SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ADT Limited
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
ADT Limited Letterhead
, 1997
IMPORTANT - SPECIAL GENERAL MEETING
July 8, 1997
Dear Fellow Shareholders:
You are cordially invited to attend a special general meeting
of shareholders of ADT Limited ("ADT") scheduled to be held on July 8, 1997 at
9:00 a.m., local time, at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda.
As you know, Western Resources, Inc. (together with its
subsidiaries, "Western") has announced its intention to commence a hostile
offer (the "Western Offer") to acquire your shares in ADT for cash and Western
stock that your Board believes to be less than fair value. As part and parcel
of its attempt to seize control of ADT, Western has requisitioned this special
meeting. The purpose of the special meeting is to consider proposals (the
"Western Proposals") to remove the entire existing ADT Board of Directors (the
"Board"), including all of ADT's independent directors (who constitute a
majority of your Board), and install Western's own employees as the Board.
Enclosed you will find a proxy statement fully describing your
Board's considered views on the Western Offer. We urge you to read this
carefully. You will see that your Board's unanimous view is that the Western
Offer is inadequate.
The Western Proposals are not contingent on the outcome of the
Western Offer, even though that offer is highly conditional and may never--and
in your Board's view does not deserve to--succeed. You are therefore being
asked, by Western, to hand over management control of ADT to Western without
any certainty that the Western Offer will succeed. If the Western Offer
fails--as your Board believes that it should--the effect of approving the
Western Proposals would be to give Western management control of ADT for
nothing.
We are sure that you will agree with your Board that this
should not be allowed to happen. To ensure that it does not happen, we need
your vote. The only way for you to support your Board is to vote against the
Western Proposals on the white proxy card sent to you by your Board.
Your Board of Directors unanimously recommends a vote "AGAINST"
the Western Proposals.
Action to be taken: Enclosed is a white proxy card. YOUR
BOARD URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE WHITE PROXY CARD IN
THE ACCOMPANYING ENVELOPE in accordance with the instructions on the card. As
noted on the card, to be valid, the card must be received by a registrar of
ADT no later than July 7, 1997 at 9:00 a.m., local time. The addresses of
ADT's registrars are noted on the card.
On behalf of everyone at ADT, we thank you for your continued
support. We remain committed to acting in the best interests of you, our
fellow shareholders, and our Company. If you have any questions, please feel
free to call our proxy solicitor, D.F. King, at 1-800-488-8035 (toll-free in
the United States), at 0171-600-5005 (in the United Kingdom) or 212-269-5550
(outside the United States and the United Kingdom).
Sincerely,
MICHAEL A. ASHCROFT STEPHEN J. RUZIKA
Chairman of the Board and Chief Financial Officer,
Chief Executive Officer Executive Vice President and Director
JOHN E. DANNEBERG ALAN B. HENDERSON JAMES S. PASMAN, JR.
Director Director Director
W. PETER SLUSSER WILLIAM W. STINSON RAYMOND S. TROUBH
Director Director Director
IMPORTANT
Your vote is important. Please sign, date and promptly mail
your white proxy card in the postage prepaid envelope provided. Remember,
do not return any proxy card sent to you by Western.
If your shares are registered in the name of a broker, only
your broker can execute a proxy and vote your shares and only after
receiving your specific instructions. Please contact the person
responsible for your account and direct him or her to execute a proxy on
your behalf today. If you have any questions or need further assistance in
voting, please contact the firm assisting us in solicitation of proxies:
D.F. King
Call 1-800-488-8035 (toll-free in the United States)
or 0171-600-5005 (in the United Kingdom)
or 212-269-5550 (outside the United States and the United Kingdom)
PRELIMINARY PROXY STATEMENT (SUBJECT TO COMPLETION)
ADT LIMITED
PROXY STATEMENT
BY THE BOARD OF DIRECTORS OF ADT LIMITED
IN OPPOSITION TO WESTERN PROPOSALS
This proxy statement is being furnished by the Board of Directors (the
"Board") of ADT Limited (together with its subsidiaries, "ADT" or the
"Company") to shareholders of the Company. In this proxy statement, the Board
opposes Western Resources, Inc.'s (together with its subsidiaries, "Western")
solicitation of proxies (the "Western Solicitation") relating to a special
general meeting of shareholders to be held on July 8, 1997 at 9:00 a.m., local
time, at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda (the "Special
General Meeting"). This proxy statement and the enclosed proxy card are first
being mailed to shareholders of the Company on or about , 1997.
At the Special General Meeting, shareholders will consider and vote upon
three proposals of Western (the "Western Proposals"). See "Matters to be
Voted upon at the Special General Meeting." Western has stated that the
Western Proposals are in furtherance of its attempts to take over the Company
by means of its offer to exchange (the "Western Offer") all of ADT's common
shares, par value $0.10 per share (the "Common Shares"), for cash and shares
of Western common stock, as described in Amendment No. 2 to Western's
Registration Statement on Form S-4, dated February 25, 1997 (the "Western
Amended S-4"), which includes a Preliminary Prospectus for the Western Offer
(the "Western Prospectus"), and as further supplemented by a press release
made by Western on March 3, 1997. The Western Solicitation is being conducted
pursuant to a proxy statement dated , 1997 (the "Western
Proxy"). If the Western Proposals are successful, Western has announced its
intention to proceed with an amalgamation of ADT into a subsidiary of Western.
At the Special General Meeting, ADT shareholders may also consider and vote
upon any other business that may properly come before the Special General
Meeting.
Western has left no doubt that its objective in precipitating the
Special General Meeting is to obtain control of the Company and to have its
nominees dismantle the Company's shareholder protections so that Western can
attempt to complete what your Board believes is its inadequate offer for the
Common Shares of the Company.
For the reasons set forth below, your Board's unanimous view is that the
Western Offer is inadequate. For this and other reasons discussed more fully
below, your Board unanimously recommends a vote "AGAINST" the Western
Proposals.
Enclosed is a white proxy card. YOUR BOARD URGES YOU TO COMPLETE, SIGN,
DATE AND RETURN THE WHITE PROXY CARD IN THE ACCOMPANYING ENVELOPE in
accordance with the instructions on the card. As noted on the card, to be
valid, the card must be received by a registrar of ADT no later than July 7,
1997 at 9:00 a.m., local time. The addresses of ADT's registrars are noted on
the card.
Your Board urges you not to sign or return any green proxy card sent to
you by Western. If you have previously signed a proxy card sent by Western,
your Board urges you to sign, date and promptly mail the enclosed white proxy
card, which will revoke any earlier dated proxy cards solicited by Western
which you may have signed. Remember that it will not help your Board to
abstain from returning a proxy card, nor will it help to return a Western
proxy card voting to "abstain." The only way for you to support your Board
is to vote "AGAINST" the Western Proposals on the white proxy card sent to you
by your Board.
If you have any questions or need further assistance in voting your
shares, please contact:
D.F. King
Call 1-800-488-8035 (toll-free in the United States)
or 0171-600-5005 (in the United Kingdom)
or 212-269-5550 (outside the United States and the United Kingdom)
SUMMARY
Your Board unanimously recommends a vote "AGAINST" the Western Proposals
and, having unanimously concluded that the Western Offer is inadequate and not
in the best interest of ADT's shareholders, urges you to "REJECT" the Western
Offer. In summary, as discussed in more detail below:
The Future for Investors Is ADT
* Your Board continues to be committed to maximizing value for ADT
shareholders.
* Now is not the time for you to sell your investment in ADT -- your
Board believes that ADT has strong fundamentals and growth prospects,
and that the Western Offer does not reflect the inherent value of ADT.
* ADT is the market leader in the electronic security services business in
North America and the United Kingdom, with recurring annualized
contractual payments from approximately 1.8 million customers of
approximately $920 million at December 31, 1996. Since 1988, when
your management team took over at ADT, ADT has had a compound annual
growth rate in excess of 36% in its residential security system unit
sales.
* Over the past three years ADT's share price has significantly
outperformed the market while Western's stock price has significantly
underperformed the market. The following chart compares the three
year relative stock price performance among ADT, Western, the S&P 400
and the S&P Utilities for the period February 28, 1994 through
February 28, 1997:
2/28/94 2/28/97
------- -------
ADT 100% 214.81%
S&P 400 100% 169.00%
S&P Utilities 100% 120.92%
Western 100% 99.18%
* Your Board believes that ADT is well-positioned to continue to lead
the ongoing consolidation in the fragmented electronic security services
industry, building on its financial strength, management experience,
significant economies of scale and brand equity.
* On March 3, 1997 ADT announced a marketing agreement with AT&T Corp.
("AT&T"), one of the leading telecommunications companies in the world.
ADT is also pursuing partnering opportunities with premier companies
in a variety of industries, including recent arrangements with Radio
Shack, USAA and the Century 21, ERA and Coldwell Banker businesses of
HFS.
Western's Offer Is Inadequate and Should Be Rejected
* Your Board has unanimously determined that the Western Offer is
inadequate and not in the best interests of ADT's shareholders. In
making its determination, your Board considered numerous factors that
are detailed below. See "Why You Should Vote Against the Western
Proposals and Reject the Western Offer -- The Western Offer is
Inadequate."
Even Western Acknowledges the Significant Risks Facing Western's Business
* The Western Prospectus discusses certain significant risks facing
Western which should be considered by ADT shareholders before deciding
whether to accept the proposed Western Offer. Although Western did
not include any discussion of these risk factors in its original
filings with the SEC, following the SEC review process, Western has
apparently concluded that it should provide ADT shareholders with at
least some disclosure of the risks facing Western. The risk factors
that Western has outlined in the Western Prospectus are reproduced and
attached hereto as Schedule C. Although your Board believes that
Western has put the best face on these risk factors, the significance
of these risks is obvious. In particular, the Western Prospectus
describes the following significant risks facing Western and risks of
the Western Offer:
* The risks of deregulation of the utility industry, including the
risk that Western will not be able to recover its "stranded
costs" in a deregulated energy market. Although Western has
failed to disclose the magnitude of these costs, your Board
believes that if deregulation were to occur quickly, these costs
could total as much as $1,650,000,000 and could increase
significantly as a result of the proposed acquisition of Kansas
City Power & Light Company ("KCP&L"). To place this exposure in
context, Western's retained earnings as of September 30, 1996
were $564 million and its total common stock equity (including
retained earnings) as of September 30, 1996 was $1.615 billion.
* The risk that Western's "business plan" of bundling energy and
security services will require the allocation of substantial
capital and human resources with no assurance that the operations
of the two businesses will be successful.
* The fact that, historically, Western has grown more slowly than ADT.
* The risk that under certain circumstances, the value of the
consideration payable pursuant to the Western Offer (the
"Exchange Consideration") per Common Share may be less than
$22.50 and, that if and at such time that the Western Offer is
consummated, the value of the Exchange Consideration may
represent a discount to the price per Common Share.
* The financial risks faced by Western, including increased
earnings and cash flow volatility, competitive pricing, the
effects of new technology and the potential negative impact of
these issues on Western's financial condition and
creditworthiness.
* The risk that adoption of the Western Proposals and
consummation of the Western Offer may trigger change of
control provisions under debt instruments of a subsidiary of
ADT and require Western to refinance or pay the obligations
under these debt instruments.
* Your Board believes that the risks disclosed in the Western
Prospectus alone provide ample reason to vote AGAINST the Western
Proposals and REJECT the Western Offer. Your Board would point out
that John E. Hayes, Jr., Chairman and Chief Executive Officer of
Western and David C. Wittig, President of Western, together own less
than 0.2% of the common stock of Western. Your Board believes you
should follow their lead and avoid investing in Western common stock
by voting AGAINST the Western Proposals and REJECTING the Western
Offer.
Western Is Not a Strong Strategic Partner for ADT
* Your Board believes that Western does not possess the key
characteristics that ADT would consider to be most important in
identifying a strong strategic partner, including national market
position, range of demonstrated high value services, favorable cost
structure and prospects for nationwide services coverage.
WHY YOU SHOULD VOTE AGAINST THE WESTERN PROPOSALS
AND REJECT THE WESTERN OFFER
Your Board Continues to Be Committed to Maximizing Value for You -- You Should
Maintain a Board that is Independent from Western
* Your Board believes that the interests of the Company and all of its
shareholders will be best served by retaining the Company's current
Board, a majority of whom are independent. Your Board will continue
to act on behalf of the Company and all of its shareholders
independently of the interests of Western.
* The Western Proposals are part of Western's unsolicited attempt to
obtain control of your Company and to complete its offer to acquire
ADT without paying you what your Board considers to be fair and
adequate value for your Common Shares. In effect, Western is asking
you to appoint its own representatives to determine whether, and on
what terms, your Company will be sold to Western. Western has already
stated that it believes the Western Offer is in the "best interests"
of ADT shareholders and that the Western nominees are committed to
taking "all actions necessary to expedite consummation of" the Western
Offer and a subsequent amalgamation of the Company with a subsidiary
of Western.
* Western's nominees are Western's employees. Your Board believes that,
as such, they are likely to act in a manner that will serve the
interests of Western. The Western Proxy states that Western's
nominees have not made a determination as to whether, if they were
elected, they would solicit offers for ADT to maximize value for all
of ADT's shareholders. Western admits that the Western nominees'
interests could conflict with the interests of shareholders other than
Western because the Western nominees are employed by Western.
Furthermore, Western has taken the position that if the Western
Proposals are adopted, the shareholders of ADT will have effectively
approved the Western Offer. Your Board believes that ADT shareholders
should vote against the Western Proposals because, if the Western
nominees are elected, they will not seek to maximize value for all of
ADT's shareholders. In short, your Board believes that Western is
attempting to leverage its 27% holding to impose an unfavorable
transaction on the Company and the rest of its shareholders.
* Your Board recognizes its fiduciary obligations with respect to any
potential transaction involving the Company. As demonstrated by the
proposed transaction with Republic Industries, Inc. ("Republic"), in
July 1996, pursuant to which Republic was to enter into an
amalgamation with ADT (the "Republic Merger"), your Board is open to a
transaction that provides fair and adequate consideration to the
Company's shareholders. Your Board will consider all bona fide offers
presented to it (including from Western) and may recommend a proposal
if that proposal reflects the fair and adequate value of the Company,
recognizing ADT's favorable prospects going forward.
Now is Not the Time to Sell -- The Western Offer Does Not Reflect the Inherent
Value of ADT
* Your Board believes that now is not the right time to sell your
investment in ADT. ADT has strong fundamentals and growth prospects
and is well-positioned to continue leading the ongoing consolidation
in the fragmented electronic security services industry.
* The Company's stock price has outperformed Western's stock price and
the market overall. From February 28, 1994 through February 28, 1997,
the Company's stock price increased by 114.81%. During the same
period, the S&P 400 increased by 69.00% and Western's stock price
decreased by 0.82%.
* The maximum stated value of the Western Offer of $22.50 per Common
Share represents only an 11.8% premium above the pre-announcement
price of the Common Shares and is substantially less than the initial
value per Common Share of the proposed Republic Merger that was
approved by your Board last summer. Following announcement of the
Western Offer, an article in The Wall Street Journal described the
Western Offer as providing "a shockingly low premium to ADT
shareholders"(1) and one analyst concluded that "the bid is too
dependent on paper -- whose value is ultimately too uncertain -- and
that that bid is woefully too low."(2)
- ----------
(1) Quote taken from an article by Steven Lipin in The Wall Street
Journal dated December 31, 1996. No permission has been sought or
received to quote from, or refer to, published materials cited in this
preliminary proxy statement.
(2) Quote taken from a Lehman Brothers report by Jeff Kessler dated
December 20, 1996.
ADT Is the Market Leader in the Security Business
* ADT is the market leader in the electronic security services business in
North America and in the United Kingdom. In the United States, ADT is
more than three times the size of the next largest competitor in terms
of revenue. ADT believes that its electronic security services
business enjoys high margins, has substantial operating leverage and
generates substantial cash flow for re-investment in the business. At
the end of 1996, ADT had recurring annualized contractual payments
from approximately 1.8 million customers of approximately $920
million.
* Since 1988, ADT's residential security system unit sales have
experienced growth at a compound annual rate in excess of 36%. ADT
provides electronic security and related services to more than one
million residential customers across North America, and the Company
believes that, in 1996, through its various channels of distribution,
ADT installed a number of new residential security systems that is
greater than the entire residential customer base of any of its
competitors.
* Separately, as part of its efforts to broaden its distribution system
and enhance its marketing strategies, the Company is pursuing
partnering opportunities with premier companies in a variety of
industries, including local and long distance communications
providers, consumer electronics manufacturers, software developers,
newspaper and entertainment companies, insurance underwriters and
property-management service providers. The Company has recently
entered into partnering arrangements with the following companies:
* AT&T -- one of the leading telecommunications companies in the
world;
* Radio Shack -- ADT systems are now available in approximately 4,500
retail stores where numerous potential customers are exposed to
ADT's products;
* USAA -- approximately 3 million USAA members have the
opportunity to lower their premiums through the ADT/USAA
Home Security Program; and
* HFS (through its Century 21, ERA and Coldwell Banker
businesses) -- ADT home security systems are now offered
through a national network of approximately 10,000 real
estate offices.
* Since 1993, ADT has implemented a strategic redeployment of its
assets to focus on its core electronic security services business,
including (i) the acquisition of Alert Centre, Inc. in 1995, (ii) the
acquisition of Automated Security (Holdings) PLC in 1996, (iii) the
sale of its European vehicle auction business in December 1995 and
(iv) the proposed sale of its U.S. vehicle auction business, which was
announced in November 1996. The Company believes that it will enjoy
significant earnings benefits from these actions.
* ADT derives the majority of its revenue from providing security and
data information services to commercial customers--including more than
390 of the companies in the Fortune 500. Since 1992, ADT's new sales
to commercial customers have doubled, and revenue derived from
installation of commercial systems in the United States has risen from
approximately $119 million in 1992 to approximately $214 million in
1996.
* The $12.9 billion U.S. electronic security services industry is
highly fragmented and is undergoing consolidation. The industry's top
100 companies, in the aggregate, have approximately 23% of the market,
and ADT, the market leader, has approximately 7% of the market. As
the market leader, the Company believes that ADT is well-positioned to
continue to lead ongoing industry consolidation. Large, integrated
security companies, like ADT, that have the ability to operate on a
regional or national basis, have a competitive advantage because they
can achieve significant economies of scale. Ongoing industry
consolidation should enhance these economies of scale and build
significant brand equity for the major industry players, including
ADT.
ADT Is Well-Positioned to Capitalize on Changes in the Electronic Security
Services Industry and to Provide Additional Value to ADT Shareholders
* In addition to ongoing industry consolidation, there have been
significant technological advances in the systems used in the
electronic security services industry, including improvement in
computer telecommunications technology, wider use of semi-conductor
components and microprocessor-based control panels and development of
digital communications technology. ADT has put such technological
advances to creative use, including, for example:
* By combining basic security services with other services, ADT has
recently offered energy management products and services to
regulate the temperature and lighting of a customer's premises.
This service is provided via a communication protocol that
utilizes the premises' existing alternating-current wiring.
* ADT also launched CarCop[Registered],(3) a
revolutionary new concept in personal protection and vehicle
security that uses three significant infrastructures:
cellular communications, the global positioning satellite
system and ADT's 24-hour a day monitoring facilities.
* As a result of the availability of these significant technological
advances and as part of the Company's overall strategy, the Company's
business is evolving from being primarily an intrusion alarm company
into a data information company. As one analyst recently stated, if
this evolution is successful "both the margin and growth rate of
[ADT] will make it fundamentally different from any other existing
security company."(4) ADT's broad customer base, unique national
distribution system and highly skilled workforce provide it with a
strong capacity to exploit these new technologies, but only if it
can maintain the freedom to choose the best technology partners
for various possible services.
- ----------
(3) [Registered] Registered Trademark
(4) Quote taken from Lehman Brothers report by Jeff Kessler dated
February 5, 1997.
The Western Offer is Inadequate
* Your Board has unanimously concluded that the Western Offer is
inadequate and not in the best interests of ADT's shareholders. In
rendering its conclusion, your Board received the opinion of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") that the
Exchange Consideration to be paid pursuant to the Western Offer is
inadequate, from a financial point of view, to the shareholders of
ADT other than Western and its affiliates. A copy of such opinion
setting forth the assumptions made and matters considered by
Merrill Lynch is attached hereto as Schedule D and should be read
in its entirety. Your Board recommends a vote against the Western
Proposals and recommends that shareholders not tender their Common
Shares if Western commences the Western Offer.
* In making this determination, your Board considered numerous factors
in addition to the Merrill Lynch opinion referred to above,
including among other things the following:
* your Board's familiarity with, and management's view of, the
Company's business, financial condition and results of operations
and your Board's belief that the Western Offer does not reflect
the inherent value of the Company;
* your Board's concerns about the long-term value and prospects
for appreciation of Western's common stock;
* your Board's concern as to the limited ability of ADT's
shareholders to sell the shares of Western common stock to be
issued to them if the Western Offer is consummated, and the
potential downward pressure of such sales on the market
price for Western's common stock, particularly in light of:
* the historically low average daily trading volume in
Western's common stock (including an average daily
trading volume of 202,000 shares since the announcement
of the Western Offer);
* the fact that many ADT shareholders who are oriented
toward growth investing may seek to sell the Western
common stock received in exchange for their Common
Shares; and
* the exacerbating effect if the shareholders of
KCP&L also seek to sell the shares of Western
common stock received by them in the proposed
Western/KCP&L merger;
* the fact that the Western Offer is taxable to ADT shareholders,
thereby further reducing the value of the Western Offer;
* your Board's and management's commitment to protecting the
best interests of the shareholders of ADT and enhancing the
value of ADT;
* your Board's belief that the Company's strong fundamentals
and growth prospects, including but not limited to
partnering opportunities with premier companies in a variety
of industries, will produce greater short-term and long-term
value for the shareholders of the Company than the Western
Offer;
* the fact that the maximum value of the Western Offer
represents a premium of only 11.8% above the
pre-announcement closing price per Common Share and your
Board's belief that, as described below, the actual value
of the Western Offer is likely to be less than the maximum
stated value of $22.50 per Common Share;
* the uncertainties associated with the Western Offer,
including:
* the uncertainties with respect to evaluating the
numerous transactions in which Western is currently
involved, including the dilutive effect of these
transactions on Western's common stock and the cost and
availability of financing;
* the uncertainties resulting from deregulation of the
electric utility industry; and
* the uncertainty with respect to availability, cost
and terms of financing for the Western Offer, and
the likelihood that such uncertainty may be
heightened if Western increases its offer for ADT;
and
* your Board's belief that Western is not a strong strategic
partner for ADT.
The Actual Value of the Western Offer Is Likely to Be Lower than the Maximum
Stated Value
* Western has recently (i) completed the acquisition of the security
business of Westinghouse Security, (ii) announced a proposed
merger with KCP&L, and (iii) launched the offer for ADT. Taken as
a whole, these transactions are likely to result in substantial
earnings dilution and raise serious concerns about Western's
ability to sustain its current dividend practices without
additional borrowings or reductions in capital expenditures, which
would likely have an adverse effect on Western's financial
condition (including its creditworthiness) and could restrict its
ability to support growth in its non-utility businesses. In
addition, any future equity issuances by Western would dilute the
ownership interests of Western stockholders, including, if the
Western Offer is consummated, ADT shareholders who retain their
Western common stock, and could have a negative impact on the
market price for Western's common stock.
* The Company believes that the risks and competitive pressures
presented by the deregulation of the utility industry will also
negatively impact Western's stock price. Western, when combined
with KCP&L, will have increased the concentration of its assets in
power generation, and your Board believes that this sector of the
utility industry is the most vulnerable to the risks presented by
deregulation.
* Western's pro forma financial information assumes that Western will
be able to (i) account for the acquisition of KCP&L as a
"pooling-of-interests" and (ii) amortize separate identifiable
intangible assets and goodwill, if any, that would result from the
purchase accounting treatment (as required by United States
generally accepted accounting principles ("GAAP")) for an
acquisition of ADT over a 40-year period. However, your Board
believes that Western may not be able to account for its
acquisition of KCP&L as a "pooling-of-interests," in which event
Western would either be required to terminate the proposed
acquisition of KCP&L or to account for the acquisition as a
purchase. If the acquisition is accounted for as a purchase, the
combined company will be forced to amortize approximately
$1,000,000,000 in goodwill from the acquisition, which will have
an adverse effect on the combined company's future earnings.
Your Board also believes that a substantial portion of the
purchase price for any acquisition of ADT by Western would need
to be allocated to a separate identifiable intangible asset
(i.e., customer contracts acquired) which needs to be amortized
over its useful life. ADT believes its average customer life is
not in excess of 14 years. Western's pro forma financial
statements for the ADT transaction do not reflect this
appropriate accounting treatment under GAAP, which would
significantly reduce the combined company's future earnings.
* Through the KCP&L acquisition, Western will increase its ownership
interest in the Wolf Creek Nuclear Operating Corporation to 94%,
thereby doubling its investment in nuclear power. This investment
represents significant potential stranded costs and poses
significant future risks concerning the operations and costs
associated with decommissioning this plant. Western is obligated
to take power from the Wolf Creek nuclear plant under cost-plus
contracts that may increase the costs to Western associated with
decommissioning this plant.
* The Western Prospectus describes the uncertainties, risks and
competitive pressures resulting from the deregulation of the
electric utility industry, each of which may have a negative
impact on Western's future earnings and cash flow, including (i)
stranded costs, (ii) competition from larger, better capitalized
utilities, which is likely to create intense price competition,
thereby cutting Western's margins and reducing profitability and
(iii) the timing of state-by-state deregulation efforts.
Assuming consummation of the Western/KCP&L transaction, the
combined company would only be the 23rd largest utility in the
U.S., with a market value of approximately $3.8 billion in an
industry where the top six utilities each have market value in
excess of $8 billion. Your Board believes that these factors may
have a negative impact on Western's financial condition, the
market price of its common stock and its ability to sustain its
current dividend practices.
Western Is Not a Strong Strategic Partner for ADT
* Western has argued that an amalgamation with ADT will benefit ADT
shareholders by combining "ADT's leading international presence and
quality brand equity in the security business" with Western's "fast
growing security business, strong core utility business and customer
service expertise." Your Board understands why shareholders of a
slow-growth Kansas utility would benefit by trying to acquire a
high-growth international electronic security services company,
such as ADT. However, if ADT were to look for a strong North
American partner, your Board does not believe that Western
possesses the key characteristics which ADT would consider most
important in identifying such a partner, including national market
positioning, range of demonstrated high value services, favorable
cost structure and prospects for nationwide services coverage.
* Your Board does not accept Western's unsupported assertion that ADT
shareholders would benefit from an amalgamation with Western.
Western has offered no support for the notion that ADT's
nationwide customer base would have any interest in buying
electric power from a Kansas utility, or even that Western is
capable of delivering electric power outside of its Kansas base
until some uncertain and unspecified time in the future. In the
current regulated environment, Western does not have the ability
to sell power to ADT's national customer base. Assuming the
consummation of Western's acquisition of KCP&L, the combined
company's utility customer base will be concentrated in Kansas,
Missouri and Oklahoma. ADT currently operates throughout the
United States, and not just in Kansas, Missouri and Oklahoma. If
ADT wishes to step up its marketing efforts in Kansas, Missouri
and Oklahoma, it is perfectly capable of doing so itself or by
partnering with any number of companies that have customers in
those markets.
* While Western points to the "fast growth" of its security business,
Western has achieved that growth primarily through acquisitions
rather than through internally generated growth. During 1996,
Western acquired six security businesses and, prior to Western's
acquisition of the security business of Westinghouse Security,
Western's security business had only 110,000 customers. Western's
security business is primarily residential, but ADT derives the
majority of its security business revenue from commercial
customers. Western has not stated how it would manage ADT's
commercial security business, which is far more sophisticated than
Western's primarily residential security business.
* Western also argues that its "sound utility expertise" will give the
combined entity a competitive advantage. Yet ADT believes it has
little to learn from Western about managing a national
distribution system and highly skilled workforce. ADT currently
operates 231 sales and service offices that perform more than
7,000 on-site customer service visits and handle in excess of
105,000 telephone interactions with customers each day. ADT is
the only provider that can supply technical services on multiple
types of electronic security systems and related products in every
major metropolitan statistical area in North America and the
United Kingdom. Unlike utility service providers, ADT's work
force has experience in actually providing services inside the
customer's premises.
* Your Board does not believe that an amalgamation with Western, given
Western's lack of a national presence and small customer base
relative to other utilities and premier companies in other
industries, would offer any meaningful strategic opportunity to
ADT, although Western's electronic security business would
obviously benefit from a combination with ADT's much larger and
more established security business.
Background
According to Amendment No. 9 to Western's Schedule 13D with
respect to ADT filed with the Securities and Exchange Commission ("SEC") on
December 18, 1996 (together with earlier amendments, the "Western Schedule
13D"), Western is currently the beneficial owner of 38,287,111 Common Shares
(including 14,115 shares issuable upon exchange of 500 Liquid Yield
Option[Trademark] Notes ("LYONs")). This constitutes approximately 27.1% of
the total number of Common Shares currently issued and outstanding.
Since Western began acquiring its Common Shares in early 1996,
direct contacts between ADT and Western have been limited and have not
included discussions of a business combination. Senior representatives of ADT
and Western have met on only one occasion, in early 1996. On that occasion,
ADT Chairman Michael Ashcroft and one other ADT director met with
representatives of Western to discuss possible joint marketing opportunities
relating to certain energy products. However, before substantive discussions
could commence on the feasibility of a joint marketing program, it was
essential to resolve the issues arising from the fact that Western is a
competitor of ADT in the security marketplace. No substantive proposals were
put forward by Western, and no further discussions on this topic were held.
In May 1996, Western's Chairman made one brief call to Mr. Ashcroft to attempt
to arrange a subsequent meeting. In that call, Western's Chairman mentioned
the possibility of a business combination with ADT. However, Western never
came forward with any proposal regarding any such business combination, and no
further meetings were held.
Western notified ADT, by letter dated April 2, 1996, of its
intention to vote its shares in opposition to the proposed amendment to ADT's
1993 Long Term Incentive Plan (the "Plan Amendment") at ADT's annual general
meeting (the "Annual Meeting") on April 11, 1996 and urged the Board to
consider withdrawing it from consideration at the Annual Meeting. The Board
did not withdraw the Plan Amendment, and ADT's shareholders duly approved it
at the Annual Meeting.
On July 1, 1996, Mr. Ashcroft telephoned Western's Chairman to
inform him of the proposed Republic Merger. On July 12, 1996, the Western
Schedule 13D was amended to indicate that Western might determine to oppose
the Republic Merger and might choose to exercise its appraisal rights under
Bermuda law, although no final decision had yet been taken. On September 13,
1996, the Western Schedule 13D was amended to indicate that Western had
determined to oppose the proposed Republic Merger. The termination of the
proposed Republic Merger was announced on September 30, 1996. In connection
with the Republic Merger, ADT issued to Republic a share purchase warrant for
15,000,000 Common Shares (the "Republic Warrant").
On December 18, 1996, Western notified the Company of its
intention to file with the SEC a preliminary prospectus for the Western Offer.
On December 18, 1996, Western filed a notice on ADT to requisition a Special
General Meeting of the Company's shareholders to consider the Western
Proposals. Western has stated that the purpose of the Western Proposals is to
facilitate consummation of the Western Offer. If it obtains control of the
Board, Western has stated that its directors intend to eliminate the
protections for shareholders contained in the Company's Bye-Laws and a Rights
Agreement dated as of November 6, 1996 (the "Rights Plan"). The Board
believes Western's attempt to complete its offer in this manner is not in the
best interests of ADT shareholders. On January 6, 1997, the Board met to
consider the Western Proposals and the Western Offer and set the Special
General Meeting for July 8, 1997. On January 7, 1997, the Company sent the
Notice of Special Meeting to the holders of its Common Shares that is set
forth as Schedule B hereto.
On January 27, 1997, Western issued a press release announcing
that on December 23, 1996, Western made the required Hart-Scott-Rodino Act
("HSR Act") filing with regard to the Western Offer, and that on January 23,
1997, the 30-day waiting period required under the HSR Act expired with no
action taken by the antitrust authorities.
On February 7, 1997, Western and KCP&L issued a joint press
release announcing that the two companies had entered into an Agreement and
Plan of Merger (the "Western/KCP&L Merger Agreement") pursuant to which KCP&L
will merge with and into Western. Under the terms of the Western/KCP&L Merger
Agreement, subject to certain conditions, each share of KCP&L common stock
will be converted into a number of shares of Western common stock, and Western
will be the surviving corporation.
Pursuant to a demand by Republic, on February 10, 1997, the
Company filed a registration statement on Form S-3 registering the 15,000,000
Common Shares to be issued in the event that Republic exercises the Republic
Warrant and 86,698 Common Shares held in trust by Mourant & Co. Trustees
Limited for the benefit of an employees' share ownership plan of Automated
Security (Holdings) PLC, which received Common Shares in connection with ADT's
acquisition of Automated Security (Holdings) PLC.
On February 27, 1997, the Board met to review and deliberate
on the terms of the Western Offer with its legal and financial advisors as
well as to consider certain other items of business and did not take any
action on the Western Offer. As described more fully above, on March 2, 1997,
the Board again met with its legal and financial advisors and concluded that
the Western Offer as of that date was inadequate.
On March 3, 1997, Western issued a press release (the "March
3rd Press Release") in which it announced an intention to change the mix of
consideration payable pursuant to the Western Offer, but without changing the
maximum value of such consideration. Prior to the March 3rd Press Release,
Western, in its Preliminary Prospectus, had stated that it intended to
commence the Western Offer, upon the terms and subject to the conditions set
forth in the Western S-4 and in a related Letter of Transmittal, to exchange
$7.50 net in cash and a number of shares of Western common stock valued at a
maximum of $15 (depending on a pricing formula) for each of the Common Shares
validly tendered on or prior to the Expiration Date (as defined in the Western
S-4) of the Western Offer and not properly withdrawn. In the March 3rd Press
Release, Western announced that it intended to amend the Western Offer to
increase the cash portion of its offer to $10.00 per Common Share and to
decrease the number of shares of Western common stock so that the maximum
value of the shares of Western common stock exchangeable for each Common Share
is $12.50. The March 3rd Press Release states that based on the closing price
of Western's common stock on February 28, 1997, ADT shareholders would receive
$10.00 in cash plus 0.41322 of a share of Western common stock for each Common
Share pursuant to the Western Offer. The precise formula for determining the
number of shares of Western common stock to be exchanged for each Common Share
pursuant to the Western Offer is not set forth in the March 3rd Press Release.
However, the press release does state that ADT shareholders would not receive
more than 0.42017 of a share of Western common stock for each Common Share.
On March 3, 1997, the Board met again with its legal and
financial advisors and unanimously concluded that the Western Offer, as
amended by the March 3rd Press Release, was inadequate. In connection
therewith, the Company filed a Schedule 14D-9 setting forth some of the
factors the Board considered in reaching such conclusion.
In order to implement the Board's original intentions in
adopting the Rights Plan, on March 2, 1997 the Board resolved to effect
certain changes to the Rights Plan as set forth in the First Amendment to
Rights Agreement, dated as of March 3, 1997 (the "Amendment"). The Amendment
limits the ability to redeem or revoke the Rights Agreement by, inter alia,
(i) amending the definition of a continuing director on the Board ("Continuing
Director") to exclude persons elected to the Board as a result of a proxy
solicitation or similar shareholder initiative if any participant in such
initiative has stated (or a majority of the Board has determined in good
faith) that such participant (or its affiliates or associates) intends to
take, or may consider taking, any action that would result in (a) that person
becoming a person (other than the Company or any employee benefit plan of the
Company) that has acquired beneficial ownership of 15% or more of the Common
Shares issued and outstanding (or, in the case of any person that beneficially
owned more than 15% of the Common Shares on November 4, 1996, that person
acquires more than such person owned as of such date) or (b) a merger,
consolidation, or sale of a majority of the assets or voting power of the
Company which causes the rights to be triggered and (ii) expanding the
circumstances in which supplements, deletions or amendments to the Rights Plan
must be approved by a majority of Continuing Directors. If the Western
Proposals were adopted so that the only members of the Board were the Western
nominees, there would be no Continuing Directors on the Board. As a result of
the Amendment, the Western nominees would be unable to amend the Rights Plan
or redeem the rights issued thereunder, which would negatively affect the
ability of Western to complete the Western Offer.
Certain Litigation
On December 18, 1996, Westar Capital, Inc. ("WCI") filed a
complaint in the U.S. District Court for the Southern District of Florida (the
"Court") against the Company, the directors of the Company and Republic. The
complaint alleges that the Company and its directors breached their fiduciary
duties to WCI and the Company's other shareholders (i) by issuing the Republic
Warrant in connection with the proposed Republic Merger, (ii) by adopting the
Rights Plan, and (iii) by holding shares of the Company in one of the
Company's subsidiaries with the intention of voting those shares as needed to
entrench existing management. The complaint seeks a court order (i) declaring
the Republic Warrant null and void or preventing the Company and Republic from
exercising their rights under the Republic Warrant, (ii) directing the Company
to redeem the Rights Plan, and (iii) preventing the Company from voting the
shares held by its subsidiary. On December 23, 1996, the Court entered an
order dismissing the complaint without prejudice on the grounds that the
complaint contained inadequate and improper allegations relating to the
Court's jurisdiction over the case.
On December 27, 1996, WCI filed a second complaint with the
Court which contains modified allegations relating to the Court's jurisdiction
and identical substantive allegations as the prior complaint. On January 3,
1997, WCI filed an amended complaint which, in addition to the allegations
made in the prior complaints, alleges that the Company and its directors have
attempted to interfere with WCI's voting rights by seeking certain information
from WCI pursuant to procedures established in the Company's Bye-Laws. The
amended complaint seeks the same relief as the prior complaints and also
requests that the Court confirm WCI's voting rights.
On January 21, 1997, the Court granted WCI leave to file a
second amended complaint. The second amended complaint contains the same
allegations as the amended complaint and in addition alleges (i) that the
Company and its directors breached their fiduciary duties by setting a July 8,
1997 date for a meeting of the Company's shareholders, and (ii) that the
Company and its directors violated Section 14(d) of the Securities Exchange
Act of 1934 by making a recommendation to the Company's shareholders regarding
the tender offer without first making certain filings with the SEC. WCI asks
for a court order (i) enjoining the Company from holding the shareholders
meeting on July 8, 1997, (ii) compelling the Company to hold the shareholders
meeting on or before March 20, 1997, and (iii) declaring that the Company has
violated Section 14(d) and enjoining the Company from making any further
recommendations relating to the tender offer until the required SEC filings
are made.
On January 23, 1997, WCI filed a motion for a preliminary
injunction asking the Court to enjoin the Company from holding the
shareholders meeting on July 8, 1997, and compelling the Company to hold the
shareholders meeting on or before March 20, 1997. The Company and its
directors have filed papers in opposition to WCI's motion. As of this date,
the Court has not rendered any decision with respect to plaintiff's motion for
a preliminary injunction.
On January 27, 1997, the Company and its directors filed a
motion to dismiss the second amended complaint based on, among other things,
the Court's lack of personal jurisdiction over the Company and its directors
and for failure to state a claim upon which relief can be granted. WCI has
filed papers in opposition to the motion. On February 21, 1997, the Court
entered an order ruling that the second amended complaint did not adequately
plead personal jurisdiction over the ADT Defendants. On February 27, 1997, WCI
filed a third amended complaint. The third amended complaint contains the
same allegations as the second amended complaint and contains additional
allegations relating to personal jurisdiction.
On February 19, 1997, WCI filed a motion for an expedited trial
on its claims relating to the Republic Warrant and the shares of ADT held by
one of ADT's subsidiaries. WCI has also requested that the Court enter an
order providing that it be given five days' notice before the Republic Warrant
is exercised. The Company and its directors must respond to this motion on or
before March 5, 1997.
The Company and the board of directors believe that the
allegations in WCI's third amended complaint are without merit and intend to
vigorously defend against them.
On December 26, 1996, Charles Gachot filed a complaint in the
Circuit Court for the Fifteenth Judicial Circuit in Palm Beach County, Florida
against the Company, certain of its directors, Western and WCI. The complaint
was brought on behalf of a class of all shareholders of the Company and
alleges that Western and WCI have breached their fiduciary duties to the
Company's shareholders by offering an inadequate price for the outstanding
Common Shares. The complaint seeks to enjoin Western and WCI from acquiring
the outstanding Common Shares. The complaint also alleges that the Company
and its directors have refused to negotiate with Western and WCI and that the
Warrant and the Rights Plan are improper. The complaint seeks unspecified
monetary relief from all defendants. The Company and the Board believe that
the allegations in Gachot's complaint against the Company and the directors
are without merit and intend to vigorously defend against them.
On February 7, 1997, ADT Operations, Inc. ("ADT Operations"), a
subsidiary of ADT, filed a complaint in the Supreme Court of the State of New
York, County of New York against The Chase Manhattan Bank, N.A. ("Chase").
The complaint states that Chase has been an important lender and financial
advisor to ADT Operations since 1993, and that in the course of this business
relationship, ADT Operations has disclosed confidential business information
to Chase. The complaint asserts that ADT Operations and Chase expressly
agreed that Chase would not aid any third party in a hostile takeover bid for
ADT. The complaint alleges that Chase is currently aiding Western in its
attempt to take control of ADT and that Chase's actions constitute: (i) a
breach of an express agreement between Chase and ADT Operations; (ii) a breach
of the implied covenant of good faith that is part of the express agreement
between Chase and ADT Operations; and (iii) a breach of the fiduciary duties
that Chase owes to ADT Operations. The complaint further alleges that Chase
breached a confidentiality agreement with ADT Operations by providing Western
with confidential and proprietary information about ADT Operations and ADT and
by using such information in assessing whether to aid Western in Western's
hostile takeover bid. The complaint also alleges that Chase negligently
and/or fraudulently failed to disclose to ADT Operations that Chase was
advising Western regarding a possible hostile takeover bid for ADT. The
complaint seeks $50 million in monetary damages. The complaint also seeks to
enjoin Chase from advising, funding, or participating in Western's attempts to
take control of ADT and from disclosing any confidential information regarding
ADT Operations and ADT.
On February 7, 1997, ADT Operations filed a motion for a
preliminary injunction, seeking to enjoin Chase from: (i) advising, funding,
or assisting Western in its efforts to take over ADT or participating in these
efforts; and (ii) using or disclosing any confidential information that ADT
Operations provided to Chase. In addition, ADT Operations has sought
expedited discovery on issues regarding the preliminary injunction. On
February 19, 1997, Chase filed papers in opposition to this motion. The
motion was argued before the court on February 24, 1997.
Matters to Be Voted upon at the Special General Meeting
The Western Proposals
Western has presented the following resolutions for
consideration at the Special General Meeting:
Proposal 1. The Western Removal Proposal.
1. RESOLVED, that subject to Resolutions 2 and 3 below being
passed all of the present members of the Board of Directors of the Company
(the "Board") and any other person who may be a director of the Company at the
time of the Meeting be and are hereby removed from the office of director.
Proposal 2. The Western Reduction Proposal.
2. RESOLVED, FURTHER, that the number of seats on the Board from
and after the date of this resolution shall be two (2).
Proposal 3. The Western Election Proposal.
3. RESOLVED, FINALLY, that the directors of the Company from and
after the date of this resolution until the next annual general meeting of the
Company or until their successors have been duly elected shall be Steven L.
Kitchen and Steven A. Millstein, or if either is unable to serve as a director
of the Company due to death, disability or otherwise, any other person
designated as a director nominee by Westar Capital, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST" EACH
OF THE WESTERN PROPOSALS.
General
Outstanding Voting Shares
Notice of the Special General Meeting has been sent to all
holders of record of the Common Shares at the close of business on January 3,
1997, which has been fixed as the record date for notice of the Special
General Meeting. Except as provided in the Bye-Laws of the Company, all
holders of record of the Common Shares on the date of the Special General
Meeting will be entitled to attend, and vote at, the Special General Meeting.
Outstanding and entitled to vote, as of February 28, 1997, were 141,688,697
Common Shares, including 3,182,787 Common Shares owned by a subsidiary of the
Company. Except as set forth above, all of such Common Shares are entitled to
vote at the Special General Meeting and, on a poll, each Common Share is
entitled to one vote on each matter.
Vote Required
Common Shares will vote together as a single class with respect
to the Western Proposals. The affirmative vote of the majority of Common
Shares present and voting at the Special General Meeting is required for the
approval of any proposal.
Pursuant to Bermuda law, only votes cast for a matter
constitute affirmative votes. Votes withheld or abstaining from voting are
counted for quorum purposes only. At the Special General Meeting not less
than two holders of Common Shares present in person or by proxy shall form
a quorum for the transaction of business and if a quorum does not assemble
within half an hour after the time appointed for the Special General
Meeting, the Special General Meeting shall be dissolved.
Voting Your Proxy
Your Board is soliciting proxies for the Special General
Meeting AGAINST the Western Proposals.
Shares represented by such properly executed proxies will be
voted as directed therein on any poll that may be called for. In the event of
a poll being called for, and in the absence of direction from a shareholder,
proxies held by Michael A. Ashcroft, Stephen J. Ruzika or John D. Campbell
will be voted AGAINST the Western Proposals. You may revoke your proxy by
giving written notice of revocation to the Secretary of the Company at any
time before it is voted, by submitting a later-dated proxy or by attending the
Special General Meeting and voting your shares in person.
A form of proxy is enclosed with this document. You are
requested to complete and return this as soon as possible. In order to be
valid, all forms of proxy for the Special General Meeting must be completed
in accordance with the instructions on them and received by the times and
dates set forth below at any of the offices of the Company's registrars, whose
names and addresses are set out below:
In the United States:
by on July 7, 1997 (Eastern Standard Time):
by hand delivery at:
ADT Limited
c/o D.F. King & Co., Inc.
55 Water Street, 20th Floor
New York, New York 10005
by mail to:
ADT Limited
c/o D.F. King & Co., Inc.
Wall Street Station
P.O. Box 411
New York, New York 10269-0069
in each case for delivery to the Registrar of the Company.
In the United Kingdom:
by on July 7, 1997 (British Summer Time) by hand or mail at:
ADT Limited
c/o D.F. King (Europe) Limited
Royex House, Aldermanbury Square
London EC2V 7HR
United Kingdom
for delivery to the Registrar of the Company.
In Bermuda:
by on July 7, 1997 (Bermuda Time) by hand or mail at:
ADT Limited
c/o AS&K Services Limited
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, with
respect to beneficial ownership (determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
Common Shares by any person known by the Company to beneficially own more than
five per cent of the outstanding Common Shares (i) as at July 1, 1996 by
Republic; (ii) as at December 18, 1996 by WCI; (iii) as at December 31, 1996
by FMR Corp. ("FMR"); and (iv) as at February 28, 1997 by (a) all directors
of the Company, (b) the named directors and officers of the Company, including
three executive officers of subsidiaries of the Company and (c) all directors
and executive officers of the Company as a group. An *indicates
ownership of less than one per cent of outstanding Common Shares.
Number of
Name of Beneficial Owner Common Shares Per cent of
or Identity of Group Beneficially Owned(1),(2) Class(3)
- ------------------------- ------------------------- -----------
Westar Capital, Inc. (4) 38,287,111 27.6%
818 Kansas Avenue
Topeka, Kansas 66601
FMR Corp.(5) 8,416,744 5.9%
82 Devonshire Street
Boston, Massachusetts 02109
Republic Industries, Inc.(6) 15,000,000 9.8%
450 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
M.A. Ashcroft(7) 11,075,718 7.5%
J.E. Danneberg 102 *
R.A. Gross 2,000 *
A.B. Henderson 621 *
R.G. Lakey 0 *
J.S. Pasman, Jr. 2,000 *
M.J. Richardson 282,837 *
S.J. Ruzika 1,157,405 *
W.P. Slusser 2,800 *
W.W. Stinson 3,010 *
R.S. Troubh 2,500 *
All directors and executive officers
as a group, 11 persons(8) 12,528,993 8.4%
- ----------
(1) Includes Common Shares which may be acquired upon exercise of the
following number of options to purchase Common Shares from the Company
exercisable on or within 60 days of February 28, 1997 held by the
following persons: M.A. Ashcroft, 9,700,000; R.A. Gross, nil; R.G.
Lakey, nil; M.J. Richardson, 270,000 and S.J. Ruzika, 1,141,663.
(2) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any Common Shares which such person has the
right to acquire on or within 60 days after February 28, 1997. For
purposes of computing the percentage of outstanding Common Shares held
by each person or group of persons named above, any security which such
person or persons has or have the right to acquire on or within 60 days
after February 28, 1997 is deemed to be outstanding, but is not deemed
to be outstanding for the purpose of computing the percentage ownership
of any other person.
(3) Based upon Common Shares outstanding on February 28, 1997, but excluding
3,182,787 Common Shares owned by a subsidiary of the Company.
(4) The Company has received an Amendment No. 9 to Schedule 13D dated December
18, 1996 filed with the SEC by WCI, a wholly owned subsidiary of Western
Resources Inc., in respect of ownership of 38,287,111 Common Shares. The
Company has not attempted to verify independently any of the information
contained in the Schedule 13D.
(5) The Company has received an Amendment No. 4 to Schedule 13G dated February
14, 1997 filed with the by SEC in respect of ownership of 8,416,744 of
Common Shares at December 31, 1996 by accounts under the discretionary
investment management of its wholly owned subsidiaries Fidelity Management
Research Company and Fidelity Management Trust Company. As of December
31, 1996, FMR exercised sole voting power with respect to 112,714
Common Shares and sole dispositive power with respect to 8,416,744
Common Shares. The Company has not attempted to independently verify
any of the information contained in the Schedule 13G.
(6) Republic holds a currently exercisable warrant for 15,000,000 Common
Shares with an exercise period due to expire 5:00 p.m. (EST) on March 26,
1997. Under the terms of the Republic Warrant, upon exercise, Republic
shall grant to the Chairman of the Company a proxy for as long as Republic
owns the Common Shares, irrevocable until two years following the
commencement of the exercise period of the Republic Warrant, to vote the
Common Shares issued under the Republic Warrant with respect to any matter
which shall be voted upon by the shareholders of the Company. The
exercise period of the Republic Warrant expires six months from the
date of termination of the amalgamation agreement concerning the
proposed Republic Merger.
(7) The number of Common Shares beneficially owned by Mr. Ashcroft includes
718 Common Shares owned by Mr. Ashcroft's wife.
(8) The address for these officers and directors is the address of the
Company.
Directors and Executive Officers
Set forth below are the names, ages, positions and certain
other information concerning the current directors and executive officers of
the Company and three executive officers of subsidiaries of the Company as at
December 31, 1996.
Name Age Position with Company
- ---- --- ---------------------
Michael A. Ashcroft 50 Chairman of the Board; Chief Executive
Officer
John E. Danneberg 50 Director
Raymond A. Gross 47 Senior Vice President of ADT Security
Services, Inc.
Alan B. Henderson 63 Director
Ronnie G. Lakey 42 Director of ADT (UK) Holdings PLC
James S. Pasman, Jr. 66 Director
Michael J. Richardson 60 President and Chief Executive Officer of
ADT Automotive, Inc.
Stephen J. Ruzika 41 Chief Financial Officer; Executive Vice
President; Director
W. Peter Slusser 67 Director
William W. Stinson 63 Director
Raymond S. Troubh 70 Director
- ----------
Mr. Ashcroft has been Chairman and Chief Executive Officer of
the Company since 1984 and is Chairman of the Executive Committee. He was
Chairman and Chief Executive Officer of the Company's predecessor company,
Hawley Group PLC, from 1977 to 1984. He is the non-executive Chairman of BHI
Corporation.
Mr. Danneberg has been a director of the Company since December
1991 and was previously a director of the Company from 1984 to June 1991. He
was the President of Foliage Plant Systems, Inc., an interior landscape
contractor, from 1988 to October 1995.
Mr. Gross has been a Senior Vice President of ADT Security
Services, Inc. since March 1, 1996. From August 1993, he was President and
Chief Executive Officer of Alert Centre, Inc., which was acquired by ADT in
December 1995, and prior to that he was President/General Manager of Cellular
One of Ohio from November 1988.
Mr. Henderson has been a director of the Company since 1992 and
is a member of the Audit and Remuneration Committees. He is Chairman of
Ranger Oil (UK) Limited, an oil exploration and production company, and has
been a director of Ranger Oil (UK) Limited since 1972. He is also Chairman of
Abtrust Emerging Economies Investment Trust Plc and Abtrust New Thai
Investment Trust Plc, and is a director of Abtrust New Dawn Investment Trust
Plc, Energy Capital Investment Company PLC and Greenfriar Investment Company
PLC.
Mr. Lakey has been a director of ADT (UK) Holdings PLC since
its incorporation in 1996. He has operational responsibility for the
Company's electronic security services operations in Canada and Europe. He
has held various positions with the Company since joining in 1987.
Mr. Pasman has been a director of the Company since 1992 and is
a member of the Audit and Remuneration Committees. He was President and Chief
Operating Officer of National Intergroup, Inc., an industrial holding company,
from 1989 to 1991 and was Chairman and Chief Executive Officer of Kaiser
Aluminum and Chemical Corp., an aluminum and chemical company, from 1987 to
1989. He is a director of BEA Income Fund, Inc., BEA Strategic Income Fund,
Inc. and BT Insurance Funds Trust.
Mr. Richardson has been the President and Chief Executive
Officer of ADT Automotive, Inc., which supervises the United States vehicle
auction services business, since 1982.
Mr. Ruzika has been a director and Executive Vice President of
the Company since 1987, has been Chief Financial Officer since 1989 and
President of ADT Security Services, Inc. since 1996. He is a member of the
Executive Committee. He was previously Chief Financial Officer of the
Company's United States operations. He is also a non-executive director of
BHI Corporation.
Mr. Slusser has been a director of the Company since 1992 and
is a member of the Audit and Remuneration Committees. He has been the
President of Slusser Associates, Inc., a private investment banking firm in
New York City, since 1988 and was previously a managing director and head of
mergers and acquisitions at PaineWebber Incorporated. He is a director of
Ampex Corporation, a leading producer of high performance television and data
storage recording systems.
Mr. Stinson has been a director of the Company since 1991. He
retired as Chairman and Chief Executive Officer of Canadian Pacific Limited in
1996 after serving as Chief Executive Officer for 11 years. He remains a
director of that company. He is also a director of Laidlaw, Inc., Western
Star Trucks Inc., Sun Life Assurance Company of Canada, and a number of other
corporations.
Mr. Troubh has been a director of the Company since 1991 and is
a member of the Audit and Remuneration Committees. He has been an independent
financial consultant since 1974. He is a director of America West Airlines,
Inc., ARIAD Pharmaceuticals, Inc., Becton, Dickinson and Company, Diamond
Offshore Drilling, Inc., Foundation Health Corporation, General American
Investors Company, Inc., Olsten Corporation, Petrie Stores Corporation, Time
Warner Inc., Triarc Companies, Inc. and WHX Corporation.
Each director is currently serving a term which expires at the
next annual general meeting. Each such director is eligible for re-election.
Under the Bye-Laws of the Company, no person other than a director retiring at
a General Meeting of the Company shall, unless recommended by the directors,
be eligible for election to the office of director unless, between six and 28
days before the meeting date, the Secretary of the Company has been given, by
a shareholder of the Company (other than the person to be proposed) entitled to
attend and vote at the annual general meeting or special general meeting,
written notice of his intention to propose such person for election and also
written notice, signed by the person to be proposed, of his willingness to be
elected. A director may hold any other office or position of profit under the
Company (other than the office of Auditor) in conjunction with this office of
director for such period and on such terms as the Company may from time to
time determine in general meeting.
Meetings and Committees of the Board
During 1996, there were eleven meetings of the Board. All
directors attended at least 75 per cent of the meetings of the Board and of
the committees of which they were members.
The Board has several committees, including an Audit Committee
and a Remuneration Committee. The Audit Committee, formed in 1991, and the
Remuneration Committee, formed in 1992, each consist entirely of independent
directors who are Messrs. Henderson, Pasman, Slusser and Troubh. During 1996,
there were four meetings of the Audit Committee and four meetings of the
Remuneration Committee. The function of the Audit Committee is to review the
services performed by the Company's independent accountants and to review and
act or report to the Board with respect to the scope of audit procedures and
accounting practices. The function of the Remuneration Committee is to review
and approve compensation and other employment benefits afforded certain
executive officers. The Company has no standing nominating committee.
Compensation of Directors
Directors who are not employees of the Company are paid an
annual director's fee of $25,000 each and are reimbursed for reasonable and
customary travel and other expenses incurred in performing their duties.
In addition, Messrs. Henderson, Pasman, Slusser and Troubh are each paid an
annual sum of $15,000 for their services on the Audit and Remuneration
Committees.
Executive Compensation
Summary Compensation Table
Shown below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal
years ended December 31, 1996, 1995 and 1994, of those persons who were, at
December 31, 1996 (i) the Chief Executive Officer and (ii) the other four most
highly compensated executive officers of the Company, including three
executive officers of a subsidiaries of the Company (the "Named Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Awards
------------------------------------- ------------
Stock Option All Other
Name and principal position Year Salary Bonus Grants Compensation
- --------------------------- --- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael A. Ashcroft(2) 1996 $1,143,844 $2,344,880(2) 5,000,000 $1,330,380(3)
Chairman of the Board;
Chief Executive Officer
1995 $1,089,375 $2,233,219 1,500,000 $1,921,939
1994 $1,037,500 $1,945,313 750,000 $ 783,403
Raymond A. Gross 1996 $ 183,353(4) $ 82,500 100,000 -0-
Senior Vice President of
ADT Security Services, Inc.
1995 -0- -0- -0- -0-
1994 -0- -0- -0- -0-
Ronnie G. Lakey 1996 $ 248,962 $ 125,000 100,000 $ 27,020
Director of ADT (UK)
Holdings PLC
1995 $ 195,866 $ 140,000 20,000 $ 14,822
1994 $ 188,827 $ 35,000 25,000 $ 14,138
Michael J. Richardson(5) 1996 $ 335,000 $1,222,705 40,000 $ 6,461(6)
Chief Executive Officer of
ADT Automotive, Inc.
1995 $ 314,000 $ 145,245 50,000 $ 6,461
1994 $ 300,000 $ 115,000 45,000 $ 6,480
Stephen J. Ruzika(7) 1996 $ 686,306 $1,100,000(8) 208,333 $ 40,323(9)
Chief Financial Officer;
Executive Vice President;
Director
1995 $ 653,625 $ 250,000 500,000 $ 37,432
1994 $ 622,500 $ 200,000 250,000 $ 35,639
</TABLE>
- ----------
(1) While officers enjoy certain perquisites, such perquisites did not exceed
the lesser of $50,000 or 10 per cent of each officer's salary and bonus.
Except as set forth below "Employment Contracts, Termination of Employment
and Change in Control Arrangements", a change in control of the Company
does not of itself require the payment of any moneys to any of the Named
Officers. However, such an event does accelerate the vesting of certain
pension rights and the exercisability of certain stock options.
(2) The salary, bonus and all other compensation shown in respect of 1994 and
1995 represent Mr. Ashcroft's entitlement to those amounts. Mr. Ashcroft
utilized $2,500,000 of the compensation due to him for 1995, being the
whole of his bonus entitlement of $2,233,219 and $266,781 of his other
compensation to subscribe for options, at the rate of $2.50 per option, to
subscribe for Common Shares. Mr. Ashcroft also utilized $2,500,000 of the
compensation due to him for 1994, being the whole of his bonus entitlement
of $1,945,313 and $554,687 of his other compensation entitlement to
subscribe for these options.
(3) The other compensation due to Mr. Ashcroft in respect of 1996, and
referred to in note (2) above, represents the US dollar equivalent of
Pound Sterling 851,344 being an amount in lieu of providing Mr. Ashcroft
with retirement and death benefits under a defined pension plan. The
amounts in respect of 1995 and 1994 were the equivalents of Pound
Sterling 1,217,341 and Pound Sterling 511,126, respectively.
(4) Represents salary since joining ADT Security Services, Inc. in March 1996.
Mr. Gross's annualized salary for 1996 was $220,000.
(5) The salary amount shown for 1996 represents Mr. Richardson's entitlement
to salary in the year. Prior to becoming entitled to receive certain
salary, however, Mr. Richardson elected to receive options at the rate of
$2.50 per option, to subscribe for Common Shares at an exercise price of
$8.625 per share, in lieu of receiving $69,444 in salary (1995-$83,333).
(6) Represents $4,500 contributed to a defined contribution 401(k) pension
benefit plan and $1,961 which is the aggregate incremental cost to the
Company of providing Mr. Richardson with enhanced group term life insurance
benefits.
(7) The salary amount shown for 1996 represents Mr. Ruzika's entitlement to
salary in the year. Prior to becoming entitled to receive certain salary,
however, Mr. Ruzika elected to receive options at the rate of $2.50 per
option, to subscribe for Common Shares at an exercise price of $8.625 per
share, in lieu of receiving $80,136 in salary (1995 - $104,167).
(8) Mr. Ruzika earned a bonus for 1996 of $1,100,000 (1995 - $250,000) under a
bonus arrangement by which payments are related directly to the performance
of the Common Share price.
(9) Represents $37,639 contributed to Mr. Ruzika's retirement income plan in
1996 and $2,684 which is the estimated aggregate incremental cost to the
Company of providing Mr. Ruzika with supplemental term life insurance.
Option Grants in Last Fiscal Year
Shown below are all grants of share options to the Named
Officers during the fiscal year ended December 31, 1996. The following table
shows, along with certain information, hypothetical realizable values of share
options granted for the last fiscal year, at assumed rates of cumulative share
price appreciation over the ten-year life of such options. These assumed
rates of appreciation are set by the rules of the SEC and are not intended to
forecast appreciation of the price of the Common Shares. These hypothetical
values have not been discounted to reflect their present values.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Share Price Appreciation
Individual Grants for Option Term(2)
-------------------------------------------------------------------------- --------------------------
% of
Total Options Exercise
Granted Market Price or
Options to Employees on Base Price
Name Granted(1) in Fiscal Year Date of Grant ($/share) Expiration Date 5% 10%
- ---- ---------- -------------- ------------- ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael A. Ashcroft(2) 5,000,000 78.3% $14.75 $15.00 Aug 4, 2003 $18,468,000 $62,213,000
Raymond A. Gross 100,000 1.6% $16.375 $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Ronnie G. Lakey 100,000 1.6% $16.375 $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Michael J. Richardson 40,000 0.6% $16.375 $16.50 May 6, 2006 $ 407,000 $ 1,039,000
Stephen J. Ruzika(2) 208,333 3.3% $14.75 $15.00 April 29, 2004 $ 931,000 $ 3,046,000
</TABLE>
- ----------
(1) Gains are reported net of the option exercise price but before taxes
associated with exercise. These amounts represent certain assumed
rates of appreciation only. Actual gains, if any, on option exercises
are dependent on the future price performance of the Common Shares as
well as the option holders' continued employment through the vesting
period. The potential realizable values reflected in this table may
not necessarily be achieved.
(2) Mr. Ashcroft and Mr. Ruzika have paid a subscription price for these
options of $2.50 per option. Accordingly, for the purpose of valuing
these options, $2.50 has been added to the exercise price.
Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
Shown below is information with respect to aggregate option
exercises by the Named Officers in the fiscal year ended December 31, 1996 and
with respect to unexercised options to purchase Common Shares granted in
fiscal 1996 and prior years to the Named Officers and held by them at December
31, 1996.
<TABLE>
<CAPTION>
Shares Acquired Value Realized Number of Unexercised Value of Unexercised In-the-Money
on Exercise of on Exercise of Options at Fiscal Year End Options at Fiscal Year End(1)(2)
Options in Options in --------------------------- ---------------------------------
Name Fiscal Year Fiscal Year Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Ashcroft 825,000 $6,626,250 9,700,000 1,550,000 $65,937,190 $17,493,125
Raymond A. Gross -0- -0- -0- 100,000 -0- $ 637,500
Ronnie G. Lakey 32,000 $ 256,016 15,000 145,000 $ 208,125 $ 1,209,375
Michael J. Richardson 45,000 $ 318,125 270,000 135,000 $ 3,496,750 $ 1,441,875
Stephen J. Ruzika 12,000 $ 54,900 1,141,663 516,670 $12,430,900 $ 5,831,080
</TABLE>
- ----------
(1) Based on the closing price of $22.875 per Common Share on December 31,
1996.
(2) Messrs. Ashcroft, Richardson and Ruzika have been granted certain options
for which they have paid a subscription price of $2.50 per option.
Accordingly, for the purpose of valuing these options, $2.50 has been
added to the relevant exercise prices.
Certain Defined Benefit Plans
The Company does not maintain any defined benefit or actuarial
retirement plans ("pension plans"). However, Mr. Lakey, Mr. Richardson and Mr.
Ruzika participate in pension plans that are maintained by indirect, wholly
owned subsidiaries of the Company. Certain information is set forth below
regarding the pension plans in which Mr. Lakey, Mr. Richardson and Mr. Ruzika,
as well as other employees of the Company's subsidiaries, participate.
Mr. Richardson is a participant in the ADT Pension Plan
maintained by ADT Group PLC ("ADT Group"). Mr. Richardson is the only Named
Officer who participates in the ADT Group's Pension Plan (the "ADT Group
Plan"). The ADT Group Plan provides Mr. Richardson an annual benefit payable
for life beginning at age 60. The annual benefit is equal to 66.7 per cent of
base salary for the three years of the most recent ten years prior to
retirement that produce the highest average. Mr. Richardson's annual benefit
payable at age 60 for life is Pound Sterling146,095. Since Mr. Richardson
has already attained age 60, the benefit payable to him upon his actual
retirement will be adjusted based upon his actual retirement date. Benefits
payable under the ADT Group Plan are not offset by Social Security benefits.
ADT, Inc. maintains a supplemental executive retirement plan
(the "ADT SERP"). Mr. Lakey and Mr. Ruzika are the only Named Officers who
participate in the ADT SERP. Benefits for Mr. Ruzika under the ADT SERP are
also supplemented under a Supplemental Benefit Agreement between Mr. Ruzika and
ADT Management Services Limited (the "Supplemental Benefit Agreement").
The ADT SERP provides benefits to Mr. Lakey for a total of 20
years, beginning at age 60. This annual benefit is equal to 60 per cent of
Mr. Lakey's base salary for the three consecutive years that produce the
highest average. This benefit is reduced by the value of any benefits derived
from employer contributions under any other retirement plan maintained by ADT,
Inc. or its affiliates. Mr. Lakey's estimated annual benefit payable at age
60 for a total of 20 years, net of the estimated offset attributable to
employer contributions under certain defined contribution plans, is $30,764.
The estimated offset is based on the assumption that Mr. Lakey will have 27
years of service at age 60. Benefits are not offset by Social Security
benefits.
The ADT SERP and Supplemental Benefit Agreement together
provide benefits payable to Mr. Ruzika for a total of 20 years beginning at
age 55. This annual benefit is equal to 65 per cent of base salary and
bonuses for the three consecutive years that produce the highest average.
Effective for benefits accrued after December 31, 1994, the benefit is
calculated using base salary including, for this purpose, the purchase price
of any options to purchase the Company's shares received in lieu of base
salary. This benefit is reduced by the value of any benefits derived from
employer contributions under any other retirement plan maintained by ADT, Inc.
or its affiliates. Mr. Ruzika's estimated annual benefit payable at age 55
for a total of 20 years, net of the estimated offset attributable to employer
contributions under certain defined contribution plans, is $361,802. The
estimated offset is based upon the assumption that Mr. Ruzika will have 28
years of service at age 55. Benefits are not offset by Social Security
benefits.
Compliance with Reporting Requirements
The Company believes that, during 1996, all filing requirements
under Section 16(a) of the Exchange Act applicable to its officers, directors
and beneficial owners of more than 10 per cent of equity securities were
complied with on a timely basis.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
The Company has entered into a written employment agreement
with Mr. Ashcroft, dated as of May 8, 1993. An amendment to the agreement was
approved on November 4, 1996, which provides that Mr. Ashcroft shall serve as
Chairman of the Board and Chief Executive Officer until March 31, 2000,
subject to renewal for additional two-year terms thereafter. Mr. Ashcroft's
initial base salary was $1,000,000 per annum subject to annual review and
adjustment by the Board but may only be reduced by a maximum of 15 per cent
during the term of the agreement without Mr. Ashcroft's consent. During 1996,
Mr. Ashcroft's base salary was increased to $1,157,625 per annum. Mr.
Ashcroft is also eligible for annual bonus payments based upon an
earnings-per-share target for the Common Shares set each year, subject to a
maximum bonus of $4,000,000. The maximum bonus is payable upon attaining
117.5 per cent of the targeted earnings per share. As a term of the contract,
Mr. Ashcroft was granted options to purchase 1,000,000 Common Shares under the
ADT 1993 Long Term Incentive Plan, with 50 per cent of such options
exercisable at market value on the date of grant, as defined, 25 per cent
exercisable at 110 per cent of market value, and 25 per cent exercisable at
120 per cent of market value, vesting in equal annual installments over a
three-year period commencing one year from the date of grant and exercisable
over a ten-year period. The Company will make annual payments to Mr. Ashcroft
calculated to provide him with retirement and death benefits no less favorable
than if he were a member of ADT Group Plan. Such annual payments will not be
less than $450,000. The Company may terminate the agreement upon Mr.
Ashcroft's death, when Mr. Ashcroft attains the age of 60, if Mr. Ashcroft is
unable to perform his duties for 180 days due to ill heath, accident or
otherwise, if Mr. Ashcroft fails to discharge his duties or engages in conduct
that is materially injurious to the Company, or if Mr. Ashcroft willfully and
continually commits a material breach of the agreement. Mr. Ashcroft may
terminate the agreement upon, among other reasons, a breach by the Company
which breach (except for a material breach) is not cured within 30 days, if he
is removed from his position as Chairman of the Board or his position as Chief
Executive Officer, or if the scope of his duties and responsibilities becomes
inconsistent with his position as an officer of the Company.
Mr. Ashcroft may also terminate the agreement without cause at
any time upon 90 days notice. In the event the agreement is terminated
pursuant to its terms by the Company or without cause by Mr. Ashcroft upon 90
days notice, Mr. Ashcroft will be entitled to the pro rata portion of his base
salary, bonus payment, pension payment and other benefits but will not be
entitled to any additional payments. If the agreement is terminated due to a
disability, Mr. Ashcroft will be entitled to an additional payment equal to
two times his highest base salary. In the event the agreement is terminated
by the Company without cause or by Mr. Ashcroft with cause, Mr. Ashcroft will
be entitled to a severance payment equal to two times his highest base salary
and average bonus payment, annual pension payments for the year of termination
and the following two years, and one year of any other benefits previously
provided.
Mr. Ruzika entered into an employment agreement with ADT as of
February 26, 1997. The agreement provides that Mr. Ruzika will serve as Chief
Financial Officer of ADT and as President of ADT Security Services, Inc., ADT
Operations, Inc. and ADT, Inc., subsidiaries of ADT, from March 1, 1997 until
February 28, 1999, subject to renewal for additional two-year terms
thereafter. Mr. Ruzika's initial annual base salary will be $694,500 and will
be subject to annual review for possible adjustments. Mr. Ruzika will also be
eligible for annual bonus payments at the discretion of the Company as well as
other compensation and benefit plans of the Company including stock option
plans. The termination provisions of this agreement provide that in the event
that agreement is terminated by ADT without cause or by Mr. Ruzika with cause,
Mr. Ruzika will be entitled to receive a severance payment equal to twice his
base salary and certain fringe benefits.
Mr. Lakey entered into an employment agreement with ADT, Inc.
as of January 16, 1997. The agreement provides that Mr. Lakey will have
operational responsibility for ADT's electronic security operations in Canada
and Europe from January 16, 1997 until December 31, 1999, subject to renewal
for additional two-year terms thereafter. Mr. Lakey's initial annual base
salary will be $265,000. Mr. Lakey will also be eligible for annual bonus
payments at the discretion of the Company as well as certain other enumerated
benefits and relocation expenses. The termination provisions of this
agreement include a term to the effect that, in the event that agreement is
terminated by ADT without cause or by Mr. Lakey with cause, Mr. Lakey will be
entitled to receive his base salary and certain fringe benefits for two years.
Under the ADT SERP (and, in the case of Mr. Ruzika, the
Supplemental Benefit Agreement), Mr. Ruzika and Mr. Lakey become fully vested
in the accrued benefits thereunder upon a Change in Control (as defined below)
of the Company or ADT, Inc. Mr. Ruzika also becomes fully vested upon a
Change in Control (as defined below) of ADT Management Services Limited. If
Mr. Ruzika or Mr. Lakey's employment is terminated within one year from the
date of a Change in Control, the terminated executive will receive, in lieu of
all other amounts due to him under the ADT SERP (and, in Mr. Ruzika's
case, the Supplemental Benefit Agreement), a lump-sum distribution equal to
the present value of his accrued benefit and an additional amount
calculated under a formula intended to put him in the same after-tax
position that he would have been in if he had received a lump-sum
distribution of his accrued benefit on his normal retirement date. Under
this formula Mr. Ruzika would currently receive an additional amount of
approximately $653,295 and Mr. Lakey would currently receive an additional
amount of approximately $54,253.
A "Change in Control" is deemed to have occurred under the ADT
SERP if : (1) any person (other than Laidlaw, Inc. or its affiliates,
collectively the "Laidlaw Group") acquires more than 40 per cent of the
Company's voting stock (the triggering percentage has been reduced from 40 per
cent to 35 per cent because the Laidlaw Group's beneficial ownership of the
Company's voting stock is less than 20 per cent); (2) the Laidlaw Group
becomes the beneficial owner of more than 45 per cent of the Company's
outstanding voting stock; (3) there is a change of 50 per cent or more in the
composition of the Company's directors during any 3-year period (unless the
change in directors was approved by two thirds of the directors in office at
the beginning of such 3-year period or directors who had previously been
elected with the requisite two thirds approval); (4) a person acquires the
legal right to direct the management and policies of the Company (other than
by virtue of membership on the board of directors or a committee of the
board); (5) the Company ceases to own, directly or indirectly through
subsidiaries, at least 80 per cent of the voting stock of ADT, Inc. or (6) the
shareholders of either the Company or ADT, Inc. approve a merger,
consolidation or a sale or disposition of all, or substantially all, of the
assets of the Company or ADT, Inc. as the case may be, with the relevant
company not surviving. In the case of Mr. Ruzika, the provisions of (4), (5),
and (6) above include a change in the ownership of ADT Management Services
Limited (as well as the Company or ADT, Inc.).
Mr. Richardson entered into an employment agreement with ADT
Automotive Holdings, Inc. ("ADT Automotive Holdings"), the corporate parent of
ADT Automotive, Inc., as of November 30, 1993. The agreement provides that
Mr. Richardson will serve as Chief Executive Officer of ADT Automotive
Holdings and its subsidiaries from December 1, 1993 until July 31, 1996,
subject to renewal for additional one-year terms thereafter. The agreement
was renewed on a year-to-year basis as of July 31, 1996. The agreement
provides that the term will be extended for an additional one year period
thereafter unless either ADT Automotive Holdings or Mr. Richardson shall
have given the other notice of intention not to extend the term six months
prior to July 31, 1997. On January 29, 1997, ADT Automotive Holdings and
Mr. Richardson entered into an agreement which provides that Mr.
Richardson's time to give such notice is extended to and including April
30, 1997. Mr. Richardson's initial annual base salary will be $300,000
and will be subject to annual review for possible increases. Mr.
Richardson will also be eligible for annual bonus payments at the
discretion of the Company. The termination provisions of this agreement
include a term to the effect that, in the event that agreement is
terminated by ADT Automotive Holdings without cause or by Mr. Richardson
with cause, Mr. Richardson will be entitled to receive his base salary and
certain fringe benefits for two years or the remaining term of the
agreement, whichever is longer.
Mr. Richardson has also entered into an incentive compensation
agreement for payment upon the successful sale of ADT Automotive Holdings by
the Company. To the extent that the gross consideration for such sale exceeds
$430 million, on completion of the sale, ADT has agreed to pay Mr. Richardson
one-half of one per cent of such excess. Gross consideration is deemed to be
the aggregate of proceeds received by ADT and debt remaining in the auctions
group which is assumed by the purchaser other than debt considered to be a
component of working capital, including bank overdrafts.
The Remuneration Committee of the Board has considered the
recommendations of the Company's outside independent human resources
consultants, and has reviewed industry practices concerning change in control
severance benefits. In view of the need to minimize employee distractions and
to retain employee loyalty and dedication to the Company and to assure
attention to the Company's performance pending resolution of the Western
Offer, on February 27, on the recommendation of the Remuneration Committee,
the Board unanimously approved a severance agreement between Mr. Gross and ADT
Security Services, Inc. in the event of a change of control, which severance
arrangement it has determined is fair and consistent with industry practices.
The agreement provides that in the event that there is a "Severance Change in
Control" (as defined below) of ADT prior to February 9, 2000, and either (x)
Mr. Gross's employment is terminated without cause or (y) Mr. Gross terminates
his employment for good reason, Mr. Gross shall be entitled to (a) an amount
of severance pay equal to twice the total of (i) the higher of his annual full
base salary as of the date of termination or as of the date of the Severance
Change in Control, calculated on an annualized basis, plus (ii) the amount of
the bonus awarded to Mr. Gross, if any, in the year prior to the date of
termination and (b) for the twelve-month period following such termination,
benefits substantially similar to the higher of those which Mr. Gross is
receiving immediately prior to the date of termination or as of the date of
the Severance Change in Control. A "Severance Change in Control" is deemed to
have occurred under the severance agreement if: (1) any person becomes the
beneficial owner of more than 50 per cent of ADT's then-outstanding voting
securities; (2) there is a change of 50 per cent or more in the composition of
the Company's directors during the term of the agreement (unless the change in
directors was approved by two thirds of the directors in office at the
beginning of such term or directors who had previously been elected with the
requisite two thirds approval); (3) a person acquires the legal right to
direct the management and policies of the Company (other than by virtue of
membership on the board of directors or a committee of the board); or (4) the
shareholders of ADT approve a merger, consolidation or a sale or disposition
of all, or substantially all, of the assets of ADT in which ADT is not the
surviving entity.
In 1996, the Remuneration Committee of the Board resolved to
increase the subscription price and size of certain share options held by Mr.
Ashcroft and Mr. Ruzika. In 1993, Mr. Ashcroft and Mr. Ruzika were granted
options to subscribe for 3,000,000 and 125,000 Common Shares respectively at
an exercise price of $8.625 per share for which each was required to pay $2.50
per option, representing a total payment of $7,500,000 and $312,500
respectively, as a condition of vesting. In 1996, the exercise price of these
options was increased to $15 and the number of related shares was increased to
8,000,000 and 333,333 respectively. All the other material terms and
conditions remained unchanged. These changes were approved by the shareholders
of the Company. At the time that the Remuneration Committee approved these
changes, the closing price of the Common Shares was $14.75. In November 1996,
the Remuneration Committee resolved that the options of Mr. Ashcroft be
transferable and, at the same time, in return, Mr. Ashcroft agreed to extend
the termination date of his employment agreement from March 31, 1998 to March
31, 2000.
In November 1996, the Remuneration Committee also approved a
bonus plan under which Mr. Ruzika is to receive a bonus of $200,000 when the
Common Share price exceeds $21.00 for a continuous period of 30 trading days
and $200,000 each time the Common Share price exceeds by $1.00 for a
continuous period of 30 trading days the share price level at which a bonus
payment was previously made. The plan is due to expire in 2001 or such
earlier date as the Common Share price exceeds $30.00 for a continuous period
of 30 trading days. Should the share price exceed $30.00 within two and one
half years, Mr. Ruzika will receive an additional payment of $1,000,000.
Certain Relationships and Related Transactions
ADT, Inc., a wholly owned subsidiary of ADT, entered into a
consulting agreement with John E. Danneberg, one of ADT's directors, as of
August 28, 1996. The agreement provides that Mr. Danneberg, as an independent
consultant, will serve as Chief Executive Officer of Sonitrol Corporation
("Franchisor") and certain franchisees of Franchisor owned or acquired by
affiliates of ADT, Inc. The agreement provides that the initial term of such
engagement shall be for a period of six months commencing on September 1, 1996
and shall be automatically renewed on a month to month basis unless written
notice is given by ADT, Inc. or Mr. Danneberg not to renew the agreement at
least 30 days before the end of such initial term, which notice was not given.
Under the terms of the agreement, ADT, Inc. pays Mr. Danneberg a monthly fee
of $15,000 and Mr. Danneberg is reimbursed directly for all reasonable
out-of-pocket business expenses.
Other Business
The Company's management does not know of any other matter to
be presented for action at the Special General Meeting.
Miscellaneous
Solicitation of Proxies
The costs of this solicitation of proxies will be borne by the
Company. While no precise estimate of this cost can be made at the present
time, the Company currently estimates that it will spend a total of
approximately $ for its solicitation of proxies, including expenditures
for attorneys, solicitors, and public relations advisors and advertising,
pricing, transportation, litigation and related expenses, but excluding the
salaries and wages for regular employees and officers and the normal expenses
of an uncontested proxy solicitation for the election of directors. As of
March , 1997 the Company has incurred proxy solicitation expenses of
approximately $ excluding costs normally expended for a solicitation
for an election of directors in the absence of a contest and excluding costs
represented by salaries and wages of regular employees and officers.
In addition to the use of the mails, certain directors,
officers or employees of the Company may solicit proxies by telephone,
telecopy or personal contact. The Company will pay for the cost of these
solicitations, but these individuals will receive no additional compensation
for these solicitation services. The Company has retained D.F. King & Co.,
Inc. and its affiliate D.F. King (Europe) Limited (collectively, "D.F. King")
at combined estimated fees of not more than $ in the aggregate, plus
reasonable out-of-pocket expenses, to participate in the solicitation of
proxies and revocations. The Company also has agreed to indemnify D.F. King
against certain liabilities and expenses. The Company estimates that
approximately 130 employees of D.F. King will be involved in the solicitation
of proxies on behalf of the Company. The Company will also reimburse brokers,
fiduciaries, custodians and other nominees, as well as persons holding stock
for others who have the right to give voting instructions, for reasonable
out-of-pocket expenses incurred in forwarding this proxy statement and related
materials to, and obtaining instructions or authorizations relating to such
materials from, beneficial owners of the Company's capital stock.
ADT has retained Merrill Lynch to render financial advisory
services to ADT in connection with the evaluation and response to the Western
Offer and in connection with strategic, financial and shareholder relations
matters arising during the term of Merrill Lynch's engagement. Pursuant to the
terms of an engagement letter dated March 3, 1997, ADT has agreed to pay
Merrill Lynch for its financial advisory services an initial retainer fee of
$1,500,000 and an additional fee of $1,500,000 that is payable on the earlier
of (i) the day of the Special General Meeting and (ii) July 8, 1997. If the
Western Proposals are defeated at the Special General Meeting and Western
votes in favor of the Western Proposals, ADT has agreed to pay Merrill Lynch
an additional fee of $3,000,000; alternatively, however, if (i) Western
withdraws its Special General Meeting requisition or (ii) the Special General
Meeting is cancelled or (iii) Western abstains or votes against the Western
Proposals, ADT has agreed to pay Merrill Lynch an additional fee of
$1,500,000. In addition, ADT has agreed to pay Merrill Lynch a fee of
$2,000,000 on or before July 8, 1997; provided, however, that if during the
period Merrill Lynch is retained by ADT under the engagement letter or within
one year thereafter, the Company enters into certain specified transactions,
and, in connection therewith, the Company has retained Merrill Lynch pursuant
to a separate engagement letter, then the Company and Merrill Lynch have
agreed that such $2,000,000 fee shall be credited against any fee due and
payable to Merrill Lynch pursuant to the terms of such separate engagement
letter. ADT has agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with Merrill Lynch's activities
under the engagement letter, including the reasonable fees and distributions
of its legal counsel. ADT has agreed to indemnify Merrill Lynch against
certain liabilities arising out of or in connection with its engagement.
Merrill Lynch does not admit that it or any of its directors, officers or
employees is a "participant," as defined in Schedule 14A promulgated under the
Exchange Act, in the solicitation of proxies. In connection with Merrill
Lynch's engagement as financial advisor, certain employees of Merrill Lynch
may communicate in person, by telephone or otherwise with a limited number of
institutions, brokers or other persons who are shareholders of the Company.
Merrill Lynch will not receive any fee for or in connection with such
activities by their respective employees apart from the fees they are
otherwise entitled to receive as described above.
Shareholder Proposals for 1997 Annual General Meeting
Shareholder proposals intended to be considered for action at
the 1997 Annual General Meeting were required to have been received by the
Secretary of the Company on or before November 16, 1996 for review and
consideration for inclusion in the proxy statement and form of proxy relating
to such meeting.
Absence of Appraisal Rights
ADT Shareholders do not have appraisal rights with respect to
the matters to be voted on at the Special General Meeting.
If the proposed amalgamation with Western (the "Amalgamation")
were proposed and submitted to a vote by ADT shareholders, pursuant to Section
106(6) of the Companies Act, a registered holder of Common Shares who did not
vote in favor of the Amalgamation, and who was not satisfied that he or she
had been offered fair value for his or her Common Shares, could, within one
month of the giving of the notice of the general meeting of ADT shareholders,
apply to the Supreme Court of Bermuda (the "Supreme Court") to have the fair
value of such Common Shares appraised by the Supreme Court.
Western has stated that it intends to condition the
Amalgamation upon, among other things, holders of not more than 5 per cent of
the outstanding Common Shares having perfected appraisal rights with respect
to the Amalgamation.
Forward Looking Statements
ADT may occasionally make statements regarding its business and
the markets for its services, including projections of future performance,
statements of management's plans and objective's, forecasts of market trends
and other matters which, to the extent that they are not historical fact, may
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
Certain statements contained herein constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. In particular, statements contained herein regarding the
consummation and benefits of future acquisitions, as well as expectations with
respect to future sales, operating efficiencies and product expansion, are
subject to known and unknown risks, uncertainties and contingencies, many of
which are beyond the control of ADT, which may cause actual results,
performance or achievements to differ materially from anticipated results,
performance or achievements. Factors that might affect such forward looking
statements include, among others, overall economic and business conditions,
the demand for ADT's services, competitive factors in the industry, regulatory
approvals and uncertainty about the consummation of future acquisitions.
Registered and Principal Executive Offices
The registered and principal executive offices of the Company
are located at Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda. The
telephone number there is 441-295-2244. The executive offices of the
subsidiary which supervises the Company's North American activities are
located in the United States at 1750 Clint Moore Road, Boca Raton, Florida
33431. The telephone number there is 561-988-3600.
Bermuda, , 1997
JOHN D. CAMPBELL, Secretary
SCHEDULE A
Because of the nature of the proposals which are to be brought
before the Special General Meeting, the rules of the SEC require the Company
to make available to its shareholders certain additional information with
respect to "participants" (as such term is defined in Rule 14a-11(b)
promulgated under the Exchange Act) in the Board's solicitation. Pursuant to
the rules of the SEC, the persons named below together with the directors set
forth in this Preliminary Proxy Statement under the heading "Directors and
Executive Officers" may be deemed to be participants (each, a "Participant"
and collectively, the "Participants") in the solicitation by the Board in
opposition to the Western Proposals. As such, set forth below is certain
information required pursuant to the rules of the SEC with respect to
Participants in such solicitation.
The following information is with respect to an employee of a
subsidiary of ADT Limited who is deemed to be a Participant in the Board's
solicitation.
Number of
Shares
Beneficially
Name Position Owned
---- -------- ------------
Angela Entwistle Marketing & Corporate Communications Manager 29,500
The business address of the above-named individual is Cedar
House, 41 Cedar Avenue, Hamilton HM12, Bermuda.
Except as set forth below, none of the Participants has
purchased or sold or otherwise obtained or disposed of any securities of the
Company since February 7, 1995. None of the Participants owns any securities
of the Company of record but not beneficially. Furthermore, none of the
Participants has borrowed or otherwise obtained funds for the purpose of
acquiring or holding any securities of the Company purchased or sold or
otherwise obtained or disposed of within the past two years.
Set forth below is a summary of the securities of the Company
purchased or sold or otherwise acquired since February 7, 1995 by each of the
Participants.
Individual Share Activity
- ---------------- ----------------------------------------------------
M. A. Ashcroft Exercised options to purchase 825,000 Common Shares
on April 10, 1996.
J. E. Danneberg None.
A. B. Henderson None.
J.S. Pasman, Jr. None.
S. J. Ruzika Exercised options to purchase 7,000 Common Shares
on August 8, 1996.
Exercised options to purchase 5,000 Common Shares
on November 14, 1996.
W.P. Slusser Purchased 834 Common Shares in the market on
March 20, 1995.
Purchased 500 Common Shares in the market on
January 4, 1995.
Purchased 300 Common Shares in the market on
November 8, 1996.
W.W. Stinson Purchased 3,000 Common Shares in the market on
November 7, 1996.
R.S. Troubh None.
M.J. Richardson Exercised options to purchase 30,000 Common Shares
on April 25, 1995.
Exercised options to purchase 20,000 Common Shares
on October 12, 1995.
Exercised options to purchase 20,000 Common Shares
on January 5, 1996.
Exercised options to purchase 25,000 Common Shares
on March 21, 1996.
Sold 10,000 Common Shares on March 14, 1995.
Sold 30,000 Common Shares on April 25, 1995.
Sold 20,000 Common Shares on October 12, 1995.
Sold 20,000 Common Shares on January 5, 1996.
Sold 25,000 Common Shares on March 21, 1996.
Certain contracts, agreements, arrangements and understandings
between the Company and each of the employees and directors who are deemed to
be Participants with respect to securities of the Company are more fully
described under the headings "Executive Compensation" and "Certain
Relationship and Related Transactions" in this Preliminary Proxy Statement.
Additionally, certain arrangements between the Company and certain officers
who are deemed to be Participants with respect to any future employment by the
Company or its affiliates and any future transactions to which the Company or
any of its affiliates will or may be a party and more fully described under
the headings "Executive Compensation" and "Certain Relationship and Related
Transactions" of this Preliminary Proxy Statement.
Other than as disclosed in this Schedule and in the Preliminary
Proxy Statement, to the knowledge of the Company, none of ADT, or any of its
directors, executive officers or the employees of ADT named in this Schedule
has any substantial interest, direct or indirect, by security holdings or
otherwise, in any matter to be acted upon at the Special General Meeting.
Other than as disclosed in this Schedule and in the Preliminary
Proxy Statement, to the knowledge of the Company, none of ADT, or any of its
directors, executive officers or the employees of ADT named in this Schedule
is, or has been within the past year, a party to any contract, arrangement or
understanding with any person with respect to any securities of ADT,
including, but not limited to, joint ventures, loan or option arrangements,
puts or calls, guarantees against loss or guarantees of profit, division of
losses or profits, or the giving or withholding of proxies.
Other than as set forth in this Schedule and in the Preliminary
Proxy Statement, to the knowledge of the Company, none of ADT, or any of its
directors, executive officers or the employees of ADT named in this Schedule
or any of their associates, has had or will have a direct or indirect material
interest in any transaction or series of similar transactions since the
beginning of ADT's last fiscal year or any currently proposed transactions, or
series of similar transactions, to which ADT or any of its subsidiaries was or
is to be a party in which the amount involved exceeds $60,000.
Other than as set forth in this Schedule and in the Preliminary
Proxy Statement, to the knowledge of the Company, none of ADT, or any of its
directors, executive officers or the employees of ADT named in this Schedule
or any of their associates, has any arrangements or understandings with any
person with respect to any future employment by ADT or its affiliates or with
respect to any future transactions to which ADT or any of its affiliates will
or may be a party.
INFORMATION CONCERNING MERRILL LYNCH
ADT has retained Merrill Lynch to act as its financial advisor
in connection with the transactions described in the Preliminary Proxy
Statement. In addition, Merrill Lynch was retained by ADT in 1996 to act as
its financial advisor in connection with the proposed Republic Merger.
Merrill Lynch is an investment banking firm that provides a full range of
financial services for institutional and individual clients. Merrill Lynch
does not admit that it or any of its directors, officers or employees is a
"participant," (as such term is defined in Schedule 14A promulgated under the
Exchange Act), in the solicitation by the Board or that such Rule requires the
disclosure in the Preliminary Proxy Statement or this Schedule of certain
information concerning Merrill Lynch.
In connection with Merrill Lynch's role as financial advisor to
ADT with respect to the transactions in the Preliminary Proxy Statement,
Merrill Lynch and the following employees of Merrill Lynch (the "Merrill Lynch
Individuals") will communicate in person, by telephone or otherwise with a
limited number of institutions, brokers or other persons who are shareholders
of ADT:
Name Position
----------------- ------------------------
Barry Friedberg Executive Vice President
Richard Johnson Managing Director
Huston McCollough Managing Director
Hugh O'Hare Vice President
Robert Simensky Vice President
Paul Bastone Associate
Each Merrill Lynch Individual is engaged in the investment
banking business at Merrill Lynch, Pierce, Fenner & Smith Incorporated, World
Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1328, and is employed by Merrill Lynch in the capacity listed beside
his or her name.
In the normal course of its business, Merrill Lynch and its
associates (as defined in Rule 14a-1 promulgated under the Exchange Act)
regularly buy and sell securities issued by ADT and its affiliates ("ADT
Securities") for their own account and for the accounts of their customers,
which transactions may result from time to time in Merrill Lynch and its
associates having a net "long" or net "short" position in ADT Securities or
option contracts or other derivatives in or relating to ADT Securities. It is
impracticable, however, owing to the volume of transactions effected by
Merrill Lynch and its associates as principal in connection with market making
and other dealer activities, as agent in connection with brokerage activities,
and as investment advisor in connection with investment advisory activities,
to list such transactions involving ADT Securities for the past two years for
the purpose of the Preliminary Proxy Statement.
As of February 28, 1997, Merrill Lynch held positions in ADT
Securities as principal as follows: (i) net "short" 769,995 Common Shares;
(ii) net "long" $51,000 par amount of 9.25% Guaranteed Senior Subordinated
Notes due August 1, 2003; and (iii) net "long" 31,509 LYONs due 2010,
exchangeable for 889,499 Common Shares.
As of February 28, 1997, Merrill Lynch held positions in ADT
Securities as agent as follows: (i) net "long" 2,195,181 Common Shares; (ii)
net "long" $4,717,000 par amount of 8.25% Guaranteed Senior Notes due August
1, 2000; (iii) net "long" $2,830,000 par amount of 9.25% Guaranteed Senior
Subordinated Notes due August 1, 2003; and (iv) net "long" 31,820 LYONs,
exchangeable for 898,278 Common Shares.
None of the Merrill Lynch Individuals or their associates owned
of record or beneficially any ADT Security as of February 28, 1997. None of
the Merrill Lynch Individuals or their associates purchased or sold for their
own account any ADT Security within the past two years.
In the normal course of its business, Merrill Lynch finances
the securities positions of Merrill Lynch by bank and other borrowings and
securities repurchase and borrowing transactions. None of such borrowings or
repurchase transactions were entered into specifically for the purpose of
financing the purchase ADT Securities.
Except as disclosed elsewhere in this Schedule or the
Preliminary Proxy Statement, and except for customary arrangements with
respect to ADT Securities held by Merrill Lynch for the accounts of its
customers, none of the Merrill Lynch Individuals, Merrill Lynch or any
associate of such persons is or has been, within the past year, a party to any
contract, arrangement or understanding with any person with respect to any ADT
Securities, including, but not limited to, joint ventures, loan or option
arrangements, puts or calls, guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of proxies.
Except as disclosed elsewhere in this Schedule or the Preliminary Proxy
Statement, none of the Merrill Lynch Individuals, Merrill Lynch or any
associate of such persons has any arrangement or understanding with any person
with respect to any future employment by ADT or its affiliates or any future
transactions to which ADT or any of its affiliates will or may be a party, nor
any material interest, direct or indirect, in any transaction which has
occurred since the beginning of ADT's last fiscal year or any currently
proposed transaction, or series of similar transactions, to which ADT or any
of its affiliates was or is to be a party and in which the amount involved
exceeds $60,000.
SCHEDULE B
ADT LIMITED
NOTICE OF SPECIAL MEETING
Notice is hereby given that a Special General Meeting (the "Meeting") of ADT
Limited
(the "Company"), will be held on July 8, 1997 at 9:00 a.m., local time, at
Cedar House, 41 Cedar Avenue, Hamilton, Bermuda for the purpose of considering
and voting upon the following resolutions:
RESOLUTIONS
1. RESOLVED, that subject to Resolutions 2 and 3 below being passed all of
the present members of the Board of Directors of the Company (the "Board")
and any other person who may be a director of the Company at the time of
the Meeting be and are hereby removed from the office of director;
2. RESOLVED, FURTHER, that the number of seats on the Board from and after
the date of this resolution shall be two (2);
3. RESOLVED, FINALLY, that the directors of the Company from and after the
date of this resolution until the next annual general meeting of the
Company or until their successors have been duly elected shall be
Steven L. Kitchen and Steven A. Millstein, or if either of them is
unable to serve as a director of the Company due to death, disability
or otherwise, any other person designated as a director nominee by
Westar Capital, Inc.
By Order of the Board of Directors,
John D. Campbell, Secretary
41 Cedar Avenue
Hamilton HM12
Bermuda
January 7, 1997
SCHEDULE C
WESTERN RISK FACTORS(5)
The following information, which was prepared by Western, is
taken directly from Amendment No. 2 to the Registration Statement on Form S-4
filed by Western with the Securities and Exchange Commission on February 25,
1997 (the "Western S-4"). No authority has been sought or received to quote
from, or refer to, the Western S-4. While ADT has reproduced all of the risk
factors from the Western Prospectus in this Schedule D, ADT is not affiliated
with either Western or KCP&L. Information concerning Western and KCP&L which
has not been made public is not available to ADT. Although ADT has no
knowledge that would indicate that statements relating to Western or KCP&L in
the following risk factors discussion are inaccurate or incomplete, ADT was
not involved in the preparation of such information and statements and, for
the foregoing reasons, is not in a position to verify any such information or
statements.
- ----------
(5) These risk factors are taken directly from the Western S-4 and are not
endorsed by ADT.
"In addition to the other information in this Preliminary
Prospectus, the following are certain factors that should be considered by ADT
Shareholders in evaluating the Offer and an investment in Western Resources
Common Stock. This Preliminary Prospectus contains forward-looking
statements that involve risks and uncertainties. Western Resources' actual
results may differ significantly from the results discussed in the forward
looking statements. Factors that might cause such differences are
discussed below.
"REGULATORY UNCERTAINTIES; CHANGING REGULATORY ENVIRONMENT;
APPROVAL OF THE KCPL MERGER
"Electric and natural gas utilities have historically operated
in a rate-regulated environment. Federal and state regulatory agencies having
jurisdiction over the rates and services of Western Resources and other
utilities are in the process of initiating steps that are expected to result
in a more competitive environment for utilities' services. Increased
competition may create greater risks to the stability of utility earnings. In
a deregulated environment, formerly regulated utility companies that are not
responsive to a competitive energy marketplace may suffer erosion in market
share, revenues and profits as competitors gain access to their service
territories. This anticipated increased competition for retail electricity
sales may in the future reduce Western Resources' earnings in its formerly
regulated businesses.
"In addition, Western Resources' plan to market together energy
and security services is dependent upon the pace of deregulation. While it is
impossible to predict with certainty the time period in which such
deregulation will occur, if at all, if deregulation fails to occur or does not
occur as quickly as may be expected, Western Resources may be hindered in its
ability to market energy and security services and such hindrance may
negatively impact Western Resources' future earnings and cash flows.
"ADT Shareholders should consider that through ownership of
Western Resources Common Stock they will participate in the vicissitudes of
the evolving electric and natural gas utility industries and the deregulation
thereof. There can be no assurance that future regulatory and legislative
initiatives will not constrain Western Resources' efforts to market together
energy and security services.
"In addition, consummation by Western resources of the KCPL
Merger requires the approval of certain regulatory authorities, including the
FERC. Western Resources currently contemplates that the KCPL Merger could be
completed in the first half of 1998; however, there can be no assurance that
it will have received all requisite regulatory approvals prior to such time.
Nor can there be any assurance that the KCPL Merger will be consummated or, if
consummated, that it will occur by the first half of 1998.
"STRANDED COSTS
"The term "stranded costs" as it relates to capital intensive
utilities has been defined as the carrying costs associated with property,
plant and equipment and other regulatory assets at a level which, if fully
reflected in rates, would cause prices charged by the utility for delivering
energy to exceed those of competitive alternatives in the same market.
Regulatory changes, including the introduction of competition, could adversely
impact Western Resources' ability to recover its costs in these assets absent
the economic effects of rate regulation. Based upon its current evaluation of
the various factors and conditions that are expected to impact future cost
recovery, Western Resources believes that its net regulatory assets are
probable of future recovery. However, there can be no assurance that such
recovery will occur as the effect of competition and the amount of regulatory
assets which could be recovered in a competitive environment cannot be
predicted at this time.
"BUSINESS PLAN; DIFFICULTY OF INTEGRATING ENERGY AND SECURITY
BUSINESS
"As deregulation in the electric and natural gas utilities
industries continues, Western Resources believes that a provider that can
market additional services with energy-related services to provide customer
convenience will have a market advantage. Western Resources has developed its
strategy to expand its business in the deregulated marketplace and has
identified the security business as a high growth industry with a product that
can be marketed with energy. There can, however, be no assurance that Western
Resources' business plan to market together energy and security services will
be successful. The fact that Western Resources' business plan involves a
market that is as yet undeveloped makes uncertain the extent to which a viable
market for marketing energy and security will develop at all.
"To date, Western Resources has committed substantial capital
and human resources to the security industry through Westar Security and the
recent acquisition of Westinghouse Security. However, obtaining control of
ADT would significantly increase the relative amount of management time and
resources that Western Resources allocates to its security business. There
can be no assurance that this added commitment will result in continued growth
of profitability in Western Resources' security business. There can also be
no assurance that Western Resources will be able to integrate successfully the
operations of its existing security business with ADT. Difficulties of such
assimilation will include the coordination of security operations and the
integration of personnel.
"COMPARATIVELY SLOWER GROWTH THAN ADT
"Western Resources' growth has historically been slower than
ADT's as such growth has been limited to the growth of Western Resources'
customer base within its franchised service territory. During the past few
years Western Resources' electric sales have grown at an annual rate of
approximately 4%. Prior to deregulation, the only opportunity for utilities
to experience significant growth was through business combinations with other
regulated utilities. Such combinations presented growth opportunities within
a finite market. As the energy industry deregulates, Western Resources
believes that its combination of security with energy will provide Western
Resources with an opportunity to achieve higher growth than could be expected
in the historically regulated energy market. However, there can be no
assurance that such growth will occur.
"THE EXCHANGE RATIO(6)
"In considering whether to tender their Shares to Western
Resources pursuant to the Offer, ADT Shareholders should consider that,
depending on the price of Western Resources Common Stock prior to the
Expiration Date, there may be certain circumstances in which the Stock
Consideration paid to ADT Shareholders may be less than $15.00 in Western
Resources Common Stock. Pursuant to the Offer, each Share will be exchanged
for $7.50 net in cash and $15.00 of Western Resources Common Stock as long as
the Western Resources Average Price is $29.75 or higher. If the Western
Resources Average Price is less than $29.75, each Share will be exchanged for
$7.50 net in cash and less than $15.00 in Western Resources Common Stock. ADT
Shareholders should be aware that depending upon the Western Resources Average
Price, the Offer Consideration paid per Share may be less than $22.50 and,
depending upon the per Share price immediately prior to the Expiration Date,
may represent a discount to the price per Share at the Expiration Date.
- ----------
(6) This disclosure was filed by Western before Western supplemented its offer
on March 3, 1997. The Company assumes that Western will amend the dollar
amounts in this section to reflect the current terms of the Western Offer.
"EFFECT OF THE OFFER AND THE AMALGAMATION ON WESTERN RESOURCES'
FINANCIAL STATUS
"Expansion into the high growth security business presents
financial risks to Western Resources. Western Resources' earnings and cash
flow may experience increased volatility due to additional business risks.
Such risks include possible slower than expected growth in the security
business, competitive pressures on prices and changes in technology.
"The Offer and the Amalgamation are expected to have a dilutive
effect on Western Resources' reported earnings per share in the short term due
to the amortization of goodwill. There can also be no assurance that the
Offer and Amalgamation will not have a negative impact on Western Resources'
financial strength or debt rating, including its ability to raise capital in
the future. Following public announcement of Western Resources' proposal to
merge with KCPL, debt of Western Resources was placed on CreditWatch with
negative implications, a practice that Western Resources believes is standard
with respect to companies involved in an announced merger proposal. Since
public announcement of the Offer, Standard and Poors has downgraded the credit
rating on Western Resources' senior secured debt from A- to BBB+. Moody's has
placed Western Resources' debt on review for possible downgrade following
public announcement of the Offer, but continues to rate Western Resources
First Mortgage Bonds A3. Western Resources does not believe that these
changes in its credit rating will materially and adversely impact the business
and operations of Western Resources following the Offer and the Amalgamation.
However, such changes may increase Western Resources' cost of capital on
additional borrowings.
"CERTAIN DEBT INSTRUMENTS OF ADT OPERATIONS
"It is Western Resources' current view that satisfaction of the
ADT Shareholder Approval Condition and the consummation of the Offer will (i)
enable the holders of certain debt instruments of ADT Operations to require
repurchase of the securities outstanding thereunder by ADT Operations and (ii)
result in the acceleration of certain credit facilities currently available to
ADT Operations. See "The Offer -- Source and Amount of Funds." According to
ADT's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996,
the total amount of outstanding debt of ADT Operations under which
satisfaction of the ADT Shareholder Approval Condition could constitute a
change of control was approximately $1 billion. Since it does not presently
appear to be financially attractive for the holders of such debt to require
the repurchase of their securities, or to accelerate credit facilities of ADT
Operations, Western Resources does not currently believe that these
obligations present a material risk to the liquidity of Western Resources
following consummation of the Offer and the Amalgamation. Should interest
rates increase, however, it may become more financially attractive for certain
debt holders of ADT Operations to require the repurchase of their securities,
or to accelerate credit facilities of ADT Operations."
SCHEDULE D
[Merrill Lynch Letterhead]
March 3, 1997
Board of Directors
ADT Limited
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda:
Members of the Board:
We understand that Western Resources, Inc. ("Western") has
proposed an exchange offer (the "Offer") for any and all of the outstanding
common shares (the "Shares") of ADT Limited ("ADT"), other than Shares owned
by Western and its affiliates, pursuant to which the holders of each
outstanding Share will be entitled to receive $10.00 per Share net to the
seller in cash and $12.50 of Western common stock, par value $5.00 per share
(subject to downward adjustment as set forth in the Offer) (the "Exchange
Consideration"), for each of their Shares purchased pursuant to the Offer, all
as set forth more fully in the draft Offer to Exchange contained in Western's
Registration Statement on Form S-4 dated December 18, 1996 ("Western's S-4")
and related proxy materials (the "Proxy Materials") filed under Section 14(a)
of the Securities Exchange Act of 1934, each as amended to the date hereof.
You have asked us whether, in our opinion, the proposed
Exchange Consideration is adequate to the shareholders of ADT, other than
Western and its affiliates, from a financial point of view.
In arriving at the opinion set forth below, we have among other
things:
(1) reviewed Western's Annual Reports on Form 10-K and related
audited financial statements for the five fiscal years ended
December 31, 1995, Western's Quarterly Reports on Form 10-Q and the
related unaudited financial statements for the quarterly periods
ending March 31, 1996 and June 30, 1996 and September 30, 1996,
Western's Current Report on Form 8-K, dated December 12, 1996, in
connection with the pending sale of its natural gas assets to ONEOK,
Inc. ("ONEOK"), Western's Registration Statement on Form S-4 and
related proxy materials, as amended to the date hereof, in
connection with its exchange offer for all of the outstanding share
capital of Kansas City Power & Light Company ("KCPL") and Western's
Current Report on Form 8-K including the exhibits thereto, dated
February 7, 1997;
(2) reviewed ADT's Annual Reports on Form 10-K and related
audited financial statements for the five fiscal years ended
December 31, 1995, ADT's Quarterly Reports on Form 10-Q and the
related unaudited financial statements for the quarterly periods
ending March 31, 1996, June 30, 1996 and September 30, 1996, ADT's
filings with the SEC in connection with the proposed merger with
Republic Industries, Inc. that was terminated in September 1996 and
ADT's Current Report on Form 8-K, as amended to September 5, 1996,
filed in connection with the acquisition by ADT of Automated
Security (Holdings) PLC;
(3) reviewed Western's S-4 and the Proxy Materials, each as
amended to the date hereof;
(4) reviewed KCPL's Annual Report on Form 10-K and related
audited financial statements of KCPL for the fiscal year ended
December 31, 1995 and KCPL's Quarterly Reports on Form 10-Q and
related unaudited financial statements for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996;
(5) reviewed ONEOK's Annual Report on Form 10-K and related
audited financial statements for the fiscal year ended August 31,
1996 and ONEOK's Quarterly Report on Form 10-Q and related unaudited
financial statements for the quarterly period ended November 30,
1996;
(6) reviewed certain financial information, including financial
forecasts, relating to the financial condition, business, earnings,
cash flow, assets, liabilities, and prospects of ADT, that were
furnished to us by ADT;
(7) conducted discussions with members of senior management of
ADT concerning its financial condition, business, earnings, cash
flow, assets, liabilities, operations, contingencies and prospects;
(8) reviewed the historical market prices and trading activity
for the Shares and Western's common stock and compared such data
with indices that we deemed relevant;
(9) compared the respective financial condition and results of
operations of ADT with that of certain publicly traded companies
that we deemed to be relevant;
(10) compared the proposed financial terms of the Offer with
the financial terms of certain other mergers and acquisitions that
we deemed to be relevant;
(11) considered, based upon information provided by ADT and
publicly available for Western, Westinghouse Security, Inc.
("Westinghouse Security"), ONEOK and KCPL, the pro forma impact of
Western's acquisition of Westinghouse Security, the pending sale to
ONEOK of Western's natural gas business, Western's proposed merger
with KCPL and the Offer on the income statement, balance sheet and
cash flows of Western, including earnings and dividends per share,
consolidated capitalization and certain balance sheet, income
statement and cash flow data and ratios of Western; and
(12) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other
matters as we deemed necessary.
In preparing our opinion, with your consent we have relied on
the accuracy and completeness of all information supplied or otherwise made
available to us, and we have not assumed responsibility for independently
verifying such information or undertaken an independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, nor have we
been furnished any such evaluation or appraisal. In addition, with your
consent, we have relied upon the management of ADT as to the reasonableness and
achievability of the financial forecasts (and the assumptions and bases
therefor) provided to, and discussed with, us with respect to ADT. In that
regard, we have assumed and relied with your consent that such forecasts
reflect the best currently available estimates, allocations and judgments of
ADT as to the future financial performance of ADT. Our opinion is necessarily
based on economic market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have been retained by the Board of Directors of ADT as an
independent contractor to act as financial advisor to ADT with respect to the
Offer and will receive a fee for our services. We have, in the past, provided
financial advisory and financing services to ADT and received customary fees
for the rendering of such services. In addition, in the ordinary course of
our securities business, we may actively trade debt and/or equity securities
of Western and ADT and their respective affiliates for our own account and the
accounts of our customers, and we therefore may from time to time hold a long
or short position in such securities. In addition, ADT has been advised by us
that we are currently acting as financial adviser to KCPL in connection with
its merger with Western.
Our opinion is directed to the Board of Directors of ADT and
does not constitute a recommendation to any shareholder of ADT as to how such
shareholder should vote at any shareholder meeting of ADT held in connection
with the Offer.
On the basis of, and subject to the foregoing, we are of the
opinion that the proposed Exchange Consideration pursuant to the Offer is
inadequate to the shareholders of ADT, other than Western and its affiliates,
from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By ________________________________
Managing Director
Investment Banking Group
[Front of Proxy Card]
This proxy must be received, at the appropriate address indicated below,
by D.F. King & Co., Inc., prior to , (Eastern Standard Time) on July 7, 1997
or by D.F. King (Europe) Limited (British Summer Time) on July 7, 1997,
or by AS&K Services Limited, prior to (Bermuda time) on July 7, 1997,
in the case of D.F. King & Co., Inc. and D.F. King (Europe) Limited, for
delivery to the Registrar of the Company.
Proxy Solicited by the Board of Directors of ADT Limited, a company organized
under the laws of Bermuda, for the Special General Meeting of
Shareholders to be held on July 8, 1997 at 9:00 a.m.,
Cedar House, 41 Cedar Avenue, Hamilton, Bermuda.
The undersigned, being a holder of common shares, par value $0.10 per share
(the "Shares"), of ADT Limited ("ADT"), hereby appoints Michael A. Ashcroft or
failing him Stephen J. Ruzika or failing him John D. Campbell as his proxy at
the Special General Meeting to be held on July 8, 1997 (and any adjournment
thereof) and to vote on behalf of the undersigned (or abstain from voting) as
indicated on the reverse of this card or, to the extent that no such
indication is given, as the proxy determines in his discretion. The Special
General Meeting has been convened to consider proposals (the "Western
Proposals") to: (i) remove all of the present members of the Board of
Directors of ADT (the "ADT Board") and any person or persons elected or
designated by any of such directors to fill any vacancy or newly created
directorship, (ii) reduce the number of seats on the ADT Board to two, and
(iii) elect Steven L. Kitchen and Steven A. Millstein as the directors of ADT
or, if either is unable to serve as a director of ADT due to death, disability
or otherwise, any other person designated as a nominee by Westar Capital, Inc.
(the "Western Nominees"). In their discretion the proxies are authorized to
vote upon such other business as may properly come before the meeting or any
adjournments thereof, including any motion to adjourn the meeting. The
undersigned hereby revokes any previously dated proxies with respect to the
Special General Meeting.
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Please indicate on the reverse of this card how your shares are to be voted.
The ADT Board recommends a vote AGAINST each of the Western Proposals. If
this card is returned signed but not marked with any indication as to how to
vote, the undersigned will be deemed to have directed the proxy to vote
AGAINST each of the Western Proposals.
- ------------------------------------------------------------------------------
Completed proxy cards should be returned to: ADT Limited, c/o D.F. King & Co.,
Inc., 55 Water Street, 20th Floor, New York, NY 10005 (if by hand) or
ADT Limited c/o D. F. King & Co., Inc., Wall Street Station, P.O. Box 411, New
York, New York 10269-0069 (if by mail), or
ADT Limited c/o D. F. King (Europe) Limited, Royex House, Aldermanbury Square,
London EC2V 7HR, United Kingdom (by hand or mail),
or ADT Limited, c/o AS&K Services Limited, P.O. Box 1179, Hamilton HM EX,
Bermuda (by hand or mail),
in the case of D.F. King & Co., Inc. and D.F. King (Europe) Limited, for
delivery to the Registrar of the Company.
[Reverse of Proxy Card]
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS A VOTE AGAINST EACH OF THE
WESTERN PROPOSALS.
1. PROPOSAL TO REMOVE ALL PRESENT MEMBERS OF ADT BOARD.
[ ] AGAINST [ ] FOR [ ] ABSTAIN
2. PROPOSAL TO REDUCE NUMBER OF SEATS ON ADT BOARD TO TWO.
[ ] AGAINST [ ] FOR [ ] ABSTAIN
3. PROPOSAL TO ELECT WESTERN NOMINEES STEVEN L. KITCHEN AND
STEVEN A. MILLSTEIN OR ANY OTHER WESTERN NOMINEE
AS DIRECTORS.
[ ] AGAINST [ ]FOR [ ] ABSTAIN
To withhold authority to vote for any Western Nominee, write his name
below:
______________________________________.
Date:
___________________________________,
1997
_____________________________________
Signature (and Title, if any)
Please sign your name below exactly
as it appears hereon. When signing
as attorney, executor, administrator,
trustee or other representative
capacity, please give full title as
such. If a corporation, please sign
in full corporate name by a duly
authorized director or other officer,
indicating title, or execute under
the corporation's common seal. In
the case of joint holders, any one
may sign but the first-named in the
share register may exclude the
voting rights of the other joint
holder(s) by voting in person or by
proxy.
IF YOU HAVE QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT D.F. KING at
1-800-488-8035 (toll-free in the United States), at 0171-600-5005 (in the
United Kingdom) or at 212-269-5550 (outside the United States and the United
Kingdom).
