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
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[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[x] 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)
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pursuant to Exchange Act Rule 0-11:
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number, or the Form or Schedule and the date of its filing.
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April 25, 1997
[ADT Limited Letterhead]
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, on March 17, 1997, Western Resources, Inc. (together with
its subsidiaries, "Western") commenced a hostile offer (the "Western
Offer") to acquire your shares in ADT for a combination of cash and Western
stock with an aggregate maximum value that your Board of Directors
unanimously believes to be inadequate and less than fair value. As
described in the attached proxy statement, as part and parcel of its
attempt to seize control of ADT, Western has requisitioned this special
general meeting. The purpose of the special general 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 two of Western's own
employees as the only members of the Board. Adoption of the Western
Proposals is a condition to the Western Offer.
Your Board has unanimously determined that the Western Offer is
inadequate and not in the best interests of ADT's shareholders. Following
your Board's rejection of the Western Offer, ADT entered into a merger
agreement with Tyco International Ltd. ("Tyco") on terms that have been
approved by your Board (the "Tyco Merger"). Your Board unanimously believes
that the Tyco Merger is far more attractive to ADT shareholders than the
Western Offer. ADT will be convening a separate special general meeting of
ADT shareholders (the "Tyco Meeting") to approve certain matters relating
to the Tyco Merger. ADT will be distributing to you a Joint Proxy
Statement/Prospectus describing the Tyco Merger in detail, the date of and
the proposals (the "Tyco Meeting Proposals") to be considered at the Tyco
Meeting, and the reasons why your Board unanimously believes the Tyco
Merger is in the best interests of ADT shareholders.
Your Board of Directors unanimously recommends a vote "AGAINST" the
Western Proposals. Since your Board believes that the Tyco Merger is far
preferable to the Western Offer, we believe that you should support the Tyco
Merger and should therefore not elect Western's two employee nominees to ADT's
Board of Directors. Even if you do not support or have not yet made a
decision in respect of the Tyco Merger, we unanimously believe that you should
vote against the Western Proposals.
The Western Proposals are not contingent on the outcome of the Western
Offer, even though that offer is highly conditional and may never 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.
In addition, the Western Meeting will be held even if the Tyco Meeting is
held before the date of the Western Meeting and the Tyco Meeting Proposals
are approved. 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.
To ensure that this does not happen, we need your vote. It will not
help your Board for you to abstain from returning a proxy card, nor will it
help for you 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 enclosed white proxy card.
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 the Registrars
of ADT no later than July 7, 1997 at 9:00 a.m. (Bermuda time), being 24
hours before the time of the Western Meeting. The addresses of ADT's
Registrars and agents to whom the white proxy card may be sent for delivery
to the Registrars are set forth on pages 16-17 of the Company's Proxy
Statement dated April 25, 1997 attached hereto and are noted on the white
proxy 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 at 212-269-
5550 in the United States (for 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 on your behalf today the white
proxy card sent by ADT. If you have any questions or need further
assistance in voting, please contact the firm assisting us in the
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 in the United States (for outside the United States
and the United Kingdom)
SPECIAL GENERAL MEETING OF 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 our shareholders. In this proxy statement, your 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.
(Bermuda time), at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda (the
"Western Meeting"). This proxy statement and the enclosed proxy card are
first being mailed to you on or about April 28, 1997.
At the Western Meeting, you will be asked to consider and vote upon
three proposals of Western (the "Western Proposals"). See "Matters to be
Voted upon at the Western Meeting." Western has stated that the Western
Proposals are in furtherance of its attempts to take over the Company by means
of its offer (the "Western Offer") to exchange all of ADT's common shares, par
value $0.10 per share (the "Common Shares"), for cash and shares of Western
common stock (the "Exchange Consideration"), as described in Western's
Registration Statement on Form S-4, as amended (the "Western S-4"), which
includes a Prospectus dated March 14, 1997 (the "Western Prospectus").
Western has also sent you a proxy statement dated March 14, 1997 (the "Western
Proxy") relating to the Western Meeting. 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 Western Meeting, you
may also be asked to consider and vote upon any other business that may
properly come before the Western Meeting.
Your Board has unanimously determined that the Western Offer is
inadequate and not in the best interests of ADT's shareholders. Following
your Board's rejection of the Western Offer, ADT has entered into a merger
agreement (the "Tyco/ADT Subsidiary Merger Agreement") with Tyco
International Ltd. ("Tyco"), whereby Tyco will merge with and into a
subsidiary of ADT, on terms that have been approved by your Board (the
"Tyco Merger"). See "The Tyco Merger and the Tyco Meeting" below for a
brief description of the material terms of the Tyco Merger. Your Board
unanimously believes that the Tyco Merger is far more attractive to you
than the Western Offer. ADT will be convening a separate special general
meeting of ADT shareholders (the "Tyco Meeting") to approve certain matters
related to the Tyco Merger. ADT will be distributing to you a Joint Proxy
Statement/Prospectus describing the Tyco Merger in detail, the date of and
the proposals to be considered at the Tyco Meeting, and the reasons why
your Board unanimously believes the Tyco Merger is in the best interests of
ADT shareholders.
Your Board of Directors unanimously recommends a vote "Against" the
Western Proposals. Since your Board believes that the Tyco Merger is far
preferable to the Western Offer, we unanimously believe that you should
support the Tyco Merger. You should therefore not elect Western's employee
nominees to control ADT's Board. Even if you do not support or have not
yet made a decision in respect of the Tyco Merger, we unanimously believe
that you should vote against the Western Proposals. Western has left no
doubt that its objective in precipitating the Western Meeting is to obtain
control of the Company and to have its two employee nominees dismantle the
Company's anti-takeover defenses so that Western can attempt to complete
what your Board believes is its inadequate offer for the Common Shares of
the Company. Adoption of the Western Proposals is a condition to the
Western Offer. Western has reserved the right to waive this condition,
although it has stated that it does not presently intend to do so. Even if
you support the Western Offer, your Board unanimously believes that you
should not vote to give control of your Company to Western's two employee
nominees.
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 the Registrars of ADT no later than July 7, 1997 at
9:00 a.m. (Bermuda time), being 24 hours before the Western Meeting. The
addresses of ADT's Registrars and agents to whom the white proxy card may be
sent for delivery to the Registrars are noted on the card. PLEASE NOTE THAT
IF YOU RETURN YOUR PROXY CARD IN THE ACCOMPANYING ENVELOPE ADDRESSED TO AN
AGENT, IT MUST BE RECEIVED BY THE AGENT, IN THE UNITED STATES, BY 12:00
MIDNIGHT (EASTERN DAYLIGHT TIME) ON JULY 3, 1997 OR, IN THE UNITED
KINGDOM, BY 12:00 NOON (BRITISH SUMMER TIME) ON JULY 5, 1997, TO ALLOW
TIME FOR DELIVERY BY THE AGENT TO ADT'S REGISTRARS. In this regard, in the
United States, please note that July 4, 1997 is a public holiday and you
should allow sufficient time for your proxy card to be received by ADT's
Registrars or agents in advance of the public holiday.
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 in the United States (for outside the United States and the
United Kingdom)
WHY YOU SHOULD VOTE AGAINST THE WESTERN PROPOSALS
AND REJECT THE WESTERN OFFER
Your Board unanimously recommends that you support the Tyco Merger and
vote "AGAINST" the Western Proposals. See "The Tyco Merger and the Tyco
Meeting" below for a brief description of material terms of the Tyco
Merger. Having unanimously concluded that the Western Offer is inadequate and
not in your best interests, your Board urges you to "REJECT" the Western
Offer.
The Tyco Merger Is More Favorable to ADT Shareholders than the Western Offer
* Your Board has unanimously determined that the Tyco Merger is fair to
and in the best interests of ADT shareholders and recommends that ADT
shareholders support the Tyco Merger and approve the proposals to be
considered at the Tyco Meeting in connection with the Tyco Merger. The
reasons for the Board's view, in addition to the superior value offered
by the Tyco Merger, will be set out in detail in the Joint Proxy
Statement/Prospectus that will be distributed to you in connection with
the Tyco Meeting.
* The businesses of Tyco and ADT are complementary. Tyco is the world's
largest manufacturer and provider of fire protection systems. ADT is
the largest provider of electronic security services in North America
and the United Kingdom. We expect the combined company to grow not only
through the internal growth of ADT's and Tyco's respective businesses
but also by marketing products and services to each other's customers,
efficiently serving customer needs for both fire protection systems and
security services. We also expect the combined company to achieve
significant cost reductions in the first year after consummation of the
Tyco Merger and to realize stronger cash flow through potential revenue
growth and cost reductions.
* The Tyco Merger will provide ADT with access to Tyco's world-wide
business presence, which spans over 50 countries, and will give ADT
shareholders an interest in a larger international enterprise, with
combined annual revenues of over $8.5 billion. Also, with its expanded
markets, financial resources, management, personnel and related
expertise of Tyco and ADT, the combined company should be better able to
capitalize on growth opportunities in the fire protection and commercial
electronic security markets.
* Over the past three years ADT's and Tyco's share prices have
significantly outperformed the market while Western's stock price has
significantly underperformed the market. The following chart compares
the three year relative common stock price performance among ADT,
Tyco, Western, the S&P 400 and the S&P Utilities for the period March
31, 1994 through March 31, 1997:(1)
[Chart comparing three-year relative common stock price performance
with the following data points]
3/31/94 3/31/97
--------- ---------
ADT 100 243.9
Tyco 100 220.6
S&P 400 100 170.6
S&P Utilities 100 121.4
Western 100 104.8
- ----------
(1) This information does not include historical dividend payments during
the relevant period. During this period (i) ADT paid no dividends,
(ii) Tyco paid a quarterly dividend of $0.05 per share (adjusted to
reflect stock splits) and (iii) Western paid, in fiscal year 1994, a
quarterly dividend of $0.495 per share, in fiscal year 1995, a
quarterly dividend of $0.505 per share, in fiscal year 1996, a
quarterly dividend of $0.515 per share, and in the first quarter of
1997, a quarterly dividend of $0.525 per share.
Western's Offer Is Inadequate and Should Be Rejected
* The maximum stated value of the Western Offer is $22.50 per Common
Share. This maximum stated value is substantially less than the current
market price of our Common Shares (which as of the close of business on
April 24, 1997, was $26.625 per share) and substantially less than the
initial value per Common Share of the Tyco Merger (approximately $29.00
per Common Share based on the closing price per Common Share immediately
prior to the announcement of the Tyco Merger). Based on the April 24,
1997 closing price per share of Tyco common stock of $59.375, the value
per Common Share of the Tyco Merger was $28.58.
* Your Board has unanimously concluded that the Western Offer is
inadequate and not in the best interests of ADT's shareholders. Your
Board unanimously recommends a vote against the Western Proposals and
recommends that shareholders not tender their Common Shares in the
Western Offer.
* In reaching this conclusion, your Board received the opinion of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") that the
consideration to be paid pursuant to the Western Offer (the "Exchange
Consideration") is inadequate, from a financial point of view, to the
shareholders of ADT other than Western and its affiliates. A copy of
this 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.
* In making its determination, your Board considered numerous factors in
addition to the Merrill Lynch opinion, including 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 (see "ADT is the Market Leader
in the Electronic Security Business. The Tyco Merger Will Build on
that Strength" below);
* your Board's concerns about the long-term value and prospects of
Western's common stock (see "Your Board Believes the Realizable
Value of the Western Offer May Be Lower than its Maximum Stated
Value" below);
* your Board's belief that ADT shareholders who are oriented toward
growth investing may seek to sell the Western common stock
received in exchange for their Common Shares. Your Board believes
that this could create potential downward pressure on market prices
for Western's common stock;
* the fact that the Western Offer is taxable to U.S. shareholders of
ADT, 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;
* 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, including among other things the
fact that increased competition may create greater risks to
the stability of Western's utility earnings; 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, given Western's lack of national
presence and small customer base relative to other utilities and
premier companies in other service-related industries, Western is
not a strong strategic partner for ADT (see "Unlike Tyco, Western
Is Not a Strong Strategic Partner for ADT" below).
* Although the Board reached its conclusion regarding the Western Offer
before it considered the Tyco Merger, your Board unanimously believes
that the Tyco Merger will produce greater short-term and long-term
value for you than the Western Offer.
Your Board Believes the Realizable Value of the Western Offer May Be Lower
than its Maximum Stated Value
* Your Board believes that the realizable value of the Western Offer to
ADT shareholders may be less than the maximum stated value because,
among other things, (i) the Western Offer is taxable to U.S. ADT
shareholders, (ii) recent completed and proposed acquisitions of Western
(including the proposed acquisition of ADT) are likely to result in
substantial earnings dilution to Western shareholders, (iii) there are
significant risks (as discussed in more detail below) facing Western and
(iv) certain Western shareholders (including future Western
shareholders as a result of Western's proposed acquisitions)
concerned about the significant risks facing Western may seek to sell
their Western common stock which could create potential downward
pressure on market prices for Western's common stock.
* Western has recently (i) completed the acquisition of the security
business of Westinghouse Security, (ii) announced a proposed merger with
Kansas City Power & Light Company ("KCP&L") and (iii) launched the
Western Offer for ADT. Taken as a whole, your Board believes that 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. Your Board believes that these factors may in
turn 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 and, in particular, its security business.
* The Western Prospectus discusses certain significant risks facing
Western which should be considered by you before deciding whether to
accept the proposed Western Offer. 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 with respect to Western and 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.
* 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 pre-tax value of
the Exchange Consideration may be less than $22.50.
* The fact that the Western Offer and a subsequent amalgamation of
ADT with a subsidiary of Western are expected to have a dilutive
effect on Western's reported earnings per share in the short term.
* 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.
* Your Board unanimously believes that the risks disclosed in the Western
Prospectus alone provide ample reason to vote AGAINST the Western
Proposals and REJECT the Western Offer.
Unlike Tyco, Western Is Not a Strong Strategic Partner for ADT
* Your Board unanimously believes that, unlike Tyco, 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, demonstrated ability to be successful in a competitive
environment, range of demonstrated high value services, favorable cost
structure and prospects for nationwide services coverage.
* 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, Your Board does not accept Western's unsupported
assertion that ADT shareholders would benefit from an amalgamation with
Western. Your Board unanimously believes that ADT shareholders will
benefit much more from a combination with Tyco, which is also a
high-growth international company with a synergistic fire protection
business.
* 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. In the current regulated environment, Western does not
have the ability to sell power to ADT's national or international
customer base. Even assuming the consummation of Western's acquisition
of KCP&L, the combined company's utility customer base will still be
concentrated in Kansas, Missouri and Oklahoma. Both ADT and Tyco
currently operate throughout the United States, and not just in Kansas,
Missouri and Oklahoma. Tyco's geographic reach is even broader than
ADT's North American and European businesses, with a world-wide business
that spans over 50 countries.
* Western has not stated how it would manage ADT's commercial security
business, which ADT believes is far more sophisticated than Western's
primarily residential security business. Unlike Western's security
business, which is principally residential, ADT derives the majority of
its security business revenue from commercial customers.
* Given Western's lack of a national presence and small customer base
relative to other utilities and premier companies in other
service-related industries, your Board does not believe that an
amalgamation with Western would offer any meaningful strategic
opportunity to ADT. In contrast, the Board believes that the Tyco
Merger offers a significant strategic opportunity to combine the
strengths of two high growth complementary businesses.
Even if You Do Not Support the Tyco Merger, You Should Maintain a Board that
Is Independent from Western.
* Your Board unanimously believes that the Tyco Merger is in the best
interests of ADT shareholders. However, even if you do not support or
have not yet made a decision in respect of the Tyco Merger, your Board
unanimously 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 two of its own employee representatives to determine whether,
and on what terms, your Company will be sold to Western. Western has
already stated that the Western nominees are committed, subject to their
fiduciary duties under Bermuda law, 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 two 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. Western admits that the Western nominees,
although they would be subject to their fiduciary duties as directors
under Bermuda law, could have interests that 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 24.4% holding to impose an unfavorable
transaction on the Company and the rest of its shareholders.
ADT Is the Market Leader in the Electronic Security Business. The Tyco Merger
Will Build on that Strength
* 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 contractual payments of approximately $920
million from approximately 1.8 million customers.
* 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.
* The Tyco Merger will combine the favorable growth prospects of ADT with
the strengths of Tyco's businesses. Your Board believes that Tyco's
fire protection business will complement in particular ADT's commercial
electronic security business and will permit the combined company to
provide opportunities to achieve substantial benefits for its
shareholders that might not otherwise be available.
The Tyco Merger and the Tyco Meeting
On March 17, 1997, ADT and Tyco announced the Tyco Merger. The Tyco/ADT
Subsidiary Merger Agreement provides for the merger of a wholly owned
subsidiary of ADT with and into Tyco, with Tyco surviving as a wholly owned
subsidiary of ADT. The combined company will be renamed Tyco International
Ltd. The Tyco/ADT Subsidiary Merger Agreement provides generally that each
share of Tyco common stock outstanding immediately prior to the effective
time (the "Effective Time") of the Tyco Merger will be converted at the
Effective Time into the right to receive and will be exchanged for one
common share of the combined company. The existing Common Shares will
remain outstanding. However, immediately prior to (but conditioned upon
the occurrence of) the Effective Time, each Common Share then outstanding
will be consolidated in the ratio of 0.48133 of a common share of the
combined company. Based on the closing price per share of Tyco common
stock immediately prior to the announcement of the Tyco Merger, the initial
value per Common Share of the Tyco Merger was approximately $29.00. Based
on the April 24, 1997 closing price per share of Tyco common stock of
$59.375, the value per Common Share of the Tyco Merger was $28.58.
In connection with the Tyco Merger, the Company has filed a Joint Proxy
Statement/Prospectus on Form S-4 with the SEC which contains a more detailed
description of the Tyco/ADT Subsidiary Merger Agreement, the date of and
the proposals to be considered at the Tyco Meeting, and the reasons why
your Board unanimously believes the Tyco Merger is in the best interests of
ADT shareholders. The Company will be distributing to you in the near
future a copy of the Joint Proxy Statement/Prospectus.
The Tyco Merger is subject to a number of conditions, including among
other things, (a) the approvals of the shareholders of ADT and Tyco of certain
matters relating to the Tyco Merger and (b) the Tyco Merger qualifying for
accounting treatment as a pooling of interests. The Tyco/ADT
Subsidiary Merger Agreement may be terminated under certain circumstances,
including among other things, (i) by either party if the Tyco Merger has not
been consummated by August 15, 1997, (ii) by ADT, if the requisite vote of
Tyco shareholders has not been obtained by August 15, 1997, or by Tyco, if the
requisite vote of ADT shareholders has not been obtained by August 15, 1997,
and (iii) by either party, if the weighted trading average per share selling
price of Tyco common stock for any ten consecutive trading day period
commencing on or after April 8, 1997 is below $56. The conditions of the Tyco
Merger and the termination rights under the Tyco/ ADT Subsidiary Merger
Agreement are described in more detail in the Joint Proxy Statement/Prospectus
that the Company will be distributing to you in the near future.
It is currently anticipated that the Tyco Meeting will be held prior to
the Western Meeting. However, the Western Meeting could be held prior to the
Tyco Meeting if the Tyco Meeting is delayed beyond July 8, 1997 or if a court
orders ADT to hold the Western Meeting at an earlier date which is prior to
the Tyco Meeting.
Background
According to Amendment No. 9 to Western's Schedule 13D with respect to
ADT filed with the Securities and Exchange Commission (the "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")). As of April 18, 1997, this constituted
approximately 24.9% of the total number of Common Shares then 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, ADT entered into an amalgamation agreement with
Republic Industries, Inc. ("Republic"), pursuant to which Republic was to
enter into an amalgamation with ADT (the "Republic Merger"). In connection
with the Republic Merger, ADT issued to Republic a share purchase warrant for
15,000,000 Common Shares (the "Republic Warrant"). On the same day, Michael
A. 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.
On December 18, 1996, Western notified ADT of its intention to file
with the SEC a preliminary prospectus for the Western Offer. On December
18, 1996, Western filed a notice with ADT to requisition a special general
meeting of ADT'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. Western has stated that its directors, if elected,
intend to eliminate the protections for shareholders contained in ADT's
Bye-Laws and ADT's Rights Agreement dated as of November 6, 1996, as amended
(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 date for the Western Meeting for July 8, 1997. On
January 7, 1997, the Company sent the notice of the Western 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 its required filing under the U.S.
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with regard to the Western Offer, and that on January 23, 1997, the
30-day waiting period required under the HSR Act had expired with no action
being 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 would
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
would be converted into a number of shares of Western common stock, and
Western would be the surviving corporation.
Pursuant to a request by Republic, on February 10, 1997, ADT filed a
registration statement with the SEC on Form S-3 registering, among other
shares, the 15,000,000 Common Shares to be issued under the Republic
Warrant. As of the date of this proxy statement, the registration
statement has not yet been declared effective by the SEC.
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, but did not take any action on
the Western Offer. 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 in the Western Offer. 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 would be
$12.50. The March 3rd Press Release stated 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 was 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. ADT filed a Schedule 14D-9
setting forth some of the factors the Board considered in reaching its
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 issued under the Rights Agreement
(the "Rights") by, among other things, (i) amending the definition of a
continuing director on the Board (a "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 ADT or any employee benefit plan of ADT) 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.
On March 17, 1997, ADT and Tyco announced the Tyco Merger.
On March 17, 1997, Western commenced the Western Offer and stated that
it had mailed the Western Prospectus and the Western Proxy to holders of
ADT Common Shares.
On March 18, 1997, Mr. Ashcroft made a brief courtesy call to
Western's Chairman to confirm that Western's Chairman was aware of the
recently announced Tyco Merger. In that call, Mr. Ashcroft mentioned
that, in light of the improved Tyco Merger which would be of benefit to
all ADT shareholders including Western, ADT would be willing to work with
Western toward a mutually agreeable resolution of any outstanding issues in
a manner consistent with the Tyco Merger. Western's Chairman indicated
that he would consider the proposal.
On March 21, 1997, ADT and Republic announced that Republic through
Triangle Corporation, a Delaware corporation and wholly owned subsidiary of
Republic ("Triangle") had exercised the Republic Warrant, purchasing
15,000,000 Common Shares at $20 per share. The Common Shares issued to
Triangle as a result of the warrant exercise represent approximately 9.6
per cent of the enlarged outstanding share capital of ADT. Under the terms
of the Republic Warrant, the Chairman of ADT has been granted an
irrevocable proxy to vote, at any meeting of ADT's shareholders, the
15,000,000 Common Shares issued under the Republic Warrant, with respect to
any matter to be voted upon by ADT's shareholders. The proxy expires as to
any such Common Shares on the earlier of (i) September 27, 1998 and (ii)
the date such shares are no longer held by Republic or any of its
affiliates or nominees. Mr. Ashcroft, in his capacity as Chairman of the
Board, has advised ADT that he intends to vote the 15,000,000 Common Shares
as directed by the Board.
On March 28, 1997, the Board resolved, by unanimous written consent, to
extend the Distribution Date (as defined in the Rights Plan) for the Rights
until August 15, 1997 or such earlier date as may be determined by the
Board. On April 23, 1997, the Board resolved, by unanimous written
consent, that (i) with respect to the Western Offer only, and provided that
the Western Offer remains subject to the same terms and conditions as those
prevailing on March 17, 1997, the Distribution Date for the Rights shall be
June 17, 1997 or such earlier date as may be determined by the Board and
(ii) the Distribution Date in any other circumstances shall be the date as
provided for in the Rights Plan.
On March 28, 1997, ADT Investments, Inc. ("ADT Investments"), a wholly
owned subsidiary of ADT and a record holder of Western common stock, served a
demand on Western, pursuant to Section 17-6510 of the Kansas General
Corporation Code, that Western provide ADT Investments with, among other
things, a complete record or list of stockholders of Western as of the
record date for determining stockholders entitled to vote (the "Record
Date") at the special meeting of Western's stockholders then scheduled for
April 24, 1997 or as of a recent date if a Record Date list was not
available. Such special meeting is currently scheduled for June 17, 1997.
Western has refused ADT Investments' demand. ADT Investments is pursuing
its remedies under Section 17-6510 of the Kansas General Corporation Code,
including, on April 8, 1997, filing a petition in the District Court of
Shawnee County, Kansas, for a summary order to compel Western to comply
with ADT Investments' demand.
On April 24, 1997, ADT Investments served an additional demand on
Western, pursuant to Section 17-6510 of the Kansas General Corporation Code,
that Western provide ADT Investments with, among other things, a complete
record or list of stockholders of Western as of the record date for
determining stockholders entitled to vote at the general meeting of Western's
stockholders scheduled for May 29, 1997.
On April 10, 1997, ADT Investments II, Inc. ("ADT Investments II"),
a wholly owned subsidiary of ADT and a record holder of KCP&L common stock,
served a demand on KCP&L, pursuant to Section 351.215 of the Missouri
General and Business Corporation Law and Article VIII of KCP&L's By-Laws,
that certain corporate books and records, including, inter alia, a complete
record or list of shareholders of KCP&L as of a recent date, be made
available for inspection by ADT Investments II, or that copies be delivered
to ADT Investments II's agents for inspection. By letter dated April 14,
1997, KCP&L refused ADT Investments II's demand.
Certain Litigation
On December 18, 1996, Westar Capital, Inc. ("WCI"), a subsidiary of
Western, 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 alleged that the Company and its
directors breached their fiduciary duties to WCI and the Company's other
shareholders (i) by issuing to Republic the Republic Warrant in connection
with the 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 sought 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
contained 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, alleged 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 under the Company's
Bye-Laws. The amended complaint sought the same relief as the prior
complaints and also requested 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 contained the same
allegations as the amended complaint and in addition alleged (i) that the
Company and its directors breached their fiduciary duties by setting a July 8,
1997 date for the Western Meeting, and (ii) that the Company and its directors
violated Section 14(d) of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act"), by making a recommendation to the Company's shareholders
regarding the tender offer without first making certain filings with the SEC.
WCI asked for a court order (i) enjoining the Company from holding the Western
Meeting on July 8, 1997, (ii) compelling the Company to hold the Western
Meeting on or before March 20, 1997, and (iii) declaring that the Company had
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 Western Meeting on
July 8, 1997, and compelling the Company to hold the Western Meeting on or
before March 20, 1997. The Company and its directors have filed papers in
opposition to WCI's motion. On March 4, 1997, WCI filed a supplemental
brief in support of its motion for a preliminary injunction representing
that WCI is no longer seeking a Western Meeting on or before March 20, 1997
on the grounds that such a meeting date would now be impractical. In its
supplemental brief, WCI requests that the meeting date be set 30 days after
its proxy materials for the Western Meeting are distributed. The Company
and its directors have responded to this supplemental motion, arguing among
other things that WCI's motion is moot due to the passage of time and
changes in circumstances. As of the date of this proxy statement, 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. 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 contained the same allegations as the second
amended complaint and contained 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 also requested that the Court enter an order
providing that it be given five days' notice before the Republic Warrant is
exercised. On March 12, 1997, the Court denied that motion.
On March 11, 1997, the Court granted WCI leave to file a fourth amended
complaint. The fourth amended complaint contains the same allegations as
those in the third amended complaint as well as additional allegations
relating to the Amendment. In addition to the relief previously requested,
the fourth amended complaint seeks judicial nullification of the Amendment
and a rescission of actions by ADT if shown that a subsidiary of ADT cast
decisive votes as a shareholder with respect to those actions.
On March 17, 1997, the Company and its directors filed a motion to
dismiss the fourth 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. This motion
has been fully briefed and awaits a decision of the Court. The Company and
the Board believe that the allegations in WCI's fourth amended complaint are
without merit and intend to vigorously defend against them.
On March 24, 1997, WCI filed a motion for a preliminary injunction (i)
preventing Republic from selling or transferring any of the Common Shares
issued upon the exercise of the Republic Warrant and (ii) preventing the
Chairman of ADT from exercising the proxy in relation to those shares. On
April 7, 1997, the Company and the Board filed papers in opposition to this
motion. The Company and the Board believe that the motion is meritless and
intend to vigorously oppose it.
On April 16, 1997, WCI filed a petition with the Supreme Court of
Bermuda (the "Bermuda Court") in which WCI alleges that the Tyco Merger has
been structured in order to deprive WCI and the Company's other shareholders
of their appraisal rights under Section 106 of the Bermuda Companies Act (the
"Act") applicable to an amalgamation under the Act. Although the Company is
acquiring Tyco in that transaction, WCI maintains that in actuality Tyco is
acquiring the Company and that the transaction should be treated as an
amalgamation between the Company and Tyco which would trigger appraisal rights
under Bermuda law. WCI alleges that the Company's actions are oppressive and
prejudicial to it. WCI asks the Court to order that the Tyco Merger be
enjoined unless the Company's shareholders are permitted to exercise all
rights they would be entitled to, including appraisal rights, if the
transaction between the Company and Tyco were an amalgamation under Bermuda
law. In order for WCI's petition to prevail, the Bermuda Court must find
that the structure of the Tyco/ADT Subsidiary Agreement is so oppressive
and prejudicial to the Company's shareholders, or some part of them, that
it would otherwise justify the winding up of the Company under Bermuda law.
The Company believes that the allegations in WCI's petition are without
merit and intend to vigorously defend against them. On April 23, 1997, the
Company filed a petition to strike out WCI's petition with the Bermuda
Court on the grounds that (i) the petition discloses no reasonable cause of
action, (ii) the petition is frivolous, embarrassing and vexatious and
(iii) the petition is otherwise an abuse of the process of the Bermuda
Court.
On December 26, 1996, Charles Gachot filed a complaint in the Florida
Circuit Court for the Fifteenth Judicial Circuit in Palm Beach County,
Florida against the Company, certain of its present and former 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 Republic 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 March 3, 1997, Chase filed a motion for
dismissal of ADT Operations' complaint or, alternatively, summary judgment.
This motion, originally scheduled to be heard on April 11, 1997, has been
adjourned and will be heard not earlier than May 19, 1997.
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 and is currently
pending. As a result of a hearing held on March 25, 1997, ADT was granted
the right to take three depositions and obtain certain documents from
Chase.
On March 11, 1997, Crandon Capital Partners ("CCP") filed a complaint
in the Florida Circuit Court for the Fifteenth Judicial Circuit in Palm
Beach County, Florida against the Company, certain of its current and
former directors, and Republic. The complaint was brought by CCP in a
derivative capacity on behalf of ADT. The complaint alleges that ADT's
directors breached their fiduciary duties and wasted corporate assets in
connection with (i) the granting of options to certain officers of ADT in
1996, (ii) the issuance of the Republic Warrant, (iii) the implementation
of the Rights Plan and (iv) the harassment and attempted disenfranchisement
of WCI. The complaint seeks an unspecified amount of damages and a court
order directing ADT's directors to establish a system of internal controls
to prevent repetition of the alleged breaches of fiduciary duty and
corporate waste. The Company and the Board believe that the allegations in
the complaint brought by CCP are without merit and intend to vigorously
defend against them.
Matters to Be Voted upon at the Western Meeting
The Western Proposals
Western has presented the following resolutions for
consideration at the Western 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 Western 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 Western Meeting. Except as
provided in the Bye-Laws of the Company, all holders of record of the
Common Shares on the date of the Western Meeting will be entitled to
attend, and vote at, the Western Meeting. If the Tyco Merger has been
consummated prior to the date of the Western Meeting, all holders of record
of Common Shares issued in connection with the Tyco Merger will also,
except as aforesaid, be entitled to attend, and vote at, the Western
Meeting. Outstanding and entitled to vote, as of April 18, 1997, were
156,828,305 Common Shares, including 3,182,787 Common Shares owned by a
subsidiary of the Company and 15,000,000 Common Shares beneficially owned
by Republic which are subject to a proxy in favor of the Chairman of ADT.
Except as provided in the Company's Bye-Laws, all of such Common Shares are
entitled to vote at the Western 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
represented and voting at the Western Meeting is required for the approval
of each proposal to be put before the ADT shareholders at the Western
Meeting.
Pursuant to Bermuda law, only votes cast for a matter constitute
affirmative votes. Votes represented at the meeting which are withheld,
represented by "broker non-votes" as discussed below or which abstain from
voting are counted for quorum purposes only. At the Western 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 Western
Meeting, the Western Meeting shall be dissolved.
Shares represented by "broker non-votes" (i.e., shares held by brokers
or nominees which are represented at a meeting but with respect to which the
broker or nominee is not empowered to vote on a particular proposal) will be
counted for purposes of determining whether there is a quorum at the Western
Meeting, but will be considered to be voted only as to those matters actually
voted on. In accordance with rules of the New York Stock Exchange, brokers
and nominees are precluded from exercising their voting discretion with
respect to the approval and adoption of non-routine matters such as the
Western Proposals. Thus, absent specific instructions from the beneficial
owner of such shares, brokers are not empowered to vote such shares with
respect to the approval and adoption of the Western Proposals.
Voting Your Proxy
Your Board is soliciting proxies for the Western Meeting AGAINST
the Western Proposals.
Shares represented by such properly executed proxies will be voted
as directed therein (unless the proxy receives instructions from the
appointing shareholder altering the way in which the proxy is to vote, in
which case, the proxy will vote in accordance with the instructions as
altered). 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 form of proxy or by attending the Western
Meeting and voting your shares in person. A later-dated proxy, although
effective to revoke an earlier proxy if received any time before the Western
Meeting, will only be effective as a proxy if received by the Registrars of
the Company at least 24 hours before the time of the Western Meeting.
The Board is not currently aware of any business to be acted upon at
the Western Meeting other than as described in this Proxy Statement. If
other matters are properly brought before the Meeting, the persons
appointed as proxies, except as otherwise provided on the proxy card, will
have discretion to vote or act thereon according to their best judgment.
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, a form
of proxy for the Western Meeting must be completed in accordance with the
instructions on it and received by the times and dates set forth below at
any of the offices of the Company's Registrars and agents, whose names and
addresses are set out below:
In the United States, to the U.S. agent:
by hand delivery by 12:00 midnight on July 3, 1997 (Eastern
Daylight Time) at:
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, New York 10005
by mail to be received by 12:00 midnight on July 3, 1997
(Eastern Daylight Time) to:
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 Registrars of the Company.
In the United Kingdom, to the U.K. agent:
by hand delivery or by mail, in each case, to be received by
12:00 noon on July 5, 1997 (British Summer Time) at:
D.F. King (Europe) Limited
Royex House, Aldermanbury Square
London EC2V 7HR
United Kingdom
for delivery to the Registrars of the Company.
In Bermuda:
to the Registrars, by 9:00 a.m. on July 7, 1997 (Bermuda Time)
by hand or mail at:
AS&K Services Limited
Cedar House
P.O. Box HM 1179
41 Cedar Avenue
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
Exchange Act) of Common Shares by any person known by ADT to beneficially
own more than five per cent of the outstanding Common Shares (i) as at
April 17, 1997 by FMR Corp. ("FMR"); (ii) as at March 17, 1996 by WCI;
(iii) as at March 21, 1997 by Republic and (iv) as at April 18, 1997 by (a)
all directors of ADT, (b) the named directors and officers of ADT,
including three executive officers of subsidiaries of ADT, and (c) all
directors and executive officers of ADT as a group. An asterisk indicates
ownership of less than one per cent of outstanding Common Shares.
Number of
Common Shares
Name of Beneficial Owner Beneficially % of
or Identity of Group Owned(1), (2) Class(3)
- ------------------------ ------------- --------
Westar Capital, Inc.(4) 38,287,111 24.9%
818 Kansas Avenue
Topeka, Kansas 66601
Republic Industries, Inc.(5) 15,000,000 9.8%
450 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
FMR Corp.(6) 12,004,114 7.6%
82 Devonshire Street
Boston, Massachusetts 02109
M.A. Ashcroft(7) 26,525,718 16.2%
J.E. Danneberg 102 *
R.A. Gross 2,000 *
A.B. Henderson 621 *
R.G. Lakey 25,000 *
J.S. Pasman, Jr. 2,000 *
M.J. Richardson 327,837 *
S.J. Ruzika 1,307,407 *
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) 28,198,995 17.0%
_______________
(1) Includes Common Shares which may be acquired upon exercise of the
following number of options to purchase Common Shares from ADT exercisable
on or within 60 days of April 18, 1997 beneficially owned by the
following persons: M.A. Ashcroft, 10,150,000; R.A. Gross, nil;
R.G. Lakey, 25,000; M.J. Richardson, 315,000 and S.J. Ruzika,
1,291,665.
(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 April 18, 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 April 18, 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 April 18, 1997, but excluding
3,182,787 Common Shares owned by a subsidiary of ADT.
(4) ADT has received an Amendment No. 10 to Schedule 13D dated March 17, 1997
filed with the SEC by WCI, a wholly owned subsidiary of Western, in
respect of ownership of 38,287,111 Common Shares. ADT has not
attempted to verify independently any of the information contained in
the Schedule 13D.
(5) The Company has received Amendment No. 2 to Schedule 13D dated March 26,
1997, describing that on March 21, 1997, Republic, through Triangle,
purchased 15,000,000 Common Shares by exercise of the Republic Warrant.
Under the terms of the Republic Warrant, Triangle has granted the Chairman
of ADT an irrevocable proxy to vote, at any meeting of ADT's shareholders,
the 15,000,000 Common Shares issued under the Republic Warrant, with
respect to any matter which shall be voted upon by ADT's shareholders. The
proxy expires as to any such Common Shares on the earlier of (i) September
27, 1998 and (ii) the date such shares are no longer held by Republic or
any of its affiliates or nominees. Mr. Ashcroft, in his capacity as
Chairman of the Board, has advised ADT that he intends to vote the
15,000,000 Common Shares as directed by the Board. The issuance of these
15,000,000 Common Shares to Triangle and the granting by Triangle of the
irrevocable proxy to the Chairman of ADT to vote these shares is the
subject of litigation. See "Certain Litigation."
(6) ADT has received a notification dated April 18, 1997 from FMR in respect
of ownership of 12,004,114 Common Shares at April 17, 1997 by accounts
under the discretionary investment management of its wholly owned
subsidiaries Fidelity Management & Research Company and Fidelity
Management Trust Company (together "FMR Corp."). ADT has not attempted
to independently verify any of the information provided by FMR.
(7) The number of Common Shares beneficially owned by Mr. Ashcroft includes
718 Common Shares owned by Mr. Ashcroft's wife and 15,000,000 Common
Shares owned by Triangle. Mr. Ashcroft disclaims beneficial ownership
of the Common Shares held by Triangle. See footnote (5). On April 4,
1997, Mr. Ashcroft transferred 9,000,000 shares, comprised of
8,000,000 options and 1,000,000 Common Shares, beneficially owned by
him, and representing 5.6% of the Common Shares outstanding as of
April 18, 1997, to an irrevocable trust of which Mr. Ashcroft and his
family are beneficiaries and for the benefit of charities.
(8) The address for these officers and directors is the address of ADT.
Directors and Executive Officers
Directors of the Company
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 since 1982 the President and Chief Executive
Officer of ADT Automotive, Inc., which supervises ADT's vehicle auction
services business.
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 Systems, Inc.,
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. 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
meeting for which such notice is given, 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.
Directors of Tyco
The Tyco/ADT Subsidiary Merger Agreement entered into by ADT and Tyco
in connection with the Tyco Merger provides that ADT shareholders will be
asked at the Tyco Meeting to vote to increase the number of directors on
the Board to eleven, to remove all but three of the current members of the
Board and to elect the eight current directors of Tyco listed below to the
board of directors of the combined company effective at the effective time
of the Tyco Merger. It is the intention of the Board to recommend the
current directors of Tyco for election to the board of the combined
company. If this proposal is approved at the Tyco Meeting by the requisite
vote of ADT shareholders and the Tyco Merger is consummated prior to the
Western Meeting, the directors of Tyco listed below will become directors
of ADT. In that event, the Western Removal Proposal will be to remove all
eleven of the then current members of the Board, including the three
current members of the Board and the eight current directors of Tyco.
Set forth below are the names and ages of the eight current directors of
Tyco as of April 18, 1997, each such person's principal occupation or
employment during the past five years, and any directorships held by such
person in any other company with a class of securities registered under the
Securities Exchange Act of 1934, as amended. None of these individuals
currently owns any Common Shares.
Name Age Position with Company
- ---- --- ---------------------
L. Dennis Kozlowski 50 Chairman of the Board of Tyco (January 1993--
present); Chief Executive Officer of Tyco
(July 1992--present); President of the Tyco
(December 1989--present); President, Grinnell
Corporation (January 1984--present);
Director, Thiokol Corp., (aerospace and
defense products) (August 1993--present);
Director, Applied Power Inc. (control
products) (July 1994--present); Director,
Raytheon Company (electronic systems and
equipment) June 1995--present); Director,
RJR Nabisco Holdings Corp. June 1996--
present).
Joshua M. Berman 58 Counsel to Kramer, Levin, Naftalis & Frankel
(counselors at law) (April 1985--present);
Secretary of Tyco.
Richard S. Bodman 58 Managing General Partner, AT&T Ventures LLC (May
1996--present); Senior Vice President,
Corporate Strategy and Development, AT&T
Corporation (communications) (August 1990--May
1996); Director, Reed Elsevier, plc (publishing)
(June 1996--present); Director, Lin Television
(broadcasting) (May 1996-- present); Director,
National Housing Partnerships Inc. (real estate)
(August--present).
John F. Fort, III 54 Chairman of the Board of Tyco (1982--December
1992); Chief Executive Officer of Tyco
(1982--June 1992); Director, Dover
Corporation (diversified manufacturer)
(November 1989--present); Director, Roper
Industries (diversified products) (December
1995--present).
Stephen W. Foss 54 Chairman, President and Chief Executive Officer,
Foss Manufacturing Company Inc. (manufacturer
of non-woven fabrics) (for more than five
years); Director, Ameron International
(diversified manufacturer) (1994--present).
Richard A. Gilleland 52 Director, DePuy International (medical products)
(July 1996--present); President and Chief
Executive Officer, AMSCO International, Inc.
(infection control products) (July 1995--July
1996); Senior Vice President of Tyco (October
1994--July 1995); Chairman, President and
Chief Executive Officer, The Kendall Company
(July 1990--July 1995); Director, Remington
Arms Company, Inc. (firearms and ammunition)
(March 1994--present); Director, Physicians
Resource Group (physician practice management
services) (June 1995--present).
Philip M. Hampton 63 Co-Managing Director, R.H. Arnold & Co.
(investment bank) (April 1997--present);
Chairman of the Board, Metzler Corporation
(investment bank) (October 1989--March 1997);
Director and Vice Chairman, Bankers Trust New
York Corporation (1986--1989).
Frank E. Walsh, Jr. 55 Chairman, Sandyhill Foundation (charitable
organization) (August 1996--present);
Chairman, Wesray Capital Corporation (private
investment firm) (October 1989--January
1996).
______________
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
------------------------------------------ --------------
Securities
Underlying
Stock Options All Other
Name and principal position Year Salary Bonus (#) Compensation
- --------------------------- ---- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Michael A. Ashcroft(2) 1996 $1,143,844 $2,344,880 5,000,000 $1,330,380(3)
Chairman of the Board; 1995 $1,089,375 $2,233,219 1,500,000 $1,921,939
Chief Executive Officer 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 1995 -0- -0- -0- -0-
ADT Security Services, Inc. 1994 -0- -0- -0- -0-
Ronnie G. Lakey 1996 $ 248,962 $ 125,000 100,000 $ 27,020(5)
Director of ADT (UK) 1995 $ 195,866 $ 140,000 20,000 $ 14,822
Holdings PLC 1994 $ 188,827 $ 135,000 25,000 $ 14,138
Michael J. Richardson(5) 1996 $ 335,000 $ 222,705 40,000 $ 6,461(7)
Chief Executive Officer of 1995 $ 314,000 $ 145,245 50,000 $ 6,461
ADT Automotive, Inc. 1994 $ 300,000 $ 115,000 45,000 $ 6,480
Stephen J. Ruzika(7) 1996 $ 686,306 $1,100,000(9) 208,333 $ 40,323(10)
Chief Financial Officer; 1995 $ 653,625 $ 250,000 500,000 $ 37,432
Executive Vice President; 1994 $ 622,500 $ 200,000 250,000 $ 35,639
Director
</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 under "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 represents
the US dollar equivalent of Pound Sterling851,344 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, and which
are referred to in note (2) above, were the equivalents of Pound
Sterling1,217,341 and Pound Sterling511,126, respectively.
(4) Represents salary since joining ADT Security Services, Inc. in March
1996. Mr. Gross's annualized salary for 1996 was $220,000.
(5) Represents $27,020, $14,822 and $14,138 for the amount contributed to Mr.
Lakey's retirement income plan for 1996, 1995 and 1994, respectively.
(6) 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, $83,333 and $97,222 in
salary in 1996, 1995 and 1994, respectively.
(7) Represents $4,500 contributed for 1996, 1995 and 1994 to a defined
contribution 401(k) pension benefit plan, and $1,961, $1,961 and $1,980
for 1996, 1995 and 1994, respectively, which is the aggregate
incremental cost to the Company of providing Mr. Richardson with
enhanced group term life insurance benefits.
(8) 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, $104,167 and
$128,198 in salary in 1996, 1995 and 1994, respectively.
(9) 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.
(10) Represents $37,639, $35,777 and $34,003 contributed to Mr. Ruzika's
retirement income plan in 1996, 1995 and 1994, respectively, and $2,684,
$1,655 and $1,636 for 1996, 1995 and 1994, respectively, which is the
estimated aggregate incremental cost to the Company of providing Mr.
Ruzika with supplemental term life insurance.
Option Grants in Last Fiscal Year
Shown below are all grants of share options to the Named
Officers during the fiscal year ended December 31, 1996. The following table
shows, along with certain information, hypothetical realizable values of share
options granted for the last fiscal year, at assumed rates of cumulative share
price appreciation over the ten-year life of such options. These assumed
rates of appreciation are set by the rules of the SEC and are not intended to
forecast appreciation of the price of the Common Shares. These hypothetical
values have not been discounted to reflect their present values.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Share Price Appreciation
Individual Grants for Option Term(2)
----------------------------------------------------------------- -------------------------------
% of Total Exercise
Options Granted or
Options to Employees Base Price
Name Granted(1) in Fiscal Year ($/share) Expiration Date 5% 10%
- ---- ---------- --------------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Ashcroft(2) 5,000,000 78.3% $15.00 Aug 4, 2003 $30,968,000 $74,713,000
Raymond A. Gross 100,000 1.6% $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Ronnie G. Lakey 100,000 1.6% $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Michael J. Richardson 40,000 0.6% $16.50 May 6, 2006 $ 407,000 $ 1,039,000
Stephen J. Ruzika(2) 208,333 3.3% $15.00 April 29, 2004 $ 1,452,000 $ 3,567,000
</TABLE>
- ---------------
(1) The options granted to Mr. Ashcroft and Mr. Ruzika represent the net
increase in the number of options which were received by Mr. Ashcroft and
Mr. Ruzika in connection with an amendment to previously granted
options on 3,000,000 and 125,000 Common Shares, respectively. At the
same time as the number of such options was increased, the exercise
price was also increased from $8.625 to $15.00. All the other terms
and conditions of the options, including the expiry dates, remained
unchanged. All of these options are currently exercisable.
Of the options granted to Mr. Gross, Mr. Lakey and Mr. Richardson, 50 per
cent are exercisable after three years from the date of grant, 25 per
cent are exercisable after four years from the date of grant and 25 per
cent are exercisable after five years from the date of grant.
(2) 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.
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> Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Acquired on Value Realized on Options at Fiscal Year End at Fiscal Year End(1)(2)
Exercise of Options Exercise of Options ---------------------------- ---------------------------
Name in Fiscal Year in 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 $78,437,190 $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 $12,951,731 $ 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.
For a discussion of certain change of control provisions in the ADT
SERP, see "--Employment Contracts, Termination of Employment and Change in
Control Arrangements."
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. If the Tyco Merger is
effected, the combined company will not continue to employ Mr. Ashcroft as
Chairman, Chief Executive Officer and President, and, accordingly, since Mr.
Ashcroft will no longer be Chairman and Chief Executive Officer, he will be
entitled to terminate his employment and receive such severance benefits
under his employment agreement.
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,
bonus and certain fringe benefits. If the Tyco Merger is effected, the
combined company will not continue to employ Mr. Ruzika as Chief Financial
Officer, but Mr. Ruzika will continue to have responsibility for the
electronic security services operations of the combined company. Because
Mr. Ruzika will no longer be Chief Financial Officer of ADT, Mr. Ruzika
will be entitled to terminate his employment and receive severance benefits
under his employment agreement.
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 the
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.
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, 1997, 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. It is
currently intended that the consummation of the Tyco Merger will be deemed
to constitute a "change of control" of ADT for purposes of the severance
agreement between Mr. Gross and ADT Security Services, Inc.
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 Western 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 $3,000,000 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 April 18, 1997 the Company has incurred proxy
solicitation expenses of approximately $2,000,000 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
$500,000 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 (the "March 3
Engagement Letter"), 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
Western Meeting and (ii) July 8, 1997. If the Western Proposals are
defeated at the Western 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 Western
Meeting requisition or (ii) the Western Meeting is canceled 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 such 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 March 3
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.
Separately, the Board engaged Merrill Lynch to act as its financial
advisor in connection with the Tyco Merger pursuant to an engagement letter
dated March 17, 1997 (the "March 17 Engagement Letter"). The fees payable
to Merrill Lynch pursuant to the March 17 Engagement Letter would offset
all fees payable, and be offset by all fees previously paid, to Merrill
Lynch under the March 3 Engagement Letter.
Shareholder Proposals for 1997 Annual General Meeting
Shareholder proposals intended to be considered for action at the
1997 Annual General Meeting are required to be received by ADT a reasonable
time before the circulation of the proxy statement and form of proxy
relating to such meeting for review and consideration for inclusion in such
proxy materials.
SEC rules set forth standards as to what shareholder proposals are
required to be included in a proxy statement for an annual meeting.
Absence of Appraisal Rights
ADT Shareholders do not have appraisal rights with respect to the
matters to be voted on at the Western Meeting.
If amalgamation proposed by Western (the "Amalgamation") were
proposed and submitted to a vote by ADT shareholders, pursuant to Section
106(6) of the 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 convened to approve the Amalgamation, apply to the Bermuda
Court to have the fair value of such Common Shares appraised by the Bermuda
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 make statements in this document 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 include forward looking information. 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 North American activities of the Company's
subsidiaries are located in the United States at 1750 Clint Moore Road,
Boca Raton, Florida 33431, USA. The telephone number there is 561-988-
3600.
John D. Campbell, Secretary
Bermuda, April 25, 1997
SCHEDULE A
Because of the nature of the proposals which are to be brought before
the Western 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
Name Position Beneficially Owned
---- -------- ------------------
Angela Entwistle Marketing & Corporate Communications 29,500
Manager
The business address of such subsidiary of ADT Limited is 1750 Clint
Moore Road, Boca Raton, Florida 33431, USA.
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 April 18, 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 April 18, 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 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 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 Western
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 or as contemplated in connection with the Tyco Merger, 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, USA, 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 Securities as of February 28, 1997. None of
the Merrill Lynch Individuals or their associates purchased or sold for
their own account any ADT Securities 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
The following information, which was prepared by Western, is taken
directly from the Prospectus dated March 14, 1997 (the "Western Prospectus")
forming part of Amendment No. 4 to the Registration Statement on Form S-4
filed by Western with the Securities and Exchange Commission on March 14, 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 C, ADT is not affiliated
with either Western or Kansas City Power & Light Company ("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.
"RISK FACTORS
"In addition to the other information in this 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 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, Western Resources presently anticipates
that such deregulation will occur prior to the end of 1999. However, 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 in excess of the level which can be
recovered in the competitive market in which the utility operates. Regulatory
changes, including the introduction of competition, could adversely impact
Western Resources' ability to recover its costs in these assets. Based upon
its current evaluation of the various factors and conditions that are expected
to impact future cost recovery, Western Resources believes that recovery of
these costs is probable. 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 with any certainty at this time.
"The staff of the KCC has testified in Western Resources' electric rate
proceeding in 1996 that "stranded costs" are not presently quantifiable.
Western Resources, KCPL and ONEOK, collectively, have assets of approximately
$10.7 billion, including regulatory assets aggregating approximately $1.1
billion (10.3% of total combined assets). Of this amount, $166 million is
attributable to ONEOK, primarily related to take-or-pay settlements entered
into with natural gas suppliers. ONEOK has disclosed that this regulatory
asset is being recovered, pursuant to an order from the OCC, from a
combination of a customer surcharge and transportation revenues. ADT
Shareholders should note, however, that Western Resources will acquire only a
9.9% common equity ownership interest in ONEOK as a result of Western
Resources' proposed strategic alliance with ONEOK. Western Resources'
potential risk with respect to ONEOK's exposure would therefore be limited to
its equity ownership in ONEOK. Finally, unlike the electric utility industry
which is in the infant stages of deregulation, the natural gas distribution
industry, in which ONEOK is a participant, has already experienced significant
deregulation, thereby reducing the risk that stranded costs will occur.
"Regulatory assets of Western Resources include approximately $300
million relating to the acquisition premium paid in Western Resources'
acquisition of KGE in 1992, which is currently being recovered pursuant to an
order from the KCC, as well as a receivable for income tax benefits flowed
through to Western Resources' customers, debt issuance costs, deferred post
employment/retirement benefits and deferred contract settlement costs.
Regulatory assets of KCPL include approximately $126 million at December 31,
1996 for recoverable future income taxes and a receivable from customers for
income tax benefits which have been flowed-through to customers.
"Finally, Western Resources' ability to fully recover its utility plant
investments in, and decommissioning costs for, generating facilities,
particularly its 47% ownership interest in Wolf Creek, may be at risk in a
competitive environment. This risk will increase as a result of the KCPL
Merger as KCPL also presently owns a 47% undivided interest in Wolf Creek.
Amounts associated with Western Resources' recovery of environmental
remediation costs and long-term fuel contract costs cannot be estimated with
any certainty, but also represent items that could give rise to "stranded
costs" in a competitive environment. In the event that Western Resources was
not allowed to recover any of its "stranded costs," the accounting impact
would be a charge to its results of operations that would be material.
"Certain states, including California, have either adopted rules or are
considering rules to address stranded costs, most of which provide for the
opportunity to recover stranded costs. Proposals in Connecticut, Illinois,
Maine, Massachusetts, Michigan and other states have been introduced that all
permit varying degrees of recovery of stranded costs, most allowing for
recovery during defined interim periods for all prudently incurred costs. The
Kansas legislature is presently reviewing potential proposals, but has not
advanced any specific plan. Western Resources believes any legislative or
regulatory plan adopted would, consistent with other state plans and the rules
adopted by the FERC, include a plan for recovering stranded costs.
"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 or
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
"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 $12.50 in Western Resources Common Stock.
Pursuant to the Offer, each Share will be exchanged for $10.00 net in cash and
$12.50 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 $10.00 net in cash and less
than $12.50 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.
"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. LYONS are exchangeable
for Shares and such exchange could thereby potentially have a dilutive impact
on, among other things, earnings per share. See "Notes to Unaudited Pro Forma
Combined Financial Information."
"Financing of the Offer and the Amalgamation
"Western Resources has received a letter from Chase Manhattan Bank and
Chase in which they state that they are highly confident that they can arrange
credit facilities in the amount necessary to fund payment of the Cash
Consideration with Chase Manhattan Bank and other lenders. Their view is
based, among other things, upon their review of the terms of the Offer, their
understanding of Western Resources and public information regarding ADT, and
current conditions in the banking and syndicated loan markets, and such view
is subject to certain customary conditions. See "The Offer--Source and Amount
of Funds." There can be no assurance, however, that Chase Manhattan Bank and
Chase will be able to arrange the credit facilities necessary to fund payment
of the Cash Consideration. Definitive documentation with respect to such
credit facilities has not yet been negotiated. There can be no assurance that
such documentation, if definitively negotiated, will not contain restrictions
on Western Resources' ability to pay dividends.
"Future Dividends on Western Resources Common Stock
"Although Western Resources does not currently anticipate any
significant change with respect to its dividend practice as a result of the
Offer or the Amalgamation, assuming that Western Resources' dividend remains
at or above the level of its current annual indicated dividend, Western
Resources presently expects that its dividend pay-out ratio will increase to
approximately 100% in the first full year following consummation of the
Amalgamation and will decline to approximately 75% by the third year following
the Amalgamation. Assuming consummation of the Amalgamation and the KCPL
Merger, Western Resources' forecasted dividend pay-out ration will be
approximately 120%, including transaction costs of the KCPL Merger charged to
income following consummation of the KCPL Merger, or 100%, excluding such
transaction costs, in the first full year following the Amalgamation and will
decline to approximately 80% by the third year following the Amalgamation.
Over the past five years, Western Resources' dividend pay-out ratio has
averaged approximately 77%.
"On a pro forma combined basis assuming completion of the Offer, the
Amalgamation and the KCPL Merger, pro forma combined earnings plus
depreciation, amortization and restructuring and non-recurring charges for the
year ended December 31, 1995 and the nine months ended September 30, 1996
would have been approximately $691,000,000 and $609,000,000, respectively. On
a pro forma combined basis assuming completion of the Offer, the Amalgamation
and the KCPL Merger, approximately 190,000,000 shares of Western Resources
Common Stock would have been outstanding during the year ended December 31,
1995 and the nine months ended September 30, 1996, in which case the total
amount of cash required to pay Western Resources' annual indicated dividend of
$2.10 would have been approximately $400,000,000 and $300,000,000 for the
twelve and nine months, respectively. Based on publicly available
information, on a pro forma combined basis assuming completion of the Offer,
the Amalgamation and KCPL Merger, pro forma combined capital expenditures for
the year ended September 30, 1996, respectively, would have been approximately
$636,000,000 and $462,000,000. Historical pro forma combined earnings plus
depreciation, amortization and restructuring and non-recurring charges and
historical pro forma combined capital expenditures do not necessarily reflect
future pro forma combined operating cash flows and future pro forma combined
capital expenditures. If, however, future pro forma combined operating cash
flows and future pro form combined capital expenditures are similar to
historical pro forma combined earnings plus deprecation, amortization and
restructuring and non-recurring charges and historical pro forma combined
capital expenditures, there can be no assurance that Western Resources will be
able, after paying dividends consistent with historical levels, to maintain
capital expenditures at historical levels without moderating their timing or
amount, or from time to time funding such capital expenditures through
external financing. See "Reasons for the Offer--Offer Premium and Dividend
Impact."
"In the future, the Western Resources Board will set annual dividend
payments at amounts which are determined to be reasonable and consistent with
Western Resources' long-term strategy. However, there can be no assurance
that Western Resources will maintain its past practice with respect to the
payment of dividends since the declaration of future dividends will depend
upon Western Resources' future earnings, the financial condition of Western
Resources and other factors.
"Certain Tax Consequences of the Offer and the Amalgamation
"The exchange of Shares for cash and Western Resources Common Stock
pursuant to the Offer and the Amalgamation will be a taxable transaction for
U.S. federal income tax purposes and may also be taxable under applicable
state, local and foreign tax laws. See "The Offer--Certain Federal Income Tax
Consequences." ADT Shareholders should be aware that depending upon, among
other things, their particular facts and circumstances, including their basis
in Shares and tax status, the value of the after-tax proceeds that they
receive in the Offer and the Amalgamation may be less than $22.50. Each ADT
Shareholder is urged to, and should, consult such holder's own tax advisor
with respect to the specific tax consequences of the Offer and the
Amalgamation to such holder."
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 /s/ Richard P. Johnson
________________________________
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., (in the U.S.) prior to 12:00 midnight (Eastern
Daylight Time) on July 3, 1997
or by D.F. King (Europe) Limited (in the U.K.) prior to 12:00 noon (British
Summer Time) on July 5, 1997,
in each case, allow time for delivery to the Registrars of the Company
prior to 9:00 a.m. (Bermuda Time) on July 7, 1997,
or by AS&K Services Limited (in Bermuda), prior to 9:00 a.m. (Bermuda time)
on July 7, 1997.
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.,
at 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 adjournments 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 set forth herein. 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, except that in the case of any
proposal to adjourn the meeting, the proxy will vote as indicated on the
reverse of this card or, to the extent that no such indication is given, as
set forth herein. 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, FOR item no. 4 and AGAINST item no. 5.
- ------------------------------------------------------------------------------
Completed proxy cards should be returned to: D.F. King & Co., Inc., 77 Water
Street, 20th Floor, New York, NY 10005, USA (if by hand)
or D. F. King & Co., Inc., Wall Street Station, P.O. Box 411, New York, NY
10269-0069, USA (if by mail)
or D. F. King (Europe) Limited, Royex House, Aldermanbury Square, London EC2V
7HR, United Kingdom (by hand or mail)
or AS&K Services Limited, Cedar House, P.O. Box 1179, 41 Cedar Avenue,
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 Registrars of the Company.
[Reverse of Proxy Card]
-----------------------
I. The Western Proposals
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU 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:
______________________________________.
II. Proposal to Adjourn the Special General Meeting
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR
ITEM NO. 4 AND AGAINST ITEM NO. 5.
4. PROPOSAL TO ADJOURN THE SPECIAL GENERAL MEETING TO A LATER DATE WHICH
IS PROPOSED OR RECOMMENDED BY THE CHAIRMAN OF THE SPECIAL GENERAL
MEETING. (THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU
VOTE FOR.)
[ ] AGAINST [ ] FOR [ ] ABSTAIN
5. PROPOSAL TO ADJOURN THE SPECIAL GENERAL MEETING TO A LATER DATE WHICH
IS NOT PROPOSED OR RECOMMENDED BY THE CHAIRMAN OF THE SPECIAL GENERAL
MEETING. (THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU
VOTE AGAINST.)
[ ] AGAINST [ ] FOR [ ] ABSTAIN
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 in the United States (for
outside the United States and the United Kingdom).
