalid or unenforceable, the remainder of this
Agreement and any other application of such provision shall not be affected
thereby.
14.6. Entire Agreement. This Agreement and the Schedules and Exhibits
attached hereto, represent the entire agreement of the parties hereto with
respect to the subject matter hereof superseding all prior agreement,
understanding, discussions, negotiations and commitments of any kind.
14.7. Attorneys' Fees. If any action or proceeding is brought to enforce
or interpret any provision of this Agreement the prevailing party shall be
entitled to recover reasonable attorneys' fees to be fixed by the court.
14.8. Publicity. All notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and between Purchaser and Levine. All such notices or
other publicity shall, prior to publication, be approved in writing by Purchaser
and Levine, which approvals shall not be unreasonably withheld. Notices and
other publicity concerning the transactions contemplated by this Agreement shall
not include the dissemination of proxy statements, registration statements,
prospectuses and similar documents which are required to include information
concerning such transactions under state and federal securities laws.
14.9. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same Agreement.
14.10. Amendment of Agreement; Waivers. This Agreement may be amended in
writing by all of the parties hereto. Any party hereto may waive, in writing,
compliance by the other party with any of the covenants and conditions contained
in this Agreement (except such as may be imposed by law).
14.11. Further Assurances. After the Closing Date, without further
consideration, the parties hereto shall each execute and deliver such further
instruments and documents and take
30
<PAGE>
such further actions as the other party shall reasonably request to consummate,
or in furtherance of, the transactions contemplated by this Agreement and to
perfect Purchaser's title to the Shares.
31
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first above written.
SELLERS: PURCHASER:
Security Systems Holdings, Inc.
/s/ Steven Levine
- ------------------------------------
Steven Levine
By /s/ Russell R. MacDonnell
----------------------------
Russell R. MacDonnell
/s/ Fritzie Levine Chairman
- ------------------------------------
Fritzie Levine
The Lori Levine Esposito Trust
By /s/ Walter Levine
----------------------------------
Walter Levine, trustee
The Leslie Levine Oxfeld Trust
By /s/ Walter Levine
----------------------------------
Walter Levine, trustee
32
<PAGE>
List of Exhibits and Schedule
Exhibits:
- ---------
A National Accounts
B Form of Promissory Note
C Financials
D Copies of Material Licenses
E Customer List
F Customer List Escrow Agreement
G Sample Customer Contracts
H Compensation Plans/Employees/Compensation Rates
I Non-Compete Agreement
J Opinion of Seller's Counsel
K Term sheet for Lease of Greenwich Offices
L Employment Agreement for Steven Levine
M. Opinion of Purchaser's Counsel
N. Third Party Fire Monitoring Accounts
O. Dealers Providing Monitoring to Protective
P. Claims Not Subject to Indemnification
Schedule:
1.2.3 List of equipment leases and installment sale contracts not included in
Working Capital
4. Exceptions to or expansions upon representations in Sections 3 and 4
33
<PAGE>
Exihibit 10.27
FORM OF
STOCK OPTION ASSUMPTION AND CONVERSION AGREEMENT
This Stock Option Assumption and Conversion Agreement (this "Agreement"),
dated this __ day of _______, 1997, by and among Security System Holdings, Inc.,
a Delaware corporation ("SSH"), Triton Group Ltd, a Delaware corporation
("Triton"), and the individual who is a signatory hereto (the "Grantee").
Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in the Merger Agreement (as defined below).
WHEREAS, SSH has granted the Grantee an option (the "Option") to purchase
the number of shares set forth in paragraph 1 of Schedule I hereto of Class A
Voting Common Stock, par value $1.00 per share, of SSH (the "SSH Common Stock")
pursuant to and subject to the terms and conditions set forth in the Stock
Option Agreement between the Grantee and SSH (the "Option Agreement") described
in paragraph 2 of Schedule 1 hereto; and
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
_________ __, 1996 (the "Merger Agreement"), by and among Triton, Triton
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Triton (the "Merger Sub"), and SSH, Merger Sub will be merged with and into SSH,
with SSH as the surviving entity (the "Merger") and SSH will become a
wholly-owned subsidiary of Triton; and
WHEREAS, pursuant to Section [1.06(c)] of the Merger Agreement, SSH and
Triton have agreed to enter into this Agreement in order to amend the Option
Agreement in the manner set forth in such Section [1.06(c)]; and
NOW THEREFORE, in consideration of the mutual covenant and conditions
herein contained, the parties hereto do hereby agree as follows:
1. The Option Agreement is hereby amended as follows:
(a) The Option Agreement shall be assumed by Triton, all of the
obligations and liabilities of SSH in connection with the Option Agreement
shall be assumed by Triton, and Triton shall be substituted for SSH in all
respects pursuant to the Option Agreement.
(b) The Option shall be exercisable only for shares of Parent Common
Stock, and no shares of SSH Common Stock shall be issuable pursuant to
the Option.
<PAGE>
(c) The number of shares of Parent Common Stock subject to the
Option shall be the number set forth in paragraph 3 of Schedule I hereto
(such number to be determined by multiplying (i) the number of shares of
SSH Common Stock subject to the Option as set forth in paragraph 1 of
Schedule I hereto by (ii) the Common Stock Conversion Ratio).
(d) The exercise price per share of the shares of Parent Common
Stock subject to the Option shall be the exercise price per share set
forth in paragraph 4 of Schedule I hereto (such exercise price per share
to be determined by dividing (i) the exercise price per share of the SSH
Common Stock under the Option Agreement by (ii) the Common Stock
Conversion Ratio).
2. Each of the parties hereto expressly acknowledges and agrees that,
other than as specifically provided by in Section 1 of this Agreement, all of
the terms and conditions set forth in the Option Agreement shall remain
unchanged and in full force and effect, including without limitation the type of
Option granted, the date of grant of the Option, and the terms and conditions
regarding exercisability, method of exercise, adjustments for recapitalization,
vesting, forfeiture and termination of the Option.
3. This Agreement may not be amended, changed, supplemented, waived or
otherwise modified or terminated except by an instrument in writing, signed by
each of the parties hereto.
4. This Agreement shall be binding upon and shall inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns, including without limitation, in the case of any corporate party hereto
any corporate successor by merger or otherwise. Except with the prior written
consent of the other parties hereto, no party may assign any of its rights or
obligations hereunder.
5. This Agreement constitutes the entire agreement and understanding among
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
6. This Agreement is not intended to be for the benefit of and shall not
be enforceable by any person or entity who or which is not a party hereto.
7. This Agreement and all disputes hereunder shall be governed by and
construed and enforced in accordance with the law of the State of Delaware.
8. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
each signed by less than all, but together signed
<PAGE>
by all, the parties hereto. Execution of this Agreement with signatures
transmitted via facsimile shall be considered valid.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
TRITON GROUP, LTD.
By:______________________________
Name:
Title:
SECURITY SYSTEMS HOLDINGS, INC.
By:______________________________
Name:
Title:
_________________________________
[Name]
The "Grantee"
<PAGE>
SCHEDULE I
1. Number of Shares of SSH Common Stock
exercisable under the Option: ____________
2. Stock Option Agreement, dated as of ______ __, 199_, between SSH and the
Grantee.
3. Number of Shares of Parent Common
Stock exercisable under the Amended Option: _____________
4. Amended Option Price: $____________
<PAGE>
Exihibit 10.28
FORM OF AFFILIATE AGREEMENT
Triton Group Ltd.
550 West "C" Street, Suite 1880
San Diego, California 92101
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter
it may be deemed to be an "affiliate" of Security Systems Holdings, Inc., a
Delaware corporation ("SSH"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of _________ __, 1996 (the "Merger
Agreement"), among Triton Group Ltd., a Delaware corporation ("Triton"), Triton
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Triton ("Merger Sub"), and SSH, Merger Sub will be merged with and into SSH and
SSH will become a wholly-owned subsidiary of Triton (the "Merger").
Pursuant to the Merger Agreement, as a result of the Merger, the
undersigned will receive shares of Common Stock, par value $.0001 per share, of
Triton (the "Merger Shares"), in exchange for shares owned by the undersigned of
(i) SSH Common Stock, or (ii) SSH Preferred Stock.
1. The undersigned shall not make any sale, transfer or other
disposition of the Merger Shares in violation of the Act or the Rules and
Regulations.
2. The undersigned has carefully read this letter and the Merger
Agreement and has discussed the requirements of such documents and other
applicable limitations upon its ability to sell, transfer or otherwise dispose
of the Merger Shares to the extent it felt necessary, with its counsel.
3. The undersigned has been advised that the issuance of the Merger
Shares in connection with the Merger has been registered with the Commission
under the Act on a Registration Statement on Form S-4. However, the undersigned
has also been advised that, because at the time the Merger was submitted for a
vote of the stockholders of SSH, the undersigned may be deemed to have been an
affiliate of SSH and the distribution by it of the
<PAGE>
Merger Shares has not been registered under the Act, the undersigned may not
sell, transfer or otherwise dispose of the Merger Shares issued to it in
connection with the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other disposition
is made in conformity with Rule 145 promulgated by the Commission under the Act,
or (iii) in the opinion of counsel reasonably acceptable to Triton, or pursuant
to a "no action" letter obtained by the undersigned from the staff of the
Commission, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
4. The undersigned understands that, except as may be provided in
the Registration Rights Agreement with Triton, if and when executed, Triton is
under no obligation to register the sale, transfer or other disposition of the
Merger Shares by the undersigned or on order of the undersigned to make
compliance with an exemption from such registration available.
5. The undersigned also understands that stop transfer instructions
will be given to Triton's transfer agent with respect to the Merger Shares and
that there will be placed on the Certificates for the Merger Shares issued to
the undersigned, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
_________ __, 1997 BETWEEN THE REGISTERED HOLDER HEREOF AND TRITON
GROUP LTD., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF TRITON GROUP LTD.
6. The undersigned also understands that unless the transfer by the
undersigned of the Merger Shares has been registered under the Act or is a sale
made in conformity with the provisions of Rule 145, Triton reserves the right to
put the following legend on the certificates issued to any transferee of the
undersigned:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
-2-
<PAGE>
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraph 5 above and
this paragraph 6 above shall be removed by delivery of substitute certificates
without such legend if such legend is not required for purposes of the Act or
this letter. It is understood and agreed that such legends and the stop orders
referred to above will be removed if (i) two years shall have elapsed from the
date the undersigned acquired the Merger Shares in connection with the Merger
and the provisions of Rule 145(d)(2) are then available to the undersigned, (ii)
three years shall have elapsed from the date the undersigned acquired the Merger
Shares in connection with the Merger and the provisions of Rule 145(d)(3) are
then available to the undersigned, or (iii) Triton has received either an
opinion of counsel, which opinion of counsel shall be reasonably satisfactory to
Triton, or a "no action" letter obtained by the undersigned from the staff of
the Commission, to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
7. The undersigned agrees that neither Triton nor any of its
affiliates makes or has made any representation or warranty, express or implied,
to the undersigned or to any representative or affiliate of the undersigned with
respect to any financial projections heretofore or hereafter delivered to or
made available to the undersigned or its counsel, accountants, advisors,
representatives or affiliates, and agrees that it has not and will not rely on
such financial projections in connection with its evaluation of Triton, the
Merger Shares or the Merger.
Execution of this letter should not be considered an admission on
the part of the undersigned that the undersigned is an "affiliate"of Triton as
described in the first paragraph of this letter or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Very truly yours,
_____________________________________
Print Name of Shareholder
By:__________________________________
Name:
Title:
-3-
<PAGE>
Accepted this ___________ day of
________________________, 1997 by
TRITON GROUP LTD.
By:______________________________
Name:
Title:
-4-
<PAGE>
LOCK-UP AGREEMENT
LOCK-UP AGREEMENT, dated as of December 23, 1996 (this "Agreement"), by
and among Security Systems Holdings, Inc., a Delaware corporation ("SSH"),
Triton Group Ltd., a Delaware corporation ("Triton"), and each of the other
persons set forth on the signature pages hereto (collectively, the "Lock-up
Stockholders").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Triton Group Ltd., a Delaware
corporation ("Triton"), Triton Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Triton ("Merger Sub"), and SSH are entering into
an Agreement and Plan of Merger (the "Merger Agreement", capitalized terms
used without definition herein having the meanings ascribed thereto in the
Merger Agreement);
WHEREAS, the Lock-up Stockholders are the beneficial and record owners of
the number of shares of Company Common Stock and Company Preferred Stock set
forth in Schedule I hereto (collectively, the "Shares"); and
WHEREAS, as a condition to its entering into the Merger Agreement, Triton
has required that SSH and the Lock-up Stockholders agree, and SSH and the
Lock-up Stockholders have agreed, to enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Covenants of Lock-up Stockholders.
(a) During the term of this Agreement, the Lock-up Stockholders agree that
they shall not:
(i) sell, transfer, pledge, assign or otherwise dispose of, or enter
into any contract, option or other agreement with respect to the transfer,
pledge, assignment or other disposition of, any Shares;
(ii) enter into a voting agreement with respect to any Shares;
(iii) solicit or initiate any Acquisition Proposal, participate in
any negotiations with respect to any Acquisition Proposal, furnish to any
other person any confidential
<PAGE>
information with respect to SSH or its business, or otherwise cooperate
in any way with or assist or participate in, or facilitate any
Acquisition Proposal. The Lock-up Stockholders shall promptly notify SSH
if any such Acquisition Proposal is made to any Lock-up Stockholder; or
(iv) otherwise take any action inconsistent with the Merger
Agreement or that would prevent any condition precedent to the Merger from
being satisfied at or prior to the Effective Time of the Merger.
(b) The Lock-up Stockholders hereby agree that at all times prior to
the Effective Time, they shall continue to own and exercise voting rights
with respect to the Shares.
(c) The Lock-up Stockholders hereby agree that at any meeting of the
stockholders of SSH, however called, and in any action by written consent of the
stockholders of SSH, they shall (i) vote the Shares in favor of the Merger and
the Merger Agreement; and (ii) vote the Shares against any action or agreement
which would result in a breach of any covenant, representation or warranty of
SSH under the Merger Agreement; provided, however, that no Lock-up Stockholder
shall be required to take the actions set forth above in clause (i) or (ii) of
this Section 1(c) in the event of any amendment to the Merger Agreement that
materially and adversely affects the interests of such Lock-up Stockholder.
(d) As soon as practicable after the execution of this Agreement, the
Lock-up Stockholders shall cause the following legend to be placed on the
certificates representing the Shares:
"The securities represented by this certificate are subject to a Lock-up
Agreement, dated as of December 23, 1996, with Security Systems Holdings,
Inc. which imposes, among other things, certain restrictions on the
transfer of such shares."
(e) To the extent inconsistent with the foregoing provisions of this
Section 1, each of the Lock-up Stockholders hereby revokes any and all previous
proxies or consents with respect to such Lock-up Stockholder's Shares or any
other voting securities of SSH.
2. Securities Act Covenants and Representations. Each of the Lock-up
Stockholders hereby agrees and represents to SSH as follows:
(a) Such Lock-up Stockholder has been advised that the offering, sale and
delivery of the shares of Parent Common Stock pursuant to the Merger will be
registered under the Securities Act on a Registration Statement on Form S-4.
Such Lock-up Stockholder has also been advised, however, that to the extent
such Lock-up Stockholder is an "affiliate" of SSH for purposes of the
Securities Act at the time the Merger Agreement is submitted for a vote of the
stockholders of SSH, any public offering or sale by such Lock-up Stockholders
of any shares of Parent Common Stock received by such Lock-up Stockholders in
the Merger will, under current law, require
-2-
<PAGE>
either (i) the further registration under the Securities Act of any shares of
Parent Common Stock to be sold by such Lock-up Stockholder, (ii) compliance
with Rule 145 promulgated by the SEC under the Securities Act or (iii) the
availability of another exemption from such registration under the Securities
Act.
(b) Such Lock-up Stockholder understands that stop transfer instructions
will be given to Triton's transfer agent with respect to shares of Parent Common
Stock and that a legend will be placed on the certificates for the shares of
Parent Common Stock issued to such Lock-up Stockholder, or any substitutions
therefor, to the extent such Lock-up Stockholder is considered an "affiliate" of
SSH for purposes of the Securities Act at the time the Merger Agreement is
submitted for a vote of the stockholders of SSH.
3. Registration Rights; Affiliate Agreements. At the Effective Time, the
Lock-up Stockholders set forth on Schedule II hereto shall enter into a
Registration Rights Agreement with Triton substantially in the form attached to
the Merger Agreement as Exhibit E. In addition, at or prior to the Effective
Time, each Lock-up Stockholder shall execute and deliver to Triton an Affiliate
Agreement substantially in the form attached to the Merger Agreement as Exhibit
C.
4. Additional Purchases. Each Lock-up Stockholder agrees that any New
Shares (as defined below) acquired or purchased by such Lock-up Stockholder
shall be subject to the terms of this Agreement. For purposes of this Agreement,
the term "New Shares" shall mean any shares of Company Common Stock or Company
Preferred Stock that each Lock-up Stockholder purchases, otherwise acquires
beneficial ownership of or acquires the right to vote or share in the voting of,
after the execution of this Agreement, including, without limitation, through
the exercise of any options, warrants or other rights to purchase Company Common
Stock or Company Preferred Stock.
5. Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of their obligations under this Agreement.
6. Representations and Warranties of SSH. SSH represents and warrants to
the Lock-up Stockholders as follows: Each of this Agreement and the Merger
Agreement (i) has been approved by the Board of Directors of SSH, (ii) has been
duly executed and delivered by a duly authorized officer of SSH and (iii)
constitutes a valid and binding agreement of SSH, enforceable against SSH in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application which may affect the enforcement of creditors rights generally and
by general equitable principles.
7. Representations and Warranties of the Lock-up Stockholders. Each
Lock-up Stockholder represents and warrants to SSH as follows: This Agreement
has been duly authorized, executed and delivered by such Lock-up Stockholder and
constitutes the valid and binding agreement of such Lock-up Stockholder,
enforceable against such Lock-up Stockholder
-3-
<PAGE>
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application which may affect the enforcement of creditors' rights
generally and by general equitable principles. Such Lock-up Stockholder is the
record and beneficial owner of the Shares set forth opposite its respective
name on Schedule I to this Agreement, and at the Closing shall be the record
and beneficial owner of the Shares set forth opposite its respective name on
Schedule I to this Agreement, in each case free and clear of all claims, liens,
pledges, security interests, restrictions or encumbrances of any nature
whatsoever, with no restrictions on voting rights and other incidents of record
and beneficial ownership incident thereto. Neither the execution or delivery of
this Agreement nor the consummation by such Lock-up Stockholder of the
transactions contemplated hereby will violate (a) the certificate of
incorporation, by-laws or partnership agreement of any such Lock-up
Stockholder, or (b) any provisions of any law, rule or regulation applicable to
such Lock-up Stockholder or any contract or agreement to which such Lock-up
Stockholder is a party. Neither such Lock-up Stockholder nor any of its
affiliates is, or at any time within the preceding 12 months has been, directly
or indirectly, an affiliate of Triton or the beneficial owner of 5% or more of
the outstanding shares of Parent Common Stock.
8. Effectiveness and Termination. It is a condition precedent to the
effectiveness of this Agreement that the Merger Agreement shall have been
executed and delivered and be in full force and effect. This Agreement shall
automatically terminate and be of no further force or effect upon the earlier to
occur of (i) the termination of the Merger Agreement in accordance with its
terms or (ii) the Effective Time; provided, however, that, notwithstanding the
non-occurrence of the events set forth in clause (i) or (ii) above, this
Agreement shall terminate no later than April 15, 1997, unless the parties to
the Merger Agreement shall not have terminated the Merger Agreement, in which
event this Agreement shall terminate no later than April 30, 1997. Upon such
termination of this Agreement, except for any rights any party may have in
respect of any breach by any other party of its obligations or (subject to the
following proviso) representations or warranties hereunder, none of the parties
hereto shall have any further obligation or liability hereunder; provided,
however, that the representations and warranties hereunder shall survive for a
period of six months following the termination of this Agreement (and any party
breaching any such representation and warranty shall be liable to the non-
breaching party for any losses or damages arising out of such breach) if (x) the
Merger Agreement is terminated following, and in reliance upon, any breach of
any such representation and warranty hereunder, and (y) notice of such breach is
delivered to the breaching party within such six month period.
9. Miscellaneous.
(a) Notices, Etc. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered personally
(by courier service or otherwise), when delivered by telecopy and confirmed by
return telecopy, or seven days after being mailed by first-class mail, postage
prepaid in each case to the applicable addresses set forth below:
-4-
<PAGE>
If to SSH, to:
Security Systems Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
Telecopier No.: (203) 796-9636
Telephone No.: (203) 795-9000
Attention: Chairman
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Telecopier No.: (212) 309-6273
Telephone No.: (212) 309-6000
Attention: David Blea, Esq.
If to Triton, to:
Triton Group Ltd.
550 West "C" Street, Suite 1880
San Diego, California 92101
Telecopier No.: (619) 231-9170
Telephone No.: (619) 231-1818
Attention: President
with a copy to:
-5-
<PAGE>
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Telecopier No.: (619) 696-7419
Telephone No.: (619) 236-1234
Attention: Scott N. Wolfe, Esq.
If to Canaan Venture Limited Partnership or Canaan Venture Offshore
Limited Partnership, CV, to:
Canaan Partners
105 Rowayton Avenue
Rowayton, Connecticut 06853
Telecopier: (203) 854-9117
Telephone: (203) 855-0400
Attention: Stephen L. Green
If to Triumph-Connecticut Limited Partnership, to:
Triumph-Connecticut Limited Partnership
Sixty State Street
21st Floor
Boston, Massachusetts 02109
Telecopier: (617) 557-6022
Telephone: (617) 557-6000
Attention: Thomas W. Janes
If to Coast Mezzanine Investments, Ltd.:
c/o HWR Services, Ltd.
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola, B.V.I.
with copies to:
Brobeck Phleger & Harrison LLP Coast Investment & Development Co.
1633 Broadway P.O. Box 26755 Safat
New York, New York 10019 13128 Safat
Telecopier: (212) 586-7878 Kuwait
Telephone: (212) 581-1600 Attention: Mr. Khaled Ait Khalifa
Attention: Robert P. Wessely
-6-
<PAGE>
If to Alis & Co., Thorne Barnes Donnelley 1988 Trust or Northern Trust
Company, as trustee of the Trust designated by the name of Thorne Barnes
Donnelley under the will of Thorne Donnelley, deceased, account #01-31219:
c/o Simpson Estates
30 North LaSalle Street
Suite 1232
Chicago, Illinois 60602-2504
Attention: Patrick Herbert, III
If to Davis Capital, LLC, to:
Davis Capital, LLC
135 East Putnam Avenue
Greenwich, Connecticut 06830
Telecopier: (203) 861-0298
Telephone: (203) 861-0198
Attention: Ronald V. Davis
If to BF Partners, Stuart L. Bell or Stuart L. Bell, as Custodian F.B.O.
Curren E. Bell, Kylie L. Bell and Ian H. Bell, U.G.M.A. Connecticut:
c/o Innovative
1200 High Ridge Road
Stamford, Connecticut 06905
Telecopier: (203) 321-1044
Telephone: (203) 321-1050
Attention: Stuart L. Bell
If to Wiley T. Buchanan:
c/o Chetwood Investments, Inc.
1700 Lincoln Street
Suite 3650
Denver, Colorado 80203
Telecopier: (303) 863-1076
Telephone: (303) 863-1090
If to Russell R. MacDonnell, David Heidecorn or Gregory J. Westhoff:
c/o Security Systems Holdings, Inc.
125 Frontage Road
Orange, Connecticut 06477
-7-
<PAGE>
Telecopier No.: (203) 796-9636
Telephone No.: (203) 795-9000
or to such other address as such party shall have designated by notice so given
to each other party.
(b) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except by an instrument
in writing, signed by each of the parties hereto.
(c) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, including without limitation, in the case of
any corporate party hereto any corporate successor by merger or otherwise.
Except with the prior written consent of the other parties hereto, no party may
assign any of its rights or obligations hereunder.
(d) Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement. The parties hereto acknowledge and agree that SSH and Triton
have executed the Merger Agreement in reliance upon the representations,
warranties and agreements of the Lock-up Stockholders set forth in this
Agreement.
(e) Severability. If any term of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable
to any extent, the remainder of this Agreement and the application of such
term to the other parties or circumstances shall not be affected thereby and
shall be enforced to the greatest extent permitted by applicable law,
provided that in such event the parties shall negotiate in good faith in an
attempt to agree to another provision (in lieu of the term or application
held to be invalid or unenforceable) that will be valid and enforceable and
will carry out the parties' intentions hereunder.
(f) Specific Performance. The parties acknowledge that money damages
are not an adequate remedy for violations of this Agreement and that any
party may, in its sole discretion, apply to a court of competent jurisdiction
for specific performance or injunctive or such other relief as such court may
deem just and proper in order to enforce this Agreement or prevent any
violation hereof and, to the extent permitted by applicable law, each party
waives any objection to the imposition of such relief.
(g) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not
-8-
<PAGE>
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
(h) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(i) No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of and shall not be enforceable by any person or entity who or which
is not a party hereto.
(j) Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the Court of Chancery in the State of Delaware in any action,
suit or proceeding arising in connection with this Agreement, and agrees that
any such action, suit or proceeding shall be brought only in such court (and
waives any objection based on forum non conveniens or any other objection to
venue therein); provided, however, that such consent to jurisdiction is solely
for the purpose referred to in this paragraph (j) and shall not be deemed to be
a general submission to the jurisdiction of said Court or in the State of
Delaware other than for such purposes. Each party hereto hereby waives any right
to a trial by jury in connection with any such action, suit or proceeding.
(k) Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the law of the State
of Delaware.
(l) Name, Captions. The name assigned to this Agreement and the section
captions used herein are for convenience of reference only and shall not affect
the interpretation or construction hereof.
(m) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
(n) Expenses. Each of the parties hereto shall bear its own expenses
incurred in connection with this Agreement and the transactions contemplated
hereby, except that in the event of a dispute concerning the terms or
enforcement of this Agreement, the prevailing party in any such dispute shall be
entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SECURITY SYSTEMS HOLDINGS, INC.
By: /s/ Russell R. MacDonnell
------------------------------------
Name: Russell R. MacDonnell
Title: Chairman/President
TRITON GROUP LTD.
By: /s/ Michael M. Earley
------------------------------------
Name: Michael M. Earley
Title: President & CEO
CANAAN VENTURE LIMITED
PARTNERSHIP
By: /s/ Robert J. Migliorino
------------------------------------
Name: Robert J. Migliorino
Title: General Partner
CANAAN VENTURE OFFSHORE LIMITED
PARTNERSHIP, CV
By: /s/ Robert J. Migliorino
------------------------------------
Name: Robert J. Migliorino
Title: General Partner
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<PAGE>
TRIUMPH-CONNECTICUT LIMITED
PARTNERSHIP
By: /s/ Thomas W. Janes
------------------------------------
Name: Thomas W. Janes
Title: Managing Director
COAST MEZZANINE INVESTMENTS, LTD.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
ALIS & CO.
By: /s/ Patrick J. Herbert, III
------------------------------------
Name: Partrick J. Herbert, III
Title: General Partner
THORNE BARNES DONNELLEY 1994 TRUST
By: /s/ Patrick J. Herbert, III
------------------------------------
Name: Patrick J. Herbert, III
Title: Trustee
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<PAGE>
NORTHERN TRUST COMPANY, as trustee of the
Trust designated by the name of Thorne
Barnes Donnelley under the will of Thorne
Donnelley, deceased, account #01-31219
By: /s/ William E. McClintic
------------------------------------
Name: William E. McClintic
Title: Vice President
DAVIS CAPITAL, LLC
By: /s/ Wiley T. Buchanan, III,
Attorney-in-fact for Ronald Davis
------------------------------------
Name:
Title:
BF PARTNERS
By: /s/ Stuart L. Bell
-------------------------------------
Name: Stuart L. Bell
Title: General Partner
/s/ Stuart L. Bell
----------------------------------------
Stuart L. Bell
/s/ Stuart L. Bell
----------------------------------------
Stuart L. Bell, as Custodian F.B.O.
Curren E. Bell, Kylie L. Bell and
Ian H. Bell, U.G.M.A. Connecticut
/s/ Wiley T. Buchanan, III
----------------------------------------
Wiley T. Buchanan, III
919 Vine Street
Denver, CO 80206
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<PAGE>
/s/ Russell R. MacDonnell
-----------------------------------------
Russell R. MacDonnell
5 Molly Lane
Darien, CT 06020
/s/ David Heidecorn
-----------------------------------------
David Heidecorn
4 Gifford Lake Drive
Armonk, NY 10504
/s/ Gregory J. Westhoff
-----------------------------------------
Gregory J. Westhoff
-13-
<PAGE>
SCHEDULE I
OWNERSHIP OF THE SHARES
<TABLE>
<CAPTION>
Company Company
Name of Stockholder Preferred Stock Common Stock
------------------- --------------- ------------
<S> <C> <C>
Canaan Venture Offshore Limited 28,200 28,200
Partnership, CV
Canaan Venture Limited Partnership 11,800 11,800
Coast Mezzanine Investments, Ltd. 0 33,748 (Non-voting)
Triumph Capital Group, Inc. 30,750 64,498
Alis & Co. 12,250 23,196
Thorne Donnelley Trust 1988 2,500 2,500
Thorne Donnelley Trust 4,000 6,820
c/o Northern Trust
Wiley T. Buchanan 3,500 3,500
Davis Capital, LLC 3,000 3,000
Stuart L. Bell, as Custodian for the benefit 2,500 4,159
of Curren E. Bell, Kylie L. Bell, Ian H.
Bell; BF Partners
Russell R. MacDonnell 500 19,750
David Heidecorn 750 6,500
Gregory J. Westhoff 0 6,290
TOTAL: 99,750 213,921
</TABLE>
-14-
<PAGE>
SCHEDULE II
LOCK-UP STOCKHOLDERS TO SIGN
THE REGISTRATION RIGHTS AGREEMENT
1. Canaan Venture Limited Partnership.
2. Canaan Venture Offshore Limited Partnership, CV
3. Triumph-Connecticut Limited Partnership
4. Alis & Co.
5. Thorne Barnes Donnelley 1988 Trust.
-15-
<PAGE>
Exhibit A
REGISTRATION RIGHTS AGREEMENT
-16-
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THIS SECURITY
MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS
OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER OR
UNDER APPLICABLE STATE SECURITIES LAWS.
SECURITY SYSTEMS HOLDINGS, INC.
Senior Subordinated Bridge Note Due June 1997
February 10, 1997 $1,500,000
New York, New York
FOR VALUE RECEIVED, SECURITY SYSTEMS HOLDINGS, INC., a Delaware
corporation (the "Company"), hereby promises to pay to Triton Group Ltd., a
Delaware corporation ("Triton"), or its registered successors or permitted
assigns (the "Registered Holder"), the lesser of (i) One Million Five Hundred
Thousand Dollars ($1,500,000) or (ii) the principal amount outstanding hereunder
from time to time on June 30, 1997 (the "Maturity Date"), subject to Section 9
and otherwise in accordance with the provisions of this Note. Borrowings
hereunder by the Company in an aggregate amount not exceeding $1,500,000 at any
time shall be made on the date hereof and thereafter by delivery to the
Registered Holder of written notice not less than three Business Days prior to
the date of such borrowing (which shall be a date not later than April 30, 1997)
specifying the amount of such borrowing, the date thereof and the wiring
instructions therefor. Borrowings hereunder shall not be permitted during the
existence of a default hereunder or an Event of Default or an Event of Default
under the Credit Agreement (as hereinafter defined). Any amount outstanding
hereunder and repaid may not be reborrowed. All borrowings and repayments
hereunder shall be evidenced by notations made on the payment grid attached
hereto as Annex I, and the notations thereon shall be prima facie evidence of
the outstanding principal amount of this Note from time to time.
1. Interest. Interest will accrue on the unpaid principal amount of, and any due
and unpaid interest on, this Note from the date hereof at a rate of 11% per
annum. Subject to Section 9, the
<PAGE>
Company will pay interest in cash in arrears on the first Business Day of each
month beginning April 1, 1997, on each prepayment date and on the Maturity
Date (as to the amount prepaid or repaid) and thereafter on demand. Interest
will be computed on the basis of a 365-day year for the actual number of days
elapsed. Upon the occurrence and during the continuance of an Event of Default,
interest will accrue on the unpaid principal amount of this Note at 12% per
annum.
2. Method of Payment. On each relevant payment date, the Company
will pay in cash the principal of and/or interest on this Note to the Registered
Holder of record in money of the United States that at the time of payment is
legal tender for payment of public and private debts. The Company shall pay
principal and interest on this Note by wire transfer of immediately available
funds to the account specified by the Registered Holder in a written notice to
the Company delivered at least two Business Days prior to such payment date. All
payments shall be applied first, to all accrued and unpaid interest herein, and
second, to principal.
3. Prepayment. Subject to Section 9, at its option, the Company may,
from time to time, prepay without penalty all or any portion of the principal
amount of this Note in cash. Written notice of prepayment under this Section 3
shall be given at least 5 Business Days before the prepayment date set forth in
such notice to the Registered Holder at the address provided in or pursuant to
Section 15. Any such prepayment shall be in an amount of at least $50,000 and in
integrals of $1,000, or such lesser amount as equals the then outstanding
principal amount of this Note being prepaid, and shall be accompanied by the
cash payment of all accrued and unpaid interest on the portion of the principal
then being prepaid.
Subject to Section 9, once due notice of prepayment is given, the principal
amount of this Note (or applicable portion thereof) shall become due and payable
on the optional prepayment date.
4. Repayment. Subject to Section 9, the Company will repay this Note
in full, in cash on the Maturity Date at 100% of the outstanding principal
amount of this Note plus accrued but unpaid interest thereon to such date;
provided, however, that subject to Section 9, in the event that the closing of
the merger (the "Merger") of the Company with Triton Acquisition Corp., a
wholly-owned subsidiary of Triton, as contemplated by that certain Agreement and
Plan of Merger (the "Merger Agreement") dated December 23, 1996, as amended from
time to time, occurs (the date of such occurrence being the "Merger Closing
Date") on or prior to the Maturity Date, the outstanding principal amount of
this Note, together with all accrued interest hereon shall be payable in cash as
provided for herein.
5. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Registered Holder as follows:
(a) Organization of the Company; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company is duly qualified, licensed or admitted to
do business and is in good standing in those jurisdictions in which the
ownership, use or leasing of its assets and properties, or the conduct or nature
of its business, makes such qualification, licensing or admission necessary.
-2-
<PAGE>
(b) Power and Authority. The Company has the full corporate power
and authority to issue this Note and to perform each of its obligations
hereunder and consummate the transactions contemplated hereby. The issuance by
the Company of this Note and the performance by the Company of its obligations
hereunder, have been duly and validly authorized by all necessary action of the
Board of Directors of the Company, which action is the only corporate action
necessary to authorize the issuance of this Note, and the performance by the
Company of its obligations hereunder. This Note has been duly and validly issued
by the Company and constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
(c) No Conflicts. The issuance of this Note and the exercise by the
Registered Holder of its rights hereunder and the performance by the Company of
each of its obligations hereunder do not and will not:
(i) conflict with or result in a violation or breach of any of
the terms, conditions or provisions of the certificate of incorporation or
by-laws of the Company;
(ii)conflict with or result in a violation or breach of any
term or provision of any law or order applicable to the Company or any of its
assets and properties; or
(iii)(1) conflict with or result in a violation or breach of,
(2) constitute (with or without notice or lapse of time or both) a default
under, (3) require the Company to obtain any consent, approval or action of,
make any filing with or give any notice to any Person as a result or under the
terms of, (4) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (5) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under, or (6) result in the
creation or imposition of any Lien upon the Company or any of its assets and
properties under, any contract or license to which the Company is a party or by
which any of its assets and properties is bound.
(d) Governmental Approvals and Filings. No consent, approval or
action of, filing with or notice to any governmental or regulatory authority on
the part of the Company is required in connection with the issuance of this Note
and the performance of each of its obligations hereunder.
(e) Exemption from Registration; Restrictions on Offer and Sale of
Same or Similar Securities. Assuming the representations and warranties of the
Registered Holder set forth in Section 6 hereof are true and correct in all
material respects, the offer and sale to the Registered Holder of this Note is
exempt from the registration requirements of the Securities Act. Neither the
Company nor any Person authorized to act on its behalf has, in connection with
the offer and sale of this Note, engaged in (A) any form of general solicitation
or general advertising (as those terms are used within the meaning of Rule
501(c) under the Securities Act, (B) any action involving a public offering
within the meaning of Section 4(2) of the Securities Act, or (c) any action that
would require the registration under the Securities Act of the offering and
sale of
-3-
<PAGE>
this Note, or that would violate applicable state securities or "blue sky"
laws. The Company has not made, directly or indirectly, any offer or sale of
this Note or of securities of the same or a similar class as this Note if as a
result thereof this Note could fail to be entitled to exemption from the
registration requirements of the Securities Act. As used herein, the terms
"offer" and "sale" have the meanings specified in Section 2(3) of the
Securities Act.
6. Representations and Warranties of the Registered Holder. The
Registered Holder hereby represents and warrants to the Company as follows:
(a) Purchase for Investment. This Note will be acquired by the
Registered Holder for its own account for the purpose of investment and not with
a view to the resale or distribution of all or any part of this Note in
violation of the Securities Act, it being understood that the right to dispose
of this Note, shall be entirely within the discretion of the Registered Holder.
The Registered Holder represents and warrants that it is an "accredited
investor" as such term is defined in Rule 501 of Regulation D of the Securities
Act.
The Registered Holder understands that this Note has not been registered under
the Securities Act in reliance on an exemption therefrom under Section 4(2) of
the Securities Act.
7. Affirmative Covenants of the Company. The Company covenants and
agrees with the Registered Holder that so long as this Note is outstanding, the
Company will:
(a) Reporting Requirements. Furnish to the Registered Holder such
regularly prepared financial statements and other books, records and reports of
the Company and the Subsidiaries as the Registered Holder may from time to time
reasonably request.
(b) Inspection. Permit the Registered Holder to inspect any of the
properties, corporate books and financial records of the Company and the
Subsidiaries, to discuss their respective affairs and finances with the
responsible officers of the Company and the Subsidiaries and to make extracts
from the copies of such books and records, all at such time as the Registered
Holder may reasonably request; provided, that the Company may require the
Registered Holder to execute a Confidentiality/Non-Disclosure Agreement in form
and substance satisfactory to the Company.
(c) Corporate Existence; Approvals. Except as contemplated under the
Merger Agreement, cause to be done all things necessary to preserve and keep in
full force and effect the corporate existence of each of the Company and the
Subsidiaries and all necessary governmental approvals and licenses and comply
with all laws applicable to the Company or the Subsidiaries and comply with all
agreements to which the Company or any of the Subsidiaries is a party, the
violation of which could have a material adverse effect on the business or
financial condition of the Company or the Subsidiaries.
(d) Taxes. Cause to be paid and discharged all obligations when due
and all Taxes imposed upon the Company or the Subsidiaries or upon any property,
real, personal or
-4-
<PAGE>
mixed, belonging to the Company or the Subsidiaries, or upon any part thereof,
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a material Lien upon such
property or any part thereof; provided, however, that neither the Company nor
the Subsidiaries shall be required to cause to be paid and discharged any such
obligation, Tax or claim so long as the validity thereof shall be contested in
good faith by appropriate proceedings and the Company or the Subsidiaries, as
the case may be, shall set aside on its books adequate reserves, in accordance
with generally accepted accounting principles, with respect to such obligation,
Tax or claim so contested.
(e) Insurance. Keep adequately insured by duly licensed insurers all
material buildings, inventory and equipment of the Company and the Subsidiaries,
and also keep the Company or the Subsidiaries, as the case may be, adequately
insured at all times with responsible insurance carriers against liability on
account of damage to persons or property and under all applicable workers'
compensation laws. All such insurance shall be in such amounts and with such
coverage as the Board of Directors determine is consistent with coverage usually
carried by corporations of a similar size engaged in the same or similar
business similarly situated and as is satisfactory to the Registered Holder.
(f) Notice of Events of Default. Promptly notify the Registered
Holder in writing of any Event of Default (as hereinafter defined), specifying
the nature and extent thereof and the action (if any) which is proposed to be
taken with respect thereto.
(g) Maintenance of Properties. Maintain and preserve all of the
material properties of the Company and the Subsidiaries necessary in the proper
conduct of its business in good working order and condition, ordinary wear and
tear excepted.
8. Negative Covenants. The Company covenants and agrees with the
Registered Holder that so long as this Note is outstanding, the Company shall
not, and shall not permit any of the Subsidiaries to, directly or indirectly:
(a) Indebtedness. Incur, create, permit to exist or assume directly
or indirectly any Indebtedness, other than Indebtedness in existence on the date
hereof or any extension thereof and other than as an endorser of negotiable
instruments for the payment of money deposited to the Company's bank account for
collection in the ordinary course of business.
(b) Liens, Etc. Mortgage, pledge, assign or otherwise encumber or
permit to be encumbered any of the Company's assets, whether now owned or
hereafter acquired, or acquire or agree to acquire any property or assets upon
conditional sale or other title retention agreement, except for Liens in
existence on the date hereof, Liens of the type permitted under Section
6.3(i)-(v) and (ix) of the Credit Agreement and Liens with respect to
Indebtedness permitted hereunder.
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(c) Change in Nature of Business. Except as contemplated by the
Merger Agreement, engage in any business other than the business currently
conducted by the Company and activities reasonably related thereto.
(d) Dividends, Etc. (i) Prior to June 30, 1997, and (ii) thereafter
upon the occurrence and during the continuation of a payment default under this
Note, declare or pay any cash or asset dividend on any of its shares or make any
other distribution or disposition of assets to stockholders in respect of its
shares (or otherwise), or make, or commit to make, any payment on account of the
purchase, redemption or other retirement of any of its shares or warrants or
options therefor.
(e) Transactions with Affiliates. Except as contemplated by the
Merger Agreement or as permitted under the Credit Agreement, directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, any Affiliate on terms less
favorable to the Company than the terms which would apply in a similar
transaction with a person who is not an Affiliate.
(f) Conflicting Agreements. After the date hereof, enter into any
agreements or arrangements restricting or adversely affecting the Company's
right and ability to meet its obligations to the Registered Holder hereunder or
under any of the Additional Documents.
(g) Sale. Except as contemplated by the Merger Agreement, effect a
Sale of the Company or any of its respective Subsidiaries or enter into any
agreement, arrangement or understanding to do the same.
9. Subordination.
(a) The Registered Holder agrees that this Note and all interest
accrued thereon and any other amounts owing hereunder,("Subordinated
Obligations") shall be Subordinate and Junior in Right of Payment to all
Superior Obligations (including any interest accruing on the Superior
Obligations, whether prior or subsequent to the commencement of bankruptcy,
insolvency or similar proceedings with respect to the Company), together with
any and all expenses incurred by the Senior Creditors (as defined below) in
collecting all or any of the Superior Obligations. As used herein, "Superior
Obligations" shall mean the obligations (including any replacement obligations)
of the Company under that certain Guarantee, dated as of September 29, 1994 (as
amended, supplemented, replaced, made subject to waiver, or otherwise modified
from time to time, the "Guarantee"), in respect of the Obligations (as defined
in the Guarantee), in favor of IBJ Schroder Bank & Trust Company, as agent (in
such capacity, the "Agent"), under that certain Amended and Restated Term Loan
and Acquisition Credit Agreement, dated as of September 29, 1994 (as amended,
supplemented, replaced or otherwise modified from time to time, the "Credit
Agreement"), among Alarmguard, Inc. (the "Borrower"), the lenders from time to
time parties thereto (the "Lenders") and the Agent, and all other obligations
and liabilities of the Company to the Lenders and the Agent (the Lenders and the
Agent, or any replacement lenders or agent collectively, the "Senior
Creditors"), whether direct or
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indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Guarantee, the Credit Agreement, the promissory notes from time to time issued
pursuant to the Credit Agreement, and any other documents made, delivered or
given in connection with any of the foregoing, whether on account of guaranteed
obligations, principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including, without limitation, all fees and disbursements of
counsel to the Senior Creditors) or otherwise, the principal amount of which
obligations under the Credit Agreement shall in no case exceed Thirty-three
million dollars ($33,000,000).
(b) As used in this Note, the term "Subordinate and Junior in Right
of Payment" shall mean that:
(i) Unless and until the Superior Obligations shall have been
terminated and the Obligations shall have been paid in full, the Registered
Holder will not take, demand or receive, by set-off, or in any other manner, any
payment or security for the whole or any part of the Subordinated Obligations,
provided, however, that the Company may pay interest and principal on the
Subordinated Obligations when and as, and only when and as, the same becomes due
and payable unless (A) a Payment Default (as hereinafter defined) has occurred
and such Payment Default is continuing, (B) the Company has received written
notice from the Agent that a Financial Covenant Default (as hereinafter defined)
has occurred and such Financial Covenant Default is continuing or (C) the
Company has received written notice from the Agent that an Other Default (as
hereinafter defined) has occurred and such Other Default is continuing. For
purposes of this Note (I) a "Payment Default" shall mean a default under Section
7(a) of the Credit Agreement, (II) a "Financial Covenant Default" shall mean a
default under Section 6.1 of the Credit Agreement and (III) an "Other Default"
shall mean any other Event of Default (as defined in the Credit Agreement) other
than Events of Default under Section 5.1 through 5.7 and Section 7(e) of the
Credit Agreement (Payment Default, Financial Covenant Default and Other Default
are hereinafter collectively referred to as "Credit Agreement Defaults"). Upon a
Payment Default, or upon a Financial Covenant Default or Other Default of which
the Company is aware, the Company shall give prompt written notice of such event
to the Registered Holder. Prohibitions on payments in connection with the
Subordinated Obligations are:
A. applicable only as long as a Credit Agreement Default is
continuing and such payments shall be made immediately following the cure of any
such Credit Agreement Default; and
B. subject to the limitation that if, within one hundred
eighty (180) days of the date that the Registered Holder received notice of a
Financial Covenant Default or an Other Default (such 180 day period being
hereinafter referred to as the "Standstill Period" and the date of notice of a
Financial Covenant Default or an Other Default being hereinafter referred to as
a "Notice Date") and the loans outstanding in connection with the Credit
Agreement have not been declared by the Agent to be immediately due and payable,
then upon the expiration of the Standstill Period the prohibition relating to
the existing Financial Covenant Default and/or Other Default shall lapse for the
following purposes: (I) the Company shall pay all interest that is then
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due and owing on the Subordinated Obligations (including all interest that
would have been paid but for the Credit Agreement Default) and (II) the
Registered Holder shall be entitled to exercise its remedies hereunder or
otherwise, subject to the condition that any funds collected in excess of the
interest payments due and owing shall be first used to pay off the outstanding
Superior Obligations. No facts or circumstances constituting a Credit Agreement
Default existing on a Notice Date shall be used as a basis for any subsequent
Credit Agreement Default for a period of time beginning on such Notice Date and
ending following the 179th consecutive day after the expiration of the
Standstill Period unless such prior Credit Agreement Default is cured prior to
such subsequent Credit Agreement Default.
(ii) In the event of any distribution, division or
application, partial or complete, voluntary or involuntary, by operation of law
or otherwise, of all or any part of any property of the Company to any creditor
or creditors of the Company by reason of any liquidation, dissolution or other
winding-up of the Company, or by reason of any sale, receivership, insolvency or
bankruptcy proceeding or assignment for the benefit of creditors or any
proceeding by or against the Company for any relief under any Bankruptcy Law,
then and in any such event, any payment or distribution of any kind or character
whether in cash, property or securities which, but for the subordination
provisions of this Note would otherwise be payable or deliverable upon or in
respect of the Subordinated Obligations, shall instead be paid over or delivered
to the Agent for application on account of the Superior Obligations, and the
Registered Holder shall not receive any such payment or distribution or any
benefit therefrom. The Agent shall be entitled to hold any amounts so paid over
or delivered to the Agent, whether or not any Superior Obligations are then due
and payable, until the Superior Obligations have been paid in full, and
thereafter all remaining amounts held by the Agent shall be payable by the Agent
to the Registered Holder to satisfy all unpaid amounts hereunder (unless
otherwise directed by a court of competent jurisdiction). The Company shall give
the Registered Holder prompt notice of all such actions taken by the Agent
pursuant to this paragraph and (unless the Agent is otherwise directed by a
court of competent jurisdiction) shall cause the Agent to make the payment to
the Registered Holder referred to in the immediately preceding sentence.
(c) The Registered Holder hereby irrevocably authorizes and
empowers (without imposing any obligation on) the Agent, under the
circumstances set forth in clause (ii) of paragraph (b) of this Section 9, to
demand, sue for, collect and receive every such payment or distribution
described therein and give acquittance therefor, to file claims and proofs of
claims in any statutory or non-statutory proceeding, to vote the full amount of
the Subordinated Obligations in its sole discretion in connection with any
resolution, arrangement, plan of reorganization, compromise, settlement or
extension and to take all such other action (including, without limitation, the
right to participate in any composition of creditors and the right to vote the
Subordinated Obligations at creditor's meetings for the election of trustees,
acceptances of plans and otherwise), in the name of the Agent or in the name of
the Registered Holder or otherwise as the Agent may deem necessary or advisable
for the enforcement of the subordination provisions of this Note. The
Registered Holder hereby agrees, under the circumstances set forth in clause
(ii) of paragraph (b) of this Section 9, duly and promptly to take such action
as may be reasonably requested at any time and from time to time by the Agent
to collect the Subordinated Obligations
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for the account of the Senior Creditors and to file appropriate proofs of claim
in respect thereof, to refrain from taking any action inconsistent with any
action taken or proposed to be taken by the Agent pursuant to the preceding
sentence, and to execute and deliver such powers of attorney, assignments or
other instruments as may be reasonably requested by the Agent in order to
enable it to enforce any and all claims upon or in respect of the Subordinated
Obligations and to collect and receive any and all payments or distributions
which may be payable or deliverable at any time upon or in respect of the
Subordinated Obligations. Notwithstanding the foregoing, in the event of any
bankruptcy proceeding under any Bankruptcy Law in which the Company is the
debtor, the rights of the Agent set forth herein to take action on the
Registered Holder's behalf or to prevent the Registered Holder from taking
action on its own behalf in such proceedings shall lapse if (I) a plan of
reorganization has not been filed within eighteen (18) months of the
commencement of such case or (II) a plan of reorganization has not been
confirmed within twenty-four (24) months of the commencement of such case. In
addition, the rights of the Agent set forth herein to take action on the
Registered Holder's behalf or to prevent the Registered Holder from taking
action on its own behalf shall only be applicable if at such time the
Registered Holder is prevented from receiving a payment in connection with a
Subordinated Obligation as a result of a Credit Agreement Default.
(d) Should any payment or distribution or security, or the proceeds
of any thereof, be collected or received by the Registered Holder in respect of
Subordinated Obligations (as a result of the application or enforcement of the
subordination provisions contained in the Debentures (as hereinafter defined) or
otherwise), and such collection or receipt is not expressly permitted hereunder
prior to the payment in full of the Superior Obligations (including, without
limitation, circumstances where, following payment to the Registered Holder of a
payment hereunder, it is thereafter determined that the Company received notice
of a Credit Agreement Default prior to the time when such payment was made), the
Registered Holder will, forthwith (or as soon thereafter as the Registered
Holder shall have notice that such payment should not have been collected or
received by the Registered Holder) deliver the same to the Agent, to the extent
practicable in precisely the form received (except for the endorsement or the
assignment of the holder thereof where necessary) and, until so delivered, the
same shall be held in trust by the Registered Holder as the property of the
Senior Creditors. The Agent shall be entitled to hold any such payment or
distribution or security, or the proceeds of any thereof, so delivered to the
Agent, whether or not any Superior Obligations are then due and payable, until
the Superior Obligations have been paid in full.
(e) The Registered Holder shall not exercise any right that it may
have to be subrogated to the rights of the Senior Creditors to receive payments
or distributions of assets of the Company made on the Superior Obligations or to
otherwise seek reimbursement, indemnity or contribution or payment of any kind
from the Company in respect of amounts paid to the Senior Creditors in lieu of
the Registered Holder by operation of this Note, until the Superior Obligations
have been paid in full.
(f) The Registered Holder hereby waives any and all notices of
renewal, extension or accrual of any of the Superior Obligations, present or
future, and agrees and consents, subject
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to the limitation in Section 9(a) of this Note, that without notice to or
assent by the Registered Holder:
(i) the obligations and liabilities of the Borrower under the
Credit Agreement or the Company or any other party or parties for or upon the
Superior Obligations (and/or any promissory note(s), security document or
guaranty evidencing or security the same) may, from time to time, in whole or in
part, be renewed, extended, modified, amended, accelerated, compromised,
supplemented, terminated, sold, exchanged, waived or released; provided that the
Company agrees to give the Registered Holder notice of any such modification,
supplement or amendment; provided further that the failure to provide such
notice shall not affect the validity or enforceability of any provision of this
Section 9;
(ii) the Senior Creditors may exercise or refrain from
exercising any right, remedy or power granted by the Guarantee or the Credit
Agreement or any other document creating, evidencing or otherwise related to the
Obligations or the Superior Obligations or at law, in equity, or otherwise, with
respect to the Obligations or the Superior Obligations or any collateral
security or Lien (legal or equitable) held, given or intended to be given
therefor (including, without limitation, the right to perfect any lien or
security interest created in connection therewith);
(iii) any and all collateral security and/or Liens (legal or
equitable) at any time, present or future, held, given or intended to be given
for the Obligations or the Superior Obligations, and any rights or remedies of
the Senior Creditors in respect thereof may, from time to time, in whole or in
part, be exchanged, sold, surrendered, released, modified, waived or extended by
the Senior Creditors; and
(iv) any balance or balances of funds with the Senior
Creditors at any time standing to the credit of the Company or the Registered
Holder of any of the Superior Obligations may, from time to time, in whole or in
part, be surrendered or released;
all as the Senior Creditors may deem advisable and all without impairing,
abridging, diminishing, releasing or affecting the subordination to the Superior
of Obligations provided for herein.
(g) The Registered Holder agrees that it will not assign, transfer,
sell or otherwise dispose of its right, title or interest in the Note to any
other person or entity without the prior written consent of the Senior
Creditors, which consent shall not be unreasonably withheld.
(h) The subordination provisions contained herein are for the
benefit of the Senior Creditors and their respective successors and assigns as
holders from time to time of Senior Obligations, and may not be rescinded or
canceled or modified in any way, nor may any provision of this Note be
changed, without the prior written consent thereto of the Senior Creditors.
10. Defaults and Remedies.
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(a) An "Event of Default" shall be deemed to have occurred if:
(i) the Company defaults in the payment of the principal of or
interest on this Note when the same becomes due and payable, whether
at maturity, upon prepayment or otherwise, and such default
continues for a period of 5 days;
(ii) the Company defaults in the performance or observance of
any of its material covenants or agreements contained in this Note
or a material breach of any representations or warranties of the
Company shall exist, and such default or breach shall have continued
for 30 days after notice of default or breach to the Company from
the Registered Holder, provided that such notice and 30 day grace
period shall not apply if any such breach or default is not capable
of being cured, and shall further not apply in the case of a breach
of Section 8(a);
(iii) any acceleration of Indebtedness occurs by the Company
or any Subsidiary under any agreement, mortgage, indenture or
instrument under which there is issued or by which there is secured
or evidenced any Indebtedness in excess of $500,000;
(iv) a final judgment for the payment of money (other than
with respect to the Notes) is entered by a court of competent
jurisdiction against the Company or any Subsidiary which remains
undischarged for a period (during which such judgment remains
undischarged, unvacated, unbounded or unstayed) of 60 days, provided
that such judgment (individually or together with all other such
judgments) exceeds $500,000;
(v) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law (1) commences a voluntary case, (2)
consents to the entry of an order for relief against it in an
involuntary case, (3) consents to the appointment of a receiver,
trustee, assignee, liquidator or similar official under any
Bankruptcy Law of it or for all or substantially all of its
property, (4) makes a general assignment for the benefit of its
creditors or (5) generally is unable to pay its debts as the same
become due; or
(vi) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (1) is for relief against the
Company or any Subsidiary in an involuntary case, (2) appoints a
receiver, trustee, assignee, liquidator or similar official under
any Bankruptcy Law of the Company or any Subsidiary or for all or
substantially all of its property, or (3) orders the liquidation of
the Company or any Subsidiary, and the order or decree remains
unstayed and in effect for 60 days.
(b) If an Event of Default (other than an Event of Default specified
in clauses (v) and (vi) of subsection (a)) occurs and is continuing, the
Registered Holder may declare the principal of and any accrued interest on this
Note to be due and payable. Upon such declaration,
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the principal amount of and interest on this Note shall be due and payable in
cash in full immediately. If an Event of Default specified in clause (v) or
(vi) of subsection (a) occurs, the principal of and interest on this Note shall
forthwith become and be immediately due and payable without any declaration or
other act on the part of the Registered Holder or the Company.
(c) Subject to Section 9, if an Event of Default occurs and is
continuing, the Registered Holder may pursue any available remedy to collect the
principal of and interest on this Note or to enforce the performance of any
provision of this Note.
(d) The Registered Holder may waive an existing default or Event of
Default and its consequences; provided that such waiver, in any one or more
instances, shall not be deemed to be or construed as a waiver of a default or an
Event of Default on any future occasion.
(e) Subject to Section 9, the Registered Holder may direct the time,
method and place of conducting any proceeding for any remedy then available.
(f) Subject to Section 9, in case of an Event of Default, the
Company will reimburse the Registered Holder for all costs of collection
(including reasonable attorney's fees).
11. Definitions. The following terms have the respective meanings
set forth below:
"Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, (b) any other Person that owns or controls (i) 5% or more of any
class of equity securities of that Person or any of its Affiliates or (ii) 5% or
more of any class of equity securities (including any equity securities issuable
upon the exercise of any option or convertible security) of that Person or any
of its Affiliates, or (c) any director, partner, officer, agent, employee or
relative of such Person. For the purposes of this definition, "control"
(including with correlative meanings, the terms "controlling", "controlled by",
and "under common control with") as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through ownership of voting
securities or by contract or otherwise.
"Bankruptcy Law" means Title 11 of the United States Code and any
similar federal or state law for the relief of debtors, readjustment of
indebtedness, reorganization, composition or extension.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of Connecticut are authorized or obligated to
close.
"Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, assets and properties or
prospects of the Company.
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"Contract" means any agreement, lease, evidence of Indebtedness,
mortgage, indenture, security agreement or other contract (whether written or
oral).
"Debentures" means the Amended and Restated Debentures of the
Company due June 30, 1997 having an aggregate principal amount of $4,950,480, as
the same may be amended, modified or supplemented from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"Indebtedness" of any Person means and includes, without
duplication, as of any date as of which the amount thereof is to be determined,
(a) all obligations of such Person to repay money borrowed (including, without
limitation, all notes payable and drafts accepted representing extensions of
credit, all obligations under letters of credit, all obligations evidenced by
bonds, debentures, notes or other similar instruments and all obligations upon
which interest charges are customarily paid) or for the deferred purchase price
of property or services, (b) all leases in respect of which such Person is
liable as lessee or as the guarantor of the lessee, (c) all monetary obligations
which are secured by any perfected Lien or security interest existing on
property owned by such Person whether or not the obligations secured thereby
have been incurred or assumed by such Person, (d) all sale and leaseback
arrangements, conditional sales contracts and similar title retention debt
instruments under which such Person is obligated to make payments, and (e) all
guarantees, all contingent reimbursement obligations under undrawn letters of
credit and all other contingent obligations in respect of Indebtedness of any
other Person.
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Person" means any natural person, corporation, general partnership,
limited partnership, proprietorship, other business organization, trust, union,
association or governmental or regulatory authority.
"Sale", with respect to any Person, means the sale of such Person
(whether by merger, consolidation, recapitalization, reorganization, sale of
securities, sale of assets or otherwise) in one transaction or series of
related transactions to a Person or Persons not an Affiliate of the Registered
Holder pursuant to which such Person or Persons (together with its Affiliates)
acquires (i) securities representing at least a majority of the voting power of
all securities of such Person, assuming the conversion, exchange or exercise of
all securities convertible, exchangeable or exercisable for or into voting
securities, or (ii) all or substantially all of such Person's assets on a
consolidated basis.
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"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"Subsidiary" means any Person in which the Company directly or
indirectly through Subsidiaries or otherwise, beneficially owns more than fifty
percent (50%) of either the equity interest in, or the voting control of, such
Person, whether or not existing on the date hereof.
"Tax" or "Taxes" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, sales, use,
property, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Tax Returns" means any returns, reports or statements (including
any information returns) required to be filed for purposes of a particular Tax.
12. Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, without expense to the Registered Holder, for a
Note or Notes, dated as of the date to which interest has been paid on the
unpaid principal amount of the Note or Notes so exchanged, or, if no interest
has been paid thereon, then dated as of the date of the Note or Notes so
exchanged, each in the principal amount $1,000 or any multiple thereof, for the
same aggregate unpaid principal amount as the Note or Notes so surrendered for
exchange and each payable to such Person or Persons, or order, as may be
designated by such Registered Holder; provided, however, that upon any such
exchange there shall be filed with the Company the name and address for all
purposes hereof of the payee of each Note delivered in the exchange for this
Note and such exchanged Note shall in all other respects be in the same form and
have the same terms as this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of this Note, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Company (provided that if the Registered Holder
is a financial institution or other institutional investor its own agreement
shall be satisfactory) or, in the case of any such mutilation upon surrender of
this Note, the Company shall (at its expense) execute and deliver in lieu of
such Note, a Note of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated Note and dated as of the date to which
interest has been paid on the unpaid principal amount of the Note so lost,
stolen, destroyed or mutilated, or, if no interest has been paid thereon, then
dated as of the date of the Note so lost, stolen, destroyed or mutilated.
14. Place of Payment. Payments of principal and cash interest and
other amounts payable hereunder are to be delivered at the following address:
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Triton Group Ltd.
550 West C Street
Suite 1880
San Diego, CA 92101
or to such other address or to the attention of such other Person as specified
by prior written notice to the Company.
15. Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class certified mail, return receipt requested, or
mailed by overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
If to the Registered Holder, to:
Triton Group Ltd.
550 West C Street
Suite 1880
San Diego, CA 92101
Facsimile No.: (619) 231-9170
Attn: Michael Earley
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Facsimile No.: (212) 309-6273
Attn: David P. Blea, Esq.
If to the Company, to:
Security Systems Holdings, Inc.
125 Frontage Road
Orange, CT 06477
Facsimile No.: (203) 799-9636
Attn: David Heidecorn
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, (iii) if delivered by
mail in the manner described above to the address as provided in this Section,
be deemed given upon the earlier of the third Business Day following mailing or
upon receipt and
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(iv) if delivered by overnight courier to the address as provided in this
Section, be deemed given on the earlier of the first Business Day following the
date sent by such overnight courier or upon receipt (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other party hereto.
16. Headings; Governing Law. The headings used in this Note are for
convenience of reference only and do not define or limit the provisions hereof.
This Note shall be governed by and construed in accordance with the domestic
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Connecticut.
17. Note Register. The Company shall maintain at its principal
executive offices books for the registration and the registration of transfer of
this Note. The Company may deem and treat the Registered Holder as the absolute
owner hereof (notwithstanding any notation of ownership or other writing thereon
made by anyone) for all purposes and shall not be affected by any notice to the
contrary.
18. Waiver. Any term or condition of this Note may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Note, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Note on any future occasion. All remedies, either under this Note or by
law or otherwise afforded, will be cumulative and not alternative.
19. Amendment. This Note may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of the Company and
the Registered Holder.
20. Binding Effect. No obligation hereunder may be contractually
assigned by the Company or contractually assumed by another Person without the
prior written consent of the Registered Holder, and any attempt to do so will be
void. This Note may not be assigned by Triton to any Person without the prior
written consent of the Company (which consent shall not be unreasonably
withheld), and any attempt to do so will be void. Subject to the preceding
sentence, this Note is binding upon, inures to the benefit of and is enforceable
by the parties hereto and their respective successors and assigns.
21. Costs.The Company shall reimburse the Registered Holder for all
reasonable costs (including reasonable attorneys fees and disbursements)
incurred by the Registered Holder in connection with the preparation and
enforcement of this note.
[signature page to follow]
-16-
<PAGE>
IN WITNESS WHEREOF, the Company and the Registered Holder have
executed and delivered this Note as of the date first above written.
SECURITY SYSTEMS HOLDINGS, INC.
By: /s/ David Heidecorn
-----------------------------
Name: David Heidecorn
Title: CFO
Agreed to and Accepted in respect
of the representations, warranties,
agreements and obligations of the
Registered Holder set forth herein
as of the date first above written by:
TRITON GROUP LTD.
By: /s/ Michael M. Earley
-----------------------------
Title: President & CEO
-17-
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 6, 1997 included in the Proxy
Statement/Prospectus of Triton Group Ltd. which is referred to and made part
of the Registration Statement on Form S-4 of Triton Group Ltd. ("Triton") for
the registration of 2,877,368 shares of Triton common stock.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 13, 1997
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 10, 1995, with respect to the
consolidated financial statements and schedule of The Actava Group Inc.
included in Form 10-K of The Actava Group, Inc. for the year ended December
31, 1994 as amended by Amendment No. 1 on Form 10K/A on April 28, 1995 and
Amendment No. 2 on Form 10K/A on July 13, 1995, and incorporated by reference
in the Form 10-K of Triton Group Ltd. for the year ended March 31, 1996 as
amended by Form 10K/A on July 26, 1996 and March 12, 1997, which is in turn
incorporated by reference in the Proxy Statement of Triton Group Ltd. for the
merger with Security Systems Holdings, Inc.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 11, 1997
<PAGE>
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use of our opinion to the Board of Directors of
Triton Group Ltd. included as Appendix B to the Proxy Statement/Prospectus which
forms a part of the Registration Statement on Form S-4 of Triton Group Ltd.
relating to the proposed merger of Triton Group Ltd. and Security Systems
Holdings, Inc., and to the reference to such opinion in such Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/ PATRICOF & CO. CAPITAL CORP.
March 14, 1997
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ALARMGUARD HOLDINGS, INC.
The undersigned hereby consents to be named in the Registration Statement
on Form S-4 to be filed by Triton Group, Ltd. with the Securities and Exchange
Commission, as a director of Alarmguard Holdings, Inc.
/s/ Russell R. MacDonnell
--------------------------------
Russell R. MacDonnell
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ALARMGUARD HOLDINGS, INC.
The undersigned hereby consents to be named in the Registration Statement
on Form S-4 to be filed by Triton Group, Ltd. with the Securities and Exchange
Commission, as a director of Alarmguard Holdings, Inc.
/s/ David Heidecorn
-----------------------------
David Heidecorn
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ALARMGUARD HOLDINGS, INC.
The undersigned hereby consents to be named in the Registration Statement
on Form S-4 to be filed by Triton Group, Ltd. with the Securities and Exchange
Commission, as a director of Alarmguard Holdings, Inc.
/s/ Stephen L. Green
--------------------------
Stephen L. Green
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ALARMGUARD HOLDINGS, INC.
The undersigned hereby consents to be named in the Registration Statement
on Form S-4 to be filed by Triton Group, Ltd. with the Securities and Exchange
Commission, as a director of Alarmguard Holdings, Inc.
/s/ Stuart L. Bell
---------------------------
Stuart L. Bell
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ALARMGUARD HOLDINGS, INC.
The undersigned hereby consents to be named in the Registration Statement
on Form S-4 to be filed by Triton Group, Ltd. with the Securities and Exchange
Commission, as a director of Alarmguard Holdings, Inc.
/s/ Thomas W. Janes
----------------------------
Thomas W. Janes
<PAGE>
Exhibit 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Triton Group
Ltd. of our reports dated May 23, 1996 and June 27, 1994 appearing on pages 21
and 22, respectively, of Triton Group Ltd.'s Annual Report on Form 10-K/A, as
filed on March 13, 1997, for the year ended March 31, 1996. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Diego, California
March 7, 1997
<PAGE>
Exhibit 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Triton Group
Ltd. of our report dated January 26, 1996 relating to Mission West Properties
appearing on page 8 of Item 14(a)(2)(ii) of the Triton Group Ltd. Annual
Report on Form 10-K/A, as filed on March 13, 1997, for the year ended March
31, 1996. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Diego, California
March 7, 1997
<PAGE>
Exihibit 99.01
TRITON GROUP LTD.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 14,1997
The undersigned hereby appoints Michael M. Earley and Mark G. Foletta, and
each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes either of them to act and to vote at the Annual Meeting of
Stockholders of Triton Group Ltd. ("Triton"), to be held on April 14, 1997,
and at any adjournments or postponements thereof, as indicated upon all matters
referred to on this proxy card and described in the accompanying Proxy
Statement/Prospectus. Capitalized terms used herein without definition have the
meanings ascribed to them in the Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF TRITON RECOMMENDS A VOTE "FOR"
PROPOSALS 1, 2(a), 2(b), 2(c), 2(d), 2(e), 2(f), 2(g), 3 AND 4.
1. Approval and adoption of (a) the Agreement and Plan of Merger by and among
Triton, Triton Acquisition Corp., a wholly-owned subsidiary of Triton ("Merger
Sub"), and Security Systems Holdings, Inc. ("Alarmguard"), pursuant to which
Merger Sub will be merged with and into Alarmguard, with Alarmguard surviving as
a wholly-owned subsidiary of Triton, and (b) the issuance of the Merger Shares
to the Alarmguard stockholders in exchange for all of the outstanding capital
stock of Alarmguard.
|_| FOR |_| AGAINST |_| ABSTAIN
2(a). Approval and adoption of the Restated Charter Proposal to change the
name of Triton to Alarmguard Holdings, Inc. The approval and adoption of this
Proposal 2(a) is conditioned on the approval and adoption of each of the
other Restated Charter Proposals, and the approval and adoption of the
Restated Charter Proposals is a condition precedent to the obligation of
Alarmguard to consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
2(b). Approval and adoption of the Restated Charter Proposal to authorize the
Triton Board to issue Triton Preferred Stock in one or more classes or
series, having such rights, privileges, designations and preferences as may
be determined by the Triton Board. The approval and adoption of this Proposal
2(b) is conditioned on the approval and adoption of each of the other
Restated Charter Proposals, and the approval and adoption of the Restated
Charter Proposals is a condition precedent to the obligation of Alarmguard to
consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
2(c). Approval and adoption of the Restated Charter Proposal to change the
authorized capital stock of Triton to 25 million shares of Triton Common
Stock and 5 million shares of Triton Preferred Stock. The approval and
adoption of this Proposal 2(c) is conditioned on the approval and adoption of
each of the other Restated Charter Proposals, and the approval and adoption
of the Restated Charter Proposals is a condition precedent to the obligation
of Alarmguard to consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
2(d). Approval and adoption of the Restated Charter Proposal to effect the
one-for-ten Reverse Stock Split of the Triton Common Stock. The approval and
adoption of this Proposal 2(d) is conditioned on the approval and adoption of
each of the other Restated Charter Proposals, and the approval and adoption
of the Restated Charter Proposals is a condition precedent to the obligation
of Alarmguard to consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
2(e). Approval and adoption of the Restated Charter Proposal to classify the
directors of Triton into three classes, with staggered three-year terms. The
approval and adoption of this Proposal 2(e) is conditioned on the approval
and adoption of each of the other Restated Charter Proposals, and the
approval and adoption of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
2(f). Approval and adoption of the Restated Charter Proposal to eliminate the
ability of Triton stockholders to act by written consent. The approval and
adoption of this Proposal 2(f) is conditioned on the approval and adoption of
each of the other Restated Charter Proposals, and the approval and adoption
of the Restated Charter Proposals is a condition precedent to the obligation
of Alarmguard to consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
2(g). Approval and adoption of the Restated Charter Proposal to eliminate the
ability of Triton stockholders to call a special meeting of the stockholders.
The approval and adoption of this Proposal 2(g) is conditioned on the
approval and adoption of each of the other Restated Charter Proposals, and
the approval and adoption of the Restated Charter Proposals is a condition
precedent to the obligation of Alarmguard to consummate the Merger.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Election of directors:
___ FOR all ___ WITHHOLD
nominees listed below AUTHORITY to vote for
(except as marked to all nominees listed elow
the contrary below)
Michael E. Cahr, Michael M. Earley, Mark G. Foletta and Richard R. Tartre
(INSTRUCTION: To vote for all nominees listed above, mark the "FOR" box; to
withhold authority for all nominees listed above, mark the "WITHHOLD AUTHORITY"
box; and to withhold authority to vote for any individual nominee listed above,
mark the "FOR" box and write the nominee's name in the space provided below.)
________________________________________________________________________________
4. Approval and adoption of the 1997 Stock Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on this proxy card and in the discretion
of the proxy holders as to any other matters which may properly come before the
meeting. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR"
PROPOSALS 1, 2(a), 2(b), 2(c), 2(d), 2(e), 2(f), 2(g), 3 and 4.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting and the accompanying Proxy Statement/Prospectus.
Dated: _____________________,1997 _______________________________________
(Signature)
_______________________________________
(Signature)
Please sign as name(s) appears on this
proxy card, and date this proxy card. If
a joint account, each joint owner must
sign. If signing for a corporation or
partnership as agent, attorney or
fiduciary, indicate the capacity in
which you are signing.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
IN THE ENCLOSED ENVELOPE.
