<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1997
REGISTRATION NO. 333-24363
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
ADT LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
BERMUDA 7382 NOT APPLICABLE
(I.R.S. Employer Identification
(State or Other Jurisdiction of (Primary Standard Industrial No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
------------------------
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------
STEPHEN J. RUZIKA
C/O ADT, INC.
1750 CLINT MOORE ROAD
BOCA RATON, FL 33431
(561) 988-3600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code of
Agent for Service)
*ADT Limited maintains its registered and principal executive offices at Cedar
House, 41 Cedar Avenue, Hamilton HM12 Bermuda. The executive offices of the
subsidiary which supervises ADT Limited's subsidiaries' activities in North
America are located at 1750 Clint Moore Road, Boca Raton, Florida, 33431. The
telephone number there is (561) 988-3600.
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOHN J. MCCARTHY, JR., ESQ. MARK H. SWARTZ JOSHUA M. BERMAN, ESQ.
DAVID W. FERGUSON, ESQ. TYCO INTERNATIONAL LTD. ABBE L. DIENSTAG, ESQ.
DAVIS POLK & WARDWELL ONE TYCO PARK KRAMER, LEVIN, NAFTALIS & FRANKEL
450 LEXINGTON AVENUE EXETER, NH 03833 919 THIRD AVENUE
NEW YORK, NY 10017 (603) 778-9700 NEW YORK, NY 10022
(212) 450-4000 (212) 715-9100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger (including the receipt of certain regulatory approvals)
contemplated by the Agreement and Plan of Merger, dated as of March 17, 1997,
described in the enclosed Joint Proxy Statement/Prospectus, have been satisfied
or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
TYCO INTERNATIONAL LTD.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Tyco International Ltd.:
A Special Meeting of Shareholders of Tyco International Ltd., a
Massachusetts corporation ("Tyco"), will be held at The Helmsley Park Lane
Hotel, 36 Central Park South, New York, New York 10019 on July 2, 1997 at 10:00
a.m. for the purposes of:
(i) voting upon a proposal to approve an Agreement and Plan of Merger,
dated as of March 17, 1997 (the "Merger Agreement"), among ADT Limited, Tyco and
Limited Apache, Inc., a Massachusetts corporation and a wholly-owned subsidiary
of ADT (the "Merger Subsidiary"), and to approve the merger (the "Merger") of
Merger Subsidiary with and into Tyco; and
(ii) authorizing a vote in favor of any proposal to adjourn the Special
Meeting to a later date which adjournment is proposed or recommended by the
Chairman of the Special Meeting and against any other proposal to adjourn the
Special Meeting to a later date.
In the Merger, Tyco shareholders will receive one common share of the
combined company for each of their current Tyco common shares. As a result of a
reverse stock split, each existing ADT share will become 0.48133 of a combined
company common share (subject to adjustment under certain circumstances) after
the Merger. The ADT common shares to be issued to Tyco shareholders in the
Merger initially will represent approximately 64% of the outstanding combined
company common shares after the Merger. Shares held by ADT shareholders before
the Merger initially will represent approximately 36% of the outstanding
combined company common shares after the Merger. A copy of the Merger Agreement
is attached as Annex I to the Joint Proxy Statement/Prospectus accompanying this
Notice.
The Board of Directors has fixed the close of business on May 13, 1997 as
the record date for the determination of the holders of Tyco's Common Stock
entitled to notice of, and to vote at, the meeting. The Merger and other related
matters are more fully described in the accompanying Joint Proxy Statement/
Prospectus, and the annexes thereto, which form a part of this Notice.
If the Merger Agreement is approved and the Merger becomes effective, any
Tyco shareholder (i) who files with Tyco, before the taking of the vote on the
approval of the Merger Agreement, written objection to the proposed Merger
stating that he or she intends to demand payment for his or her Tyco shares if
the Merger Agreement is approved, and (ii) whose Tyco shares are not voted in
favor of the Merger Agreement, has or may have the right to demand in writing
from Tyco, within twenty days after the date of mailing to him or her of notice
in writing that the Merger has become effective, payment for his or her Tyco
shares and an appraisal of the value thereof. Tyco and any such holder shall in
such cases have the rights and duties and shall follow the procedures set forth
in Sections 88 through 98, inclusive, of Chapter 156B of the General Laws of
Massachusetts. See "The Merger--Appraisal Rights" in the accompanying Joint
Proxy Statement/Prospectus for a statement of the rights of dissenting holders
and a description of the procedures required to be followed in order to perfect
appraisal rights. Annex IV to the accompanying Joint Proxy Statement/Prospectus
sets forth the text of Sections 85 through 98 of Chapter 156B of the General
Laws of Massachusetts.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. TO ENSURE
YOUR REPRESENTATION AT THE MEETING, HOWEVER, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A POSTAGE-PREPAID
ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING THE MEETING MAY
VOTE IN PERSON EVEN IF THAT SHAREHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors
David P. Brownell
Clerk
June , 1997
<PAGE> 3
ADT LIMITED
NOTICE OF SPECIAL GENERAL MEETING
Notice is hereby given that a Special General Meeting of ADT Limited (the
"Company") will be held on July 2, 1997 at 10:00 a.m., local time, at Cedar
House, 41 Cedar Avenue, Hamilton HM12, Bermuda for the purpose of considering
and voting upon resolutions in a form presented by the Board of Directors at the
meeting to the following effect, each of the resolutions relating to items 1
through 4 below to be conditional upon the merger (the "Merger") of Limited
Apache, Inc., a wholly-owned subsidiary of the Company, with Tyco International
Ltd. ("Tyco") becoming effective:
1. Subject to the resolution relating to the consolidation and increase of
share capital referred to in 2 below being duly passed, to authorize the
Directors to issue Common Shares of US$0.20 each in the capital of the
Company resulting from such consolidation and increase ("New Common
Shares") in connection with the Merger.
2. To approve or authorize:
(a) the consolidation and division of the Common Shares of US$0.10
each in the capital of the Company ("Existing Common Shares") into New
Common Shares but on terms that holders of Existing Common shares in issue
immediately before the effective time of the Merger will be entitled to
such number of New Common Shares for each Existing Common Share as is
determined in accordance with the Reverse Stock Split Ratio (subject to any
applicable adjustment) described in the accompanying joint proxy
statement/prospectus of Tyco and the Company dated June , 1997, all
fractional entitlements being canceled for cash equal to the value thereof;
(b) an increase in the authorized share capital of the Company by the
creation of (i) a number of New Common Shares equal in nominal value to the
aggregate nominal value of fractional entitlements so canceled and
contemporaneously with such cancellation and (ii) an additional 640,000,000
New Common Shares (or, if the resolution relating to item 7 below is
passed, 500,000,000 New Common Shares);
(c) the issue or other disposal by the Directors of all the New Common
Shares resulting from such consolidation and increase of capital, to the
extent such shares are not issued in connection with the Merger; and
(d) amendments to the Bye-Laws of the Company consequential upon (a)
and (b) above.
3. To increase the number of Directors to eleven, to remove all but three
of the current Directors and to elect eight additional Directors of the
Company, being the current members of the Board of Tyco (or such other
persons as the Board of Tyco may nominate), to serve until the next
Annual General Meeting of the Company.
4. To approve the change of the Company's name to Tyco International Ltd.
5. To approve amendments to the ADT Limited 1993 Long Term Incentive Plan
and to ratify and approve the grant of all share options pursuant to
that plan and the Company's other share option and incentive plans and,
subject to the Merger becoming effective, the assumption by the Company
of Tyco's obligations under its share option and incentive plans and
warrants.
6. Subject to the resolutions relating to items 1 through 4 above being
duly passed, to approve an amendment to Bye-Law 45 (power to adjourn
general meeting) of the Bye-Laws of the Company as described in the
accompanying joint proxy statement/prospectus of the Company and Tyco
dated June , 1997.
<PAGE> 4
7. To approve an increase in the authorized share capital of the Company by
the creation of an additional 280,000,000 Common Shares of US$0.10 each,
to authorize the issue or other disposal by the Directors of such shares
and to amend consequentially the Bye-Laws of the Company.
By Order of the Board of Directors
John D. Campbell, Secretary
41 Cedar Avenue
Hamilton HM12
Bermuda
June , 1997
NOTES:
1. A shareholder is entitled to appoint a proxy to attend and vote at the
meeting on his behalf. A proxy must be a shareholder.
2. Forms of proxy should be signed, dated and returned as soon as possible
in accordance with the instructions in the accompanying joint proxy
statement/prospectus of the Company dated June , 1997 and the notes on
the forms of proxy.
<PAGE> 5
(SUBJECT TO COMPLETION DATED JUNE 3, 1997)
[TYCO LOGO] [ADT LOGO]
MERGER PROPOSED-YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Tyco International Ltd. and ADT Limited have
agreed upon a merger of Tyco and ADT and are seeking your vote for this
important transaction. Tyco is the world's largest manufacturer and provider of
fire protection systems and services. ADT is the largest provider of electronic
security services in North America and the United Kingdom. By combining the two
companies and their complementary operations, Tyco and ADT expect to increase
their sales and business opportunities, market their products and services more
efficiently and enhance long-term value for their shareholders.
In the merger, Tyco shareholders will receive one share of the combined
company for each Tyco share. ADT shareholders will continue to own their
existing shares after the merger. However, as a result of an ADT reverse stock
split, which ADT shareholders are being asked to approve in connection with the
merger, each existing ADT share will become 0.48133 of a combined company share
(subject to adjustment under certain circumstances) after the merger. The
reverse stock split will not apply to the shares issued to Tyco shareholders in
the merger.
Tyco shareholders initially will own approximately 64% of the outstanding
shares of the combined company after the merger. ADT shareholders initially will
own approximately 36% of the outstanding shares after the merger.
Shareholders of Tyco are being asked, at Tyco's special meeting of
shareholders, to approve the merger and the merger agreement.
Shareholders of ADT are being asked, at ADT's special general meeting of
shareholders: to authorize the issuance of ADT shares in the merger, to approve
the reverse stock split and an increase in the authorized share capital of ADT,
and to approve the change of ADT's name to Tyco International Ltd. ADT
shareholders are also being asked to elect eight members of Tyco's present board
to ADT's Board of Directors effective upon the merger, so that after the merger
the ADT Board of Directors will consist of these eight directors and three
members of ADT's present board. The merger cannot be completed unless
shareholders of Tyco and ADT approve each of these matters. In addition, ADT
shareholders are being asked (i) to approve certain changes to ADT's option plan
and to ratify the assumption by ADT of certain Tyco options and warrants and the
grant of existing ADT options, (ii) to approve an amendment to ADT's bye-laws
and (iii) to approve an increase in the authorized share capital of ADT which is
not connected with the merger; approval of these matters is not a condition to
the merger.
Whether or not you plan to attend a meeting, please take the time to vote
on the proposal(s) submitted to shareholders by completing and mailing the
enclosed proxy card to us. If you sign, date and mail your proxy card without
indicating how you wish to vote, your proxy will be counted as a vote in favor
of the proposal(s). IF YOU ARE A TYCO SHAREHOLDER AND FAIL TO RETURN YOUR CARD,
THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE MERGER UNLESS YOU APPEAR IN
PERSON AT THE TYCO MEETING AND VOTE IN FAVOR OF THE MERGER. If you are an ADT
shareholder and fail to return your card, you will not be counted as present or
voting unless you appear in person. YOUR VOTE IS VERY IMPORTANT.
The dates, times and places of the meetings are:
For TYCO shareholders:
July 2, 1997
10:00 a.m. (Eastern Daylight Time)
The Helmsley Park Lane Hotel
36 Central Park South
New York, New York 10019
For ADT shareholders:
July 2, 1997
10:00 a.m. (Bermuda time)
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
This document provides you with detailed information about the proposed
merger. It also provides ADT shareholders with detailed information about the
ADT-specific matters on which they are being asked to vote. In addition, you may
obtain information about our companies from documents that Tyco and ADT have
filed with the Securities and Exchange Commission. We encourage you to read this
entire document carefully.
<TABLE>
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/s/ L. Dennis Kozlowski /s/ Michael A. Ashcroft
---------------------------------------------- ------------------------------------------------
L. Dennis Kozlowski Michael A. Ashcroft
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
Tyco International Ltd. ADT Limited
</TABLE>
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN MATTERS
WHICH SHOULD BE CONSIDERED BY SHAREHOLDERS WITH RESPECT TO THE MERGER. Neither
the Securities and Exchange Commission nor any state securities regulators have
approved the ADT Common Shares to be issued under this Joint Proxy
Statement/Prospectus or determined if this Joint Proxy Statement/Prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be amended. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell nor is it seeking an offer to buy these securities in any state where
the offer or sale is not permitted.
Joint Proxy Statement/Prospectus dated June , 1997 and first mailed to
shareholders on June , 1997.
<PAGE> 6
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER.... 1
SUMMARY................................... 3
RISK FACTORS.............................. 13
THE MERGER................................ 15
General................................. 15
Background of the Merger................ 15
Tyco's and ADT's Reasons for the
Merger............................... 23
Recommendation of the Tyco Board........ 24
Recommendation of the ADT Board......... 25
Certain Other Matters Relating to the
Combined Company..................... 26
Cautionary Statement Concerning Forward-
Looking Statements................... 27
Accounting Treatment.................... 27
Certain United States Federal Income,
United Kingdom and Bermuda Tax
Consequences......................... 28
Regulatory Matters...................... 30
Dissenters' Rights of Objecting
Shareholders......................... 31
U.S. Federal Securities Laws
Consequences; Stock Transfer
Restriction Agreements............... 33
CURRENT DEVELOPMENTS...................... 34
COMPARATIVE PER SHARE MARKET PRICE AND
DIVIDEND INFORMATION.................... 35
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION................... 36
ROLE OF FINANCIAL ADVISORS................ 45
Opinion of Tyco's Financial Advisor..... 45
Opinion of ADT's Financial Advisor...... 48
INTERESTS OF CERTAIN PERSONS IN THE
MERGER.................................. 56
Tyco and ADT Directors and Officers
Insurance; Indemnification of Tyco
and ADT Directors and Officers....... 56
ADT Employment Agreements and Other
Arrangements......................... 56
THE MERGER AGREEMENT...................... 58
General................................. 58
Merger Consideration.................... 58
Treatment of Tyco Stock Options......... 58
Treatment of Tyco Warrants.............. 59
Tyco Restricted Stock Plan.............. 59
Exchange of Shares...................... 59
Certain Covenants....................... 59
Certain Representations and
Warranties........................... 63
Conditions to the Merger................ 63
Termination of the Merger Agreement..... 64
Other Expenses.......................... 67
THE MEETINGS.............................. 68
Times and Places; Purposes.............. 68
Voting Rights; Votes Required for
Approval............................. 68
Proxies................................. 70
BUSINESSES OF TYCO AND ADT................ 72
Tyco.................................... 72
ADT..................................... 77
ELECTION OF DIRECTORS..................... 86
Information Concerning Nominees......... 86
Removal of Directors.................... 88
Directors and Executive Officers........ 88
Security Ownership of Certain Beneficial
Owners of ADT and ADT Management..... 90
Security Ownership of Certain Beneficial
Owners of Tyco and Tyco Management... 91
ADT Executive Compensation.............. 92
Certain Relationships and Related
Transactions......................... 98
ADT MERGER PROPOSAL ON RECAPITALIZATION... 99
OTHER ADT MEETING PROPOSALS............... 100
The Option and Warrant Proposal......... 100
ADT Bye-Law Amendment Proposal.......... 106
ADT Capital Increase Proposal........... 107
PROPOSAL TO ADJOURN THE TYCO MEETING...... 107
COMPARISON OF SHAREHOLDER RIGHTS.......... 108
General................................. 108
Comparison of Current Tyco Shareholder
Rights and Rights of Combined Company
Shareholders Following the Merger.... 108
DESCRIPTION OF COMBINED COMPANY SHARE
CAPITAL................................. 118
Authorized Share Capital................ 118
Combined Company Common Shares.......... 118
Combined Company Preference Shares...... 119
Stock Exchange Listing; Delisting of
Tyco Common Shares................... 119
LEGAL MATTERS............................. 119
EXPERTS................................... 120
FUTURE SHAREHOLDER PROPOSALS.............. 120
WHERE YOU CAN FIND MORE INFORMATION....... 120
LIST OF DEFINED TERMS..................... 122
LIST OF ANNEXES
Annex I Agreement and Plan of Merger
Annex II Opinion of Credit Suisse First
Boston Corporation
Annex III Opinion of Merrill Lynch, Pierce
Fenner & Smith Incorporated
Annex IV Provisions of Massachusetts Law
Governing Shareholder Appraisal
Rights
Annex V Amended ADT Limited Long Term
Incentive Plan
</TABLE>
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY HAVE TYCO INTERNATIONAL LTD. AND ADT LIMITED PROPOSED A MERGER?
A: The businesses of Tyco and ADT are complementary. Tyco is the world's
largest manufacturer and provider of fire protection systems and services.
ADT is the largest provider of electronic security services in North America
and the United Kingdom. Tyco and ADT expect the combined company to grow by
marketing products and services to each other's customers, efficiently
serving customer needs for both fire protection and security. For Tyco, the
merger will continue the expansion of its service business, which is already
substantial. This business has higher profit margins and is less susceptible
to cyclical variation than Tyco's fire safety installation business. For
ADT, the merger will provide access to Tyco's worldwide business presence,
which spans over 50 countries. For a more detailed discussion of the reasons
for the merger, see "The Merger--General" through "The Merger--Certain Other
Matters Relating to the Combined Company." However, achieving the
anticipated benefits of the merger is subject to certain risks, as discussed
under "Risk Factors" and "The Merger--Cautionary Statement Concerning
Forward-Looking Statements."
Q: IS TYCO ACQUIRING ADT OR IS ADT ACQUIRING TYCO?
A: Tyco and ADT will combine through a merger of Tyco and a subsidiary of ADT.
Legally, ADT will be the continuing public company. However, Tyco's
shareholders initially will hold approximately 64% of the shares in the
combined company, Tyco's present directors initially will constitute eight
out of the eleven members of the Board of Directors of the combined company,
Tyco's Chief Executive Officer and its Chief Financial Officer will be Chief
Executive Officer and Chief Financial Officer of the combined company, and
the combined company will be named Tyco International Ltd. In this sense,
the merger can be seen as Tyco acquiring ADT.
Q: WHAT WILL HAPPEN TO THE STOCK OF TYCO AND ADT IN THE MERGER?
A: Tyco shareholders will receive one share in the combined company for each
share of Tyco stock. A reverse stock split (which will not apply to Tyco
shareholders) will result in ADT shareholders holding 0.48133 of a share in
the combined company (subject to adjustment under certain circumstances) for
each of their existing ADT shares. ADT shareholders will receive a whole
number of shares and a cash payment for any fractional shares arising from
the reverse stock split.
For example, a Tyco shareholder that owns 100 shares of Tyco will own 100
shares of the combined company following the merger. An ADT shareholder that
owns 100 shares of ADT will own 48 shares in the combined company and will
receive a check for the market value of 0.133 of a share in the combined
company.
Q: WILL I BE TAXED ON THE TRANSACTION?
A: Any gain on the exchange of shares by U.S. shareholders of Tyco will be
taxable for U.S. federal income tax purposes. Any loss on the exchange of
shares by U.S. shareholders of Tyco will not be recognized by those
shareholders for U.S. federal income tax purposes, and those shareholders
will have a carryover basis in those shares. The merger and the reverse
stock split will be tax-free to U.S. and U.K. shareholders of ADT for U.S.
federal income tax purposes and U.K. capital gains tax purposes except to
the extent that shareholders receive cash in lieu of fractional shares. To
review the U.S. federal income tax consequences of the merger and reverse
stock split for U.S. shareholders and the U.K. tax consequences of the
reverse stock split for ADT's U.K. shareholders in greater detail, see "The
Merger--Certain United States Federal Income, United Kingdom and Bermuda Tax
Consequences." Shareholders are advised to obtain their own advice as to the
specific tax consequences for them of the merger.
<PAGE> 8
Q: WHEN WILL THE MERGER TAKE EFFECT?
A: Tyco and ADT expect that the merger will become effective promptly after
their shareholders have voted on it. The shareholder meetings of both Tyco
and ADT are scheduled for July 2, 1997.
Q: IF I AM AN ADT SHAREHOLDER, HOW MUCH WILL MY SHARES BE WORTH AFTER THE
MERGER?
A: That will depend on the market price of the combined company common shares
after the merger. On June 2, 1997, the closing price of Tyco common stock on
the New York Stock Exchange was $63 7/8. If the shares of the combined
company had that market value after the merger and the reverse stock split,
each holder of a currently outstanding ADT share would be entitled to
receive shares of the combined company with a market value of approximately
$30.74. However, the market prices for Tyco shares and ADT shares are likely
to change between now and the merger. You are urged to obtain current price
quotes for Tyco and ADT shares.
Q: WILL THE COMBINED COMPANY PAY DIVIDENDS?
A: Tyco currently pays quarterly dividends of $0.05 per share. ADT does not
currently pay dividends. The combined company expects to continue Tyco's
dividend practice. Of course, this may be changed at any time by the Board
of Directors of the combined company.
Q: WILL SHAREHOLDERS HAVE DISSENTERS' RIGHTS?
A: Shareholders of Tyco will be entitled to dissenters' rights. Shareholders of
ADT will not. Dissenters' rights will allow Tyco shareholders who have
followed required procedures to receive the cash value of their shares, as
determined by a court, instead of the shares in the combined company
issuable in the merger. The cash payment could be higher or lower than the
value of shares in the combined company. The requirements for exercising
dissenters' rights are summarized in "The Merger--Dissenters' Rights of
Objecting Shareholders," and the provisions of Massachusetts law that govern
appraisal rights are attached as Annex IV. Shareholders of Tyco who wish to
exercise dissenters' rights should read and follow those provisions
carefully.
Q: WHAT SHOULD I DO NOW?
A: Just mail your signed proxy card in the enclosed envelope, as soon as
possible, so that your shares will be represented at the Tyco shareholders
meeting or the ADT shareholders meeting. The Board of Directors of Tyco
recommends that shareholders of Tyco vote in favor of approval of the merger
and the merger agreement. The Board of Directors of ADT recommends that
shareholders of ADT vote in favor of the proposals submitted to ADT
shareholders. After the merger is completed, shareholders of both companies
will receive written instructions for exchanging their share certificates.
Q: CAN SHAREHOLDERS CHANGE THEIR VOTES AFTER THEY HAVE MAILED IN A SIGNED PROXY
CARD?
A: Yes. Shareholders can change their votes in one of the following ways at any
time before their proxy cards are used. First, shareholders can revoke their
proxies by written notice. Second, shareholders can complete new proxy
cards. Third, shareholders can attend the appropriate meeting and vote in
person. In addition, in the case of ADT, shareholders may alter the
instructions as to how their proxies are to vote (without revoking the
proxies) by giving notice of the alteration to the Secretary of ADT before
the vote is taken. For details please see "The Meetings--Voting Rights;
Votes Required for Approval--Tyco," "The Meetings--Voting Rights; Votes
Required for Approval--ADT" and "The Meetings--Proxies."
Q: WHO SHOULD SHAREHOLDERS CALL WITH QUESTIONS?
A: Tyco shareholders who have questions about the merger should call Hill and
Knowlton, Inc. at 1-800-755-3002 (toll-free in the United States).
ADT shareholders who have questions about the merger should call D.F. King
& Co., Inc. ADT shareholders in the United States should call 1-800-488-8035
(toll-free). ADT shareholders in the United Kingdom should call
0171-600-5005. ADT shareholders outside the United States and the United
Kingdom should call 212-269-5550 (in the United States).
2
<PAGE> 9
SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which you have been referred. See "Where
You Can Find More Information" (page 120). For a table of the defined terms used
in this summary and elsewhere in this Joint Proxy Statement/Prospectus, see page
122.
THE COMPANIES
TYCO INTERNATIONAL LTD.
One Tyco Park
Exeter, New Hampshire 03833, USA
(603) 778-9700
Tyco International Ltd. is the largest contractor in the world for the
design, installation and servicing of fire protection systems and is a leading
manufacturer and distributor of fire detection and fire suppression products.
Fire protection accounted for 38% of Tyco's fiscal 1996 net revenues and 19% of
Tyco's fiscal 1996 earnings before interest and taxes. Tyco also manufactures
and distributes disposable medical supplies and other specialty products, flow
control products and electrical and electronic components. Tyco has a strong
leadership position in each of the markets in which it competes. With operations
in more than 50 countries world-wide, Tyco had sales of over $5 billion in its
fiscal year ended June 30, 1996.
Tyco's strategy is to be the low-cost, high quality producer in each of its
markets. It promotes its leadership position by investing in existing
businesses, developing new markets and acquiring complementary businesses and
products. Combining the strengths of its existing operations and its business
acquisitions, Tyco seeks to enhance shareholder value through increased earnings
per share.
For further information on the business of Tyco, see "Businesses of Tyco
and ADT--Tyco."
ADT LIMITED
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
(441) 295-2244
ADT was organized in Bermuda in September 1984 under the name Hawley Group
Limited. It is engaged in two service businesses, electronic security services
in North America and Europe and vehicle auction and related services in the
United States. ADT sells, installs, monitors and maintains electronic security
devices in customers' businesses or residences. These devices provide detection
of events, such as intrusion or fire, and surveillance and control of access.
ADT believes that it is the largest provider of electronic security services in
North America and the United Kingdom. Electronic security services accounted for
82% of ADT's 1996 net revenues and 84% of ADT's 1996 earnings before interest,
taxes and nonrecurring charges. ADT also operates a network of large modern
vehicle auction centers in the United States.
For further information on the business of ADT, see "Businesses of Tyco and
ADT--ADT."
THE MEETINGS
The meetings of the Tyco shareholders and the ADT shareholders will be held
on July 2, 1997.
The record date for shareholders of Tyco entitled to receive notice of and
to vote at the Tyco special meeting is May 13, 1997. On that date there were
168,358,092 common shares of Tyco outstanding.
The record date for shareholders of ADT entitled to receive notice of the
ADT special general meeting is May 13, 1997. On that date there were 157,010,468
common shares of ADT outstanding. Subject to the bye-laws of ADT, all holders of
record of ADT common shares on the date of the ADT special general meeting will
be entitled to vote at that meeting.
REASONS FOR THE MERGER
The merger should provide opportunities to achieve substantial benefits for
Tyco and ADT
3
<PAGE> 10
shareholders that might not otherwise be available. Tyco and ADT believe that
the merger will create the premier company in the fire protection and electronic
security businesses. Also, with its expanded markets, financial resources,
management, personnel and expertise, the combined company should be better able
to serve the existing customers of Tyco and ADT and to capitalize on growth
opportunities in the fire protection and electronic security markets.
To review the reasons for the merger in greater detail, see "The
Merger--Tyco's and ADT's Reasons for the Merger" through "The Merger--Certain
Other Matters Relating to the Combined Company."
RECOMMENDATIONS TO SHAREHOLDERS
TO TYCO SHAREHOLDERS:
The Tyco Board believes that the merger is in your best interests and
unanimously recommends that you vote FOR the proposal to approve the merger and
the merger agreement.
TO ADT SHAREHOLDERS:
The ADT Board believes that the merger is in your best interests and
unanimously recommends that you vote FOR each of the merger-related and other
proposals submitted to you.
THE MERGER
The merger agreement is attached as Annex I to this Joint Proxy
Statement/Prospectus. You should read the merger agreement as it is the legal
document that governs the merger.
What Tyco Shareholders Will Receive
Tyco shareholders will receive one common share of the combined company for
each Tyco common share.
What Current ADT Shareholders Will Hold After the Merger
As a result of a reverse stock split which ADT shareholders are being asked
to approve, each existing ADT share will become 0.48133 of a combined company
common share (subject to adjustment under certain circumstances) after the
merger. ADT shareholders will receive a whole number of shares and a cash
payment for any fractional shares arising from the reverse stock split.
Ownership of the Combined Company
After the merger, Tyco shareholders will initially own approximately 64%,
and ADT shareholders will initially own approximately 36%, of the outstanding
combined company common shares.
Certain United States Federal Income, United Kingdom and Bermuda Tax
Consequences
Any gain on the exchange of shares by U.S. shareholders of Tyco will be
taxable to those shareholders for U.S. federal income tax purposes. Any loss on
the exchange of shares by U.S. shareholders of Tyco will not be recognized by
those shareholders for U.S. federal income tax purposes, and those shareholders
will have a carryover basis in their shares. The reverse stock split will be
tax-free to U.S. and U.K. shareholders of ADT for U.S. federal income tax and
U.K. capital gains tax purposes, except for cash received in lieu of fractional
shares. Shareholders are advised to obtain their own advice as to the specific
tax consequences for them of the merger and reverse stock split.
The Proposals
The shareholders of Tyco are being asked to approve the merger and the
merger agreement.
THE TYCO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TYCO SHAREHOLDERS
VOTE IN FAVOR OF APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.
See also "Proposal to Adjourn the Tyco Meeting."
The shareholders of ADT are being asked to approve a number of matters that
are required for the merger to take place. These matters, all of which are
conditioned on the merger, include:
(1) the issuance of ADT common shares in the merger;
(2) a reverse stock split of the outstanding common shares of ADT
immediately prior to the merger at the rate of 0.48133 of a new share
for each outstanding ADT share (subject to adjustment under certain
circumstances);
4
<PAGE> 11
(3) an increase of 640,000,000 (or, if the resolution described in (iii)
below is passed, 500,000,000) in the number of authorized ADT common
shares to 750,000,000 shares and the issuance of those shares;
(4) an expansion of the ADT Board of Directors to eleven directors, the
removal of all but three of the current directors of ADT and the
election of Tyco's eight current board members as new directors of ADT,
effective upon the merger; and
(5) a change in the name of ADT to Tyco International Ltd.
In addition, shareholders of ADT are being asked (i) to approve certain
changes to ADT's option plan and to ratify the assumption by ADT of certain Tyco
options and warrants and the grant of existing ADT options, (ii) to approve an
amendment to ADT's bye-laws and (iii) to approve an increase of 280,000,000
shares in the authorized share capital of ADT and the issuance of those shares.
Approval of these matters is not a condition of the merger.
THE ADT BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ADT SHAREHOLDERS
VOTE IN FAVOR OF ALL OF THE ABOVE MATTERS.
Shareholder Vote Required
The favorable vote of two-thirds of the outstanding Tyco common shares is
required to approve the merger and the merger agreement. IF YOU ARE A TYCO
SHAREHOLDER AND FAIL TO RETURN YOUR CARD, THE EFFECT WILL BE THE SAME AS A VOTE
AGAINST THE MERGER UNLESS YOU APPEAR IN PERSON AT THE TYCO MEETING AND VOTE IN
FAVOR OF THE MERGER.
The favorable vote of a majority of the ADT common shares voting at the ADT
meeting is required to approve the matters being voted on by the ADT
shareholders.
Board of Directors and Management of the Combined Company after the Merger
ADT shareholders are being asked to elect Tyco's eight present directors to
the Board of Directors of the combined company and to remove all but three of
ADT's current directors. Michael Ashcroft and two current independent directors
will remain on the Board of Directors of the combined company.
L. Dennis Kozlowski, the Chairman, President and Chief Executive Officer of
Tyco, will be the Chairman, President and Chief Executive Officer of the
combined company. Mark H. Swartz, the Vice President and Chief Financial Officer
of Tyco, will be the Vice President and Chief Financial Officer of the combined
company.
Interests of Officers and Directors in the Merger
In considering the recommendations of the Tyco and ADT Boards of Directors,
Tyco and ADT shareholders should be aware that members of the Boards of
Directors of Tyco and ADT and certain members of their management will receive
certain benefits as a result of the merger that will be in addition to benefits
received by shareholders generally. For further details, see "Interests of
Certain Persons in the Merger."
Conditions to the Merger
The completion of the merger depends upon satisfaction of a number of
conditions, including the following:
(1) approval of the merger and the merger agreement by the shareholders of
Tyco and approval by the shareholders of ADT of each of the matters
related to the merger on which they are being asked to vote;
(2) receipt of any required regulatory approvals;
(3) absence of governmental action prohibiting the merger or adversely
affecting the combined company;
(4) the absence of any law that makes the merger illegal; and
(5) receipt of the opinions of Coopers & Lybrand L.L.P. and Coopers &
Lybrand that the merger will qualify as a pooling of interests for
accounting purposes.
These conditions may be waived by the party entitled to assert the
condition. For further details, see "The Merger Agreement--Conditions to the
Merger."
5
<PAGE> 12
Termination of the Merger Agreement
Either Tyco or ADT may terminate the merger agreement if any of the
following occurs:
(1) the merger is not completed by August 15, 1997;
(2) a court or governmental agency permanently prohibits the merger or any
of the related matters on which the ADT shareholders are voting;
(3) the shareholders of either Tyco or ADT do not approve the matters
submitted to them related to the merger;
(4) the Board of Directors of the other party adversely modifies its
approval of the merger;
(5) the Board of Directors of either party adversely modifies its approval
of the merger in keeping with its fiduciary obligations to
shareholders;
(6) the other party breaches its representations, warranties or obligations
under the merger agreement and that breach cannot be remedied;
(7) the average price of Tyco common shares for any ten consecutive trading
days commencing after April 8, 1997 falls below $56; and
(8) the average price of Tyco common shares for the ten consecutive trading
days ending on the fourth trading day prior to the ADT meeting is below
$56, except that ADT may not exercise this right to terminate the
merger agreement if Tyco agrees to certain adjustments to the ratio
used in the reverse stock split.
In addition, Tyco may terminate the merger agreement if the ADT Board of
Directors adversely modifies its approval of any of the matters related to the
merger being voted on by ADT shareholders or if the ADT Board of Directors
recommends a tender offer or merger proposal made by a third party. For further
details, see "The Merger Agreement--Termination of the Merger Agreement."
Termination Fees and Expenses
A termination fee of $150 million (plus up to $7.5 million of expenses) is
required to be paid by ADT or Tyco to the other party if the merger agreement is
terminated under certain circumstances.
Regulatory Approvals
Tyco and ADT have given each other a commitment to use their best efforts
to take whatever actions are required to obtain required regulatory approvals.
The U.S. Hart-Scott-Rodino statute prohibits Tyco and ADT from completing
the merger until they have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and a required waiting period has expired. On May 3, 1997, this waiting period
expired. The U.S. Department of Justice and the Federal Trade Commission have
the authority to challenge the merger on antitrust grounds before or after the
merger is completed. Each state where either Tyco or ADT has operations may also
review the merger under state antitrust law.
The merger is subject to notification to and the approval of the Commission
of the European Communities under Council Regulation 4064/89/EEC on the control
of concentrations. On June 2, 1997 the Commission notified Tyco and ADT that it
had decided not to oppose the merger.
Accounting Treatment
Tyco and ADT expect the merger to qualify as a pooling of interests, which
means that the companies will be treated as if they had always been combined for
accounting and financial reporting purposes. Each company must receive a letter
from its independent accounting firm that it is their opinion that the merger
will qualify to be accounted for as a pooling of interests. For further details,
see "The Merger--Accounting Treatment."
Opinions of Financial Advisors
Before approving the merger agreement, the Boards of Tyco and ADT
considered opinions from their respective financial advisors with respect to the
fairness of the exchange ratio to their respective shareholders from a financial
point of view. Tyco received an opinion from Credit Suisse
6
<PAGE> 13
First Boston Corporation, and ADT received an opinion from Merrill Lynch, Pierce
Fenner & Smith Incorporated. These opinions are attached as Annexes II and III
to this Joint Proxy Statement/Prospectus. You are encouraged to read these
opinions in their entirety. See "Role of Financial Advisors."
In connection with these opinions, the financial advisors performed a
variety of analyses. While not performed or presented in the same way, the
analyses included comparing ADT and Tyco historical stock prices, comparing the
financial terms of the merger to those of other publicly announced transactions,
and estimating the relative values and contributions of ADT and Tyco.
Dissenters' Rights
Tyco shareholders who do not vote in favor of the merger and who fully
comply with the requirements of Massachusetts law will have the right to a cash
payment and an appraisal of their Tyco common shares pursuant to a court
proceeding. Failure to take any required step in connection with the exercise of
dissenters' rights may result in the termination or waiver of such rights. See
"The Merger--Dissenters' Rights of Objecting Shareholders."
ADT shareholders do not have dissenters' rights in connection with the
merger.
Comparative Per Share Market Price Information; Listing
ADT and Tyco common shares are both listed on the New York Stock Exchange,
and ADT's shares are also listed on the London Stock Exchange and the Bermuda
Stock Exchange. The New York Stock Exchange closing price for ADT common shares
was $21 3/4 on March 14, 1997, the last full trading day prior to the public
announcement of the proposed merger, and $29 1/2 on June 2, 1997. The Tyco
closing price was $60 1/4 on March 14, 1997, and $63 7/8 on June 2, 1997. For
further information on the common shares of Tyco and ADT, see "Comparative Per
Share Market Price and Dividend Information."
The combined company will apply to list the shares issuable in the merger
on the New York Stock Exchange, the London Stock Exchange and the Bermuda Stock
Exchange.
Effect on Existing Exchange Offer
ADT shareholders should be aware that if the proposals to be voted on by
them are approved and if the merger is consummated, certain proposals made by
Western Resources, Inc. in connection with its exchange offer for all of the
outstanding shares of ADT it does not own may be less likely to succeed because
the merger will increase the outstanding shares of the combined company. In
addition, the exchange offer by Western may be less likely to succeed because of
the increased cost of acquiring such shares or the completion of the merger may
cause Western to withdraw or terminate its exchange offer. For further
information on these effects and how to revoke any proxy given to Western, see
"The Meetings--Proxies."
7
<PAGE> 14
SELECTED FINANCIAL DATA FOR TYCO AND ADT
The following financial information is being provided to assist your
analysis of the financial aspects of the merger. This information has been
derived from Tyco's audited financial statements for the fiscal years ended June
30, 1992 through June 30, 1996, Tyco's unaudited financial statements for the
nine months ended March 31, 1996 and 1997, ADT's audited financial statements
for the years ended December 31, 1992 through December 31, 1996 and ADT's
unaudited financial statements for the three months ended March 31, 1996 and
1997. The information is only a summary. You should read it in conjunction with
the historical financial statements (and related notes) contained in the annual,
quarterly and other reports filed by Tyco and ADT with the Securities and
Exchange Commission ("SEC"). See "Where You Can Find More Information." The
unaudited pro forma information is presented for illustrative purposes only and
is not indicative of the operating results or financial position that would have
occurred if the merger had been consummated at the dates indicated, nor is it
necessarily indicative of future operating results of the combined company.
References in this Joint Proxy Statement/Prospectus to "$" mean United States
dollars.
SELECTED TYCO HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED JUNE 30,(1)
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.................... $4,746.3 $3,717.7 $5,089.8 $4,534.7 $4,076.4 $3,919.4 $3,066.5
Operating income(2).......... 538.3 415.7 582.8 448.3 390.6 265.1 194.8
Income before extraordinary
items and cumulative effect
of accounting changes...... 281.1 215.9 310.1 216.6 189.2 94.5 95.3
Income per share before
extraordinary items and
cumulative effect of
accounting changes......... 1.79 1.41 2.03 1.43 1.28 0.65 1.03
Cash dividends per common
share...................... 0.15 0.15 0.20 0.20 0.20 0.19 0.18
Balance Sheet Data:
Total assets................. $5,606.3 $3,953.9 $3,381.5 $3,144.6 $3,165.0 $2,451.5
Long-term debt (including
current portion)........... 838.9 511.6 506.4 588.5 812.6 535.0
Total shareholders' equity... 2,845.7 1,938.4 1,634.7 1,367.0 1,138.8 1,040.6
</TABLE>
- ---------------
(1) On October 19, 1994 Tyco merged with Kendall International, Inc. ("Kendall")
in a transaction accounted for as a pooling of interests. The summary
historical data reflects the combined results of operations and financial
position of Tyco and Kendall for all periods subsequent to June 30, 1992,
the date on which Kendall undertook a financial restructuring. The summary
historical data at and for the year ended June 30, 1992 reflect only the
results of operations and financial position of Tyco.
(2) Operating income in 1995 included merger and transaction related charges of
$37.2 million relating to the Kendall merger. Operating income in 1993
included a non-recurring inventory charge of $22.5 million relating to
Kendall and a restructuring and severance charge of $39.3 million relating
principally to the European and Australian fire protection contracting
businesses, as well as the Grinnell flow control distribution operation.
Operating income in 1992 included a restructuring and severance charge of
$25.6 million relating to European fire products manufacturing, North
American fire protection operations and corporate headquarters and Grinnell
flow control distribution operations.
(3) Per share amounts have been restated to reflect a two-for-one stock split
effected in the form of a stock dividend which was distributed on November
14, 1995.
8
<PAGE> 15
SELECTED ADT HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31 AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.................... $ 460.7 $ 411.3 $1,704.0 $1,783.8 $1,629.4 $1,528.5 $1,552.2
Operating (loss) income(1)... 65.9 (686.8) (765.5) 200.8 206.0 186.8 165.3
(Loss) income from continuing
operations(2)(4)........... 35.0 (705.6) (686.7) 31.0 82.6 110.7 159.1
Primary (loss) income per
share from continuing
operations(2)(3)(4)........ 0.23 (5.20) (5.01) 0.22 0.51 0.74 1.19
Balance Sheet Data:
Total assets(5).............. $3,094.4 $2,730.4 $3,419.7 $3,412.3 $3,477.4 $3,368.9
Long-term debt (including
current portion)........... 1,057.1 1,068.7 1,180.3 1,211.4 953.4 1,067.8
Total shareholders' equity... 1,086.8 759.8 1,425.3 1,376.5 1,264.8 1,054.4
</TABLE>
- ---------------
(1) Operating loss in 1996 included restructuring and other non-recurring
charges of $237.3 million relating principally to the electronic security
services divisions in the United States and the United Kingdom, and a charge
of $744.7 million, which occurred in the three month period ended March 31,
1996, relating to the impairment of long-lived assets following the adoption
by ADT of Statement of Financial Accounting Standards No. 121 ("SFAS 121").
Operating income in 1995 included restructuring and other non-recurring
charges of $34.2 million relating principally to the United States
electronic security services division and to corporate restructuring in
Europe. Operating income in 1994 included restructuring and other
non-recurring charges of $4.5 million relating to corporate restructuring in
Europe.
(2) In 1996 ADT recorded certain non-recurring items including (i) a non-cash
charge relating to the write-down of specific assets to their estimated fair
values in accordance with SFAS 121, (ii) a charge principally relating to
costs associated with integrating the businesses of Automated Security
(Holdings) PLC ("ASH") in the United Kingdom and the United States into ADT,
together with the costs of administrative, accounting, management
information and technological infrastructure enhancements currently being
implemented in the United States electronic security services division,
(iii) a gain arising on the sale of ADT's entire interest in Limelight Group
plc, which was recorded in the balance sheet at a nominal value and (iv) a
gain represented by cash receivable as a result of the settlement of ADT's
litigation against BDO Binder Hamlyn. ADT's historical net income before
these non-recurring items amounted to $140.3 million, or $0.98 per share
($0.93 per share on a fully diluted basis).
(3) For the three months ended March 31, 1997 fully diluted income per share
from continuing operations was $0.22.
(4) In the three months ended March 31, 1997 ADT recorded certain non-recurring
charges in connection with the ADT-Tyco transaction and the unsolicited
proposals of Western. ADT's historical net income before these non-recurring
items amounted to $44.6 million, or $0.30 per share ($0.28 per share on a
fully diluted basis).
In the three months ended March 31, 1996 ADT recorded certain non-recurring
charges which principally represented non-cash charges relating to the write
down of specific assets to their estimated fair values in accordance with
SFAS 121. ADT's historical net income before these non-recurring items
amounted to $28.9 million, or $0.21 per share ($0.20 per share on a fully
diluted basis).
(5) Following the adoption of SFAS 121 during 1996, ADT recorded a charge of
$744.7 relating to the impairment of long-lived assets.
* ADT has not declared any dividends on ADT common shares since April 1991.
9
<PAGE> 16
SELECTED TYCO AND ADT UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.......................... $2,114.9 $1,668.9 $7,425.8 $6,626.6 $5,860.0
Operating (loss) income............ 260.8 (534.6) (102.9) 724.6 601.9
(Loss) income from continuing
operations....................... 141.7(1) (626.1)(1) (338.6)(1) 304.0 266.3
(Loss) income per share from
continuing operations(2)......... 0.60(1) (2.87)(1) (1.53)(1) 1.39 1.18
Cash dividends per common
share(3)......................... 0.03 0.03 0.13 0.13 0.09
Balance Sheet Data:
Total assets....................... $8,700.7
Long-term debt (including current
portion)......................... 1,896.0
Total shareholders' equity......... 3,857.6
</TABLE>
- ---------------
(1) See notes (2) and (4) to "Selected ADT Historical Financial Information" for
information on ADT income before certain non-recurring items. On a pro forma
combined basis, net income for the three months ended March 31, 1997 before
these non-recurring items is $151.3 million, or $0.65 per share ($0.64 per
share on a fully diluted basis). On a pro forma combined basis, net income
for the three months ended March 31, 1996 before these non-recurring items
is $108.4 million, or $0.50 per share ($0.48 per share on a fully diluted
basis). On a pro forma combined basis, net income for 1996 before these
non-recurring items is $488.4 million, or $2.19 per share ($2.14 per share
on a fully diluted basis).
(2) The unaudited pro forma combined per share data are based on ADT
shareholders, through a reverse stock split, holding 0.48133 of a share of
the combined company for each ADT common share held before the reverse stock
split and Tyco shareholders receiving one combined company common share for
each Tyco common share.
(3) Tyco currently pays quarterly dividends of $0.05 per Tyco common share. ADT
currently pays no dividends. The combined company expects to continue Tyco's
dividend practice according to which it would pay quarterly dividends of
$0.05 per combined company common share, although this may be changed at any
time by the Board of Directors of the combined company. The payment of
dividends by the combined company in the future will depend on business
conditions, the combined company's financial condition and earnings and
other factors.
10
<PAGE> 17
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
TYCO AND ADT
UNAUDITED ADT
TYCO PRO FORMA EQUIVALENT
HISTORICAL ADT HISTORICAL COMBINED PRO FORMA
PER SHARE DATA PER SHARE DATA PER SHARE DATA PER SHARE DATA
---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
AT OR FOR THE THREE MONTHS ENDED
MARCH 31, 1997
(Loss) income from continuing
operations per common share.... $ 0.67 $ 0.22 $ 0.60(1) $ 0.29(1)
Cash dividends declared per
common share................... 0.05 -- 0.03 0.01
Book value per common share...... 17.06 6.93 16.23 7.81
AT OR FOR THE YEAR ENDED DECEMBER
31, 1996
(Loss) income from continuing
operations per common share.... $ 2.25 $(5.01) $ (1.53)(1) $(0.74)(1)
Cash dividends declared per
common share................... 0.20 -- 0.13 0.06
Book value per common share...... 14.22 5.50 13.39 6.45
AT OR FOR THE YEAR ENDED DECEMBER
31, 1995
(Loss) income from continuing
operations per common share.... $ 1.79 $ 0.22 $ 1.39 $ 0.67
Cash dividends declared per
common share................... 0.20 -- 0.13 0.06
Book value per common share...... 11.39 10.50 14.51 6.98
AT OR FOR THE YEAR ENDED DECEMBER
31, 1994
(Loss) income from continuing
operations per common share.... $ 1.24 $ 0.51 $ 1.18 $ 0.57
Cash dividends declared per
common share................... 0.20 -- 0.09 0.04
Book value per common share...... 10.06 10.20 13.46 6.48
</TABLE>
- ---------------
(1) See notes (2) and (4) to "Selected ADT Historical Financial Information" for
information on ADT income per common share before certain non-recurring
items. On a pro forma combined basis, net income per share for the three
months ended March 31, 1997 before these non-recurring items is $0.65 ($0.64
per share on a fully diluted basis). On an equivalent pro forma basis, net
income per share for the three months ended March 31, 1997 before these
non-recurring items is $0.31 ($0.31 per share on a fully diluted basis). On
a pro forma combined basis, net income per share for 1996 before these
non-recurring items is $2.19 ($2.14 per share on a fully diluted basis). On
an equivalent pro forma basis, net income per share for 1996 before
non-recurring items is $1.05 ($1.03 on a fully diluted basis).
(a) ADT has not declared any dividends on ADT common shares since April 1991.
(b) The information for Tyco for the years ended December 31, 1996, 1995 and
1994 has been derived from Tyco's unaudited historical financial statements.
This historical financial information has been adjusted to conform to ADT's
fiscal year.
(c) The unaudited pro forma (loss) income and book value per share data are
based on ADT shareholders, through a reverse stock split, holding 0.48133 of
a share of the combined company for each ADT common share held before the
reverse stock split and Tyco shareholders receiving one combined company
common share for each Tyco common share.
(d) The ADT equivalent pro forma per share data are calculated by multiplying
the unaudited pro forma combined per share data by 0.48133.
11
<PAGE> 18
(e) The pro forma cash dividends declared are calculated by dividing the pro
forma number of common shares of the combined company expected to be
outstanding after the merger into the actual cash dividends declared by both
companies. Tyco currently pays quarterly dividends of $0.05 per Tyco common
share. ADT currently pays no dividends on ADT common shares. The combined
company expects to continue Tyco's dividend practice according to which it
would pay quarterly dividends of $0.05 per share of the combined company,
although this may be changed at any time by the Board of Directors of the
combined company. The payment of dividends by the combined company in the
future will depend on business conditions, the combined company's financial
condition and earnings and other factors.
(f) The per share amounts for Tyco--Historical for 1995 and 1994 have been
restated to reflect a two-for-one stock split effected in the form of a
stock dividend which was distributed on November 14, 1995.
12
<PAGE> 19
RISK FACTORS
Shareholders of Tyco International Ltd., a Massachusetts corporation
("Tyco"), in considering whether to approve (i) the merger (the "Merger") of
Limited Apache, Inc. ("Merger Subsidiary"), a Massachusetts corporation and a
wholly-owned subsidiary of ADT Limited, a Bermuda company ("ADT"), into Tyco
(Tyco, as the surviving corporation in its merger with Merger Subsidiary, is
referred to as the "Surviving Corporation") on the terms set forth in the
Agreement and Plan of Merger dated as of March 17, 1997 among Tyco, Merger
Subsidiary and ADT (the "Merger Agreement") and (ii) the Merger Agreement on
which they are being asked to vote at a special meeting of Tyco's shareholders
(the "Tyco Meeting"), and shareholders of ADT, in considering whether to approve
the matters related to the Merger on which they are being asked to vote at a
special general meeting of ADT's shareholders (the "ADT Meeting" and, together
with the Tyco Meeting, the "Meetings"), should consider carefully the following
considerations, as well as the other information included and incorporated by
reference in this Joint Proxy Statement/Prospectus.
Taxability of exchange for Tyco shareholders. Any gain on the exchange of
shares by U.S. shareholders of Tyco will be taxable for U.S. federal income tax
purposes. Any loss on the exchange of shares by U.S. shareholders of Tyco will
not be recognized by those shareholders for U.S. federal income tax purposes,
and those shareholders will have a carryover basis in their shares. See "The
Merger--Certain United States Federal Income, United Kingdom and Bermuda Tax
Consequences--United States."
Dilutive effect of the Merger on current shareholders' voting power. After
the Merger, the current Tyco shareholders will initially own approximately 64%
of the outstanding common shares (the "Combined Company Common Shares") of ADT,
as the continuing public company following the Merger (as such, together with
its subsidiaries, the "Combined Company"), and the current ADT shareholders will
initially own approximately 36% of the Combined Company Common Shares. This
represents substantial dilution of their current percentage voting power in Tyco
and ADT, respectively.
Potentially dilutive effect of the Merger on Tyco's earnings per
share. Tyco expects that the earnings per share of the Combined Company (before
restructuring and similar charges) will not be dilutive to Tyco's shareholders
in comparison with Tyco's earnings per share. See "The Merger--Recommendation of
the Tyco Board--Information and Factors Considered by the Tyco Board." This
expectation is subject to the risk that the Combined Company will not achieve
the synergies and cost savings expected to result from the Merger and a
successful integration of the businesses of the two companies. See "The Merger--
Tyco's and ADT's Reasons for the Merger" and "Summary--Comparative Per Share
Information."
Integration of the operations of the two companies. The Merger involves
the integration of two companies that have previously operated independently. No
assurance can be given that the Combined Company will integrate the operations
of Tyco and ADT without encountering difficulties or that the benefits expected
from such integration will be realized. In addition, there can be no assurance
that the Combined Company will realize the expected synergies from the Merger.
See "The Merger--Tyco's and ADT's Reasons for the Merger."
Fixed Exchange Ratio and Reverse Stock Split Ratio despite potential
changes in stock prices. Under the terms of the Merger Agreement, each Tyco
share will become one Combined Company Common Share (the "Exchange Ratio") and
as a result of a reverse stock split each ADT share will become 0.48133 of a
Combined Company Common Share (subject to adjustments under certain
circumstances) (the "Reverse Stock Split Ratio") after the Merger. (See
subsection (xiii) under "The Merger Agreement--Termination of the Merger
Agreement--Right to Terminate" for a description of those circumstances.) The
relative interests of Tyco shareholders and ADT shareholders in the Combined
Company immediately following the Merger will be governed by the Exchange Ratio
and the Reverse Stock Split Ratio. These ratios were determined on the basis of
the closing price per share of Tyco common stock, par value $0.50 per share
("Tyco Common Shares") on the New York Stock Exchange ("NYSE") of $60 1/4 on
March 14, 1997, the business day preceding the first public announcement of the
Merger. Because the Exchange Ratio and the Reverse Stock Split Ratio are fixed,
the interests of Tyco shareholders and ADT shareholders in the Combined Company
will not change even though the price of
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Tyco Common Shares at the time of the Merger will likely differ from the price
on March 14, 1997. In particular, Tyco shareholders will not receive a greater
interest in the Combined Company if the price per Tyco Common Share at the time
of the Merger is greater than $60 1/4, and ADT shareholders will not receive a
greater interest in the Combined Company if the price per Tyco Common Share at
the time of the Merger is less than $60 1/4. However, both Tyco and ADT have the
right to terminate the Merger Agreement if the average price per Tyco Common
Share during any ten consecutive days commencing after April 8, 1997 falls below
$56. See subsection (xi) under "The Merger Agreement--Termination of the Merger
Agreement--Right to Terminate." The price per Tyco Common Share is likely to be
different at the time of the Merger from its price on March 14, 1997 as a result
of changes in the business, operations or prospects of Tyco or ADT, regulatory
considerations, general market and economic conditions and other factors.
Moreover, shareholders should be aware that the consummation of the Merger may
occur at a date later than the date of the Tyco and ADT Meetings. Accordingly,
there can be no assurance that the price of Tyco Common Shares on the date of
the Meetings will equal its price at the time of the consummation of the Merger.
Tyco shareholders and ADT shareholders are urged to obtain current market
quotations for Tyco Common Shares and the common shares of ADT, par value $0.10
per share ("ADT Common Shares").
Tyco shareholders becoming shareholders of a Bermuda company. Upon the
consummation of the Merger, shareholders of Tyco, a Massachusetts corporation,
will become shareholders of the Combined Company, a Bermuda company. There are
significant differences between the corporate laws of Bermuda and those of
Massachusetts and the constitutional documents of the two companies. See
"Comparison of Shareholder Rights." These differences may materially affect the
rights of Tyco shareholders.
Tyco shareholders bound by adoption of ADT plan. At the ADT Meeting,
shareholders of ADT will vote upon whether to approve an amendment to the ADT
Limited 1993 Long Term Incentive Plan. See "Other ADT Meeting Proposals--The
Option and Warrant Proposal--Amendment of Long Term Incentive Plan." If the plan
amendment is approved and the Merger is consummated, approximately 9.8 million
Combined Company Common Shares will be available for grant under the plan, after
providing for existing ADT and Tyco option commitments. Tyco shareholders are
not being asked to approve the plan amendment and, if the Merger is consummated,
will be bound by the approval of the plan amendment by ADT shareholders.
Interests of certain members of management and the board of directors of
ADT. Certain members of ADT management and of the Board of Directors of ADT
(the "ADT Board") may be deemed to have interests in the Merger, including
receipt of certain severance payments, that are different from, or in addition
to, the interests of ADT shareholders generally. The ADT Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby. For more information
on such interests, see "Interests of Certain Persons in the Merger."
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THE MERGER
GENERAL
Tyco and ADT are furnishing this Joint Proxy Statement/Prospectus to
holders of Tyco Common Shares and holders of ADT Common Shares in connection
with the solicitation of proxies by the Board of Directors of Tyco (the "Tyco
Board") for the Tyco Meeting and by the ADT Board for the ADT Meeting, and at
any adjournments or postponements of these meetings.
At the Tyco Meeting, holders of Tyco Common Shares will be asked to vote
upon a proposal to approve the Merger and the Merger Agreement. A copy of the
Merger Agreement is attached hereto as Annex I.
At the ADT Meeting, holders of ADT Common Shares will be asked to vote upon
the following proposals (the "ADT Merger Proposals"), all conditioned on the
effectiveness of the Merger:
- to approve the issuance of new common shares of ADT, par value $0.20 per
share ("New ADT Common Shares"), in the Merger;
- to approve the reverse stock split (the "Reverse Stock Split") of the
existing ADT Common Shares into New ADT Common Shares in the ratio of
0.48133 of a New ADT Common Share (subject to adjustment under certain
circumstances) for each outstanding ADT Common Share (the "Reverse Stock
Split Proposal");
- to increase (the "Share Amendment") the number of authorized New ADT
Common Shares by 640,000,000 shares (or, if the ADT Capital Increase
Proposal (as defined below) is passed, by 500,000,000 shares) to
750,000,000 shares and to approve the issuance of those shares (together
with the Reverse Stock Split Proposal, the "Recapitalization Proposal");
- to expand the ADT Board to eleven directors, to remove all but three of
the current directors of ADT and to elect (the "New Directors Election")
eight new directors of ADT, being Tyco's eight current board members (or
such other persons as the Tyco Board may nominate in accordance with the
Merger Agreement); and
- to change the name of ADT to Tyco International Ltd. (the "ADT Name
Change").
At the ADT Meeting, holders of ADT Common Shares will also be asked to vote
upon proposals (i) to approve amendments to the ADT Limited 1993 Long Term
Incentive Plan and to ratify and approve the grant of all share options pursuant
to that plan and ADT's other share option and incentive plans and, subject to
the Merger becoming effective, the assumption by ADT of Tyco's obligations under
its share option and incentive plans and warrants, (the "Option and Warrant
Proposal"), (ii) subject to approval of the ADT Merger Proposals by the
shareholders of ADT, to amend the Bye-Laws of ADT (the "ADT Bye-Laws") relating
to the adjournment of shareholders' meetings (the "ADT Bye-Law Amendment
Proposal") and (iii) to approve an increase of 280,000,000 shares in the
authorized share capital of ADT and the issuance of those shares (the "ADT
Capital Increase Proposal" and together with the Option and Warrant Proposal and
the ADT Bye-Law Amendment Proposal, the "Other ADT Meeting Proposals"). The
Merger is not conditioned on the approval of the Other ADT Meeting Proposals.
If the Merger and the ADT Merger Proposals are approved, following the
Merger Tyco will become a wholly-owned subsidiary of ADT, and ADT will be
renamed Tyco International Ltd. The Merger will become effective at the time
Articles of Merger are accepted for filing by the Secretary of State of The
Commonwealth of Massachusetts, which is expected to occur as promptly as
practicable after the last of the conditions to the Merger has been satisfied or
waived, unless Tyco and ADT agree on a different date. The time at which the
Merger becomes effective is referred to as the "Effective Time."
BACKGROUND OF THE MERGER
Events Leading to the Merger Agreement. At the time that ADT entered into
the Merger Agreement on March 17, 1997, ADT was the subject of a hostile
exchange offer (the "Western Offer") for all of the outstanding ADT Common
Shares not already owned by Western Resources, Inc., a Kansas utility, and its
affiliates (together "Western"). This offer was announced by Western on December
18, 1996. On March 3, 1997, ADT filed a Schedule 14D-9 stating that the ADT
Board had determined that the Western Offer was inadequate and recommending that
ADT shareholders not accept the Western Offer or
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vote for certain shareholder proposals made by Western. For further information
on the Western Offer, see "The Western Offer and Certain Other Events" below.
On March 4, 1997, Michael A. Ashcroft, Chairman and Chief Executive Officer
of ADT, telephoned L. Dennis Kozlowski, Chairman, Chief Executive Officer and
President of Tyco, to ask if Tyco would be interested in meeting with ADT. In a
brief conversation, Messrs. Ashcroft and Kozlowski agreed to meet on Wednesday,
March 5.
On March 5, 1997, Messrs. Ashcroft and Kozlowski met in New York. Mr.
Ashcroft described the Western Offer, and Mr. Ashcroft and Mr. Kozlowski
generally discussed the businesses of ADT and Tyco. Mr. Ashcroft asked Mr.
Kozlowski if Tyco would have any interest in discussing a possible transaction
between ADT and Tyco, indicating that any transaction "would have to be in the
high 20's or possibly have a 3 in front of it" to be of interest to ADT's
shareholders. Mr. Kozlowski indicated that Tyco would have to perform initial
due diligence on ADT before Tyco could determine if it would have any interest
in entering into discussions with ADT.
On March 8 and March 9, 1997, representatives from Tyco visited the offices
of ADT's subsidiaries to review due diligence materials assembled by ADT and to
have due diligence discussions with senior management of ADT.
On March 10, 1997, Mr. Ashcroft and Stephen J. Ruzika, Chief Financial
Officer of ADT, met with Mr. Kozlowski and Mark H. Swartz, Chief Financial
Officer of Tyco, at the offices of ADT's North American subsidiaries. Mr.
Kozlowski informed Mr. Ashcroft that Tyco was continuing to examine a number of
issues internally and needed to complete due diligence to determine if Tyco
would consider making a proposal. Messrs. Ashcroft and Kozlowski arranged to
meet on Thursday, March 13.
On March 11, 1997, the Tyco Board held a telephonic meeting and heard a
status presentation by Mr. Kozlowski on the contacts with ADT. On March 12,
1997, the ADT Board held a telephonic meeting, and Mr. Ashcroft described his
contacts with Tyco and Tyco's due diligence efforts to that point.
On March 13, 1997, Mr. Ashcroft met with Mr. Kozlowski at Tyco's offices in
New York. Messrs. Ashcroft and Kozlowski discussed Tyco's due diligence efforts
to that point, the possible synergies that could result from a combination of
the businesses of the two companies and possible price ranges for a transaction.
On March 14, 1997, Mr. Kozlowski reported to the Tyco Board in a telephonic
meeting on the continuing discussions with ADT.
On March 15, 1997, Messrs. Ashcroft and Ruzika of ADT met with Messrs.
Kozlowski and Swartz of Tyco at Tyco's New York offices. Messrs. Ashcroft and
Kozlowski agreed to meet the following morning to discuss the terms of a
possible transaction. Also on March 15, 1997, the ADT Board held a telephonic
meeting. Mr. Ashcroft briefed the ADT Board on the discussions to that point and
on the status of due diligence conducted by the two companies. Mr. Ashcroft also
reported on his planned meeting with Mr. Kozlowski in the morning.
On March 16, 1997, Messrs. Ashcroft and Kozlowski met in New York at Tyco's
offices. During this meeting, Messrs. Ashcroft and Kozlowski negotiated the
structure and economic terms of a proposed transaction. Both Messrs. Ashcroft
and Kozlowski agreed to recommend such a transaction to their respective boards
of directors at meetings later that day.
In the afternoon of March 16, the Tyco Board held a meeting at which Mr.
Kozlowski and other members of Tyco's senior management presented the terms of
the proposed transaction with ADT. Credit Suisse First Boston Corporation
("Credit Suisse First Boston"), Tyco's financial advisor, presented its
financial analysis of the proposed transaction and delivered its written
opinion, dated March 16, 1997, that, based upon and subject to the factors and
assumptions set forth therein, as of such date, the Exchange Ratio was fair from
a financial point of view to the shareholders of Tyco. See "Role of Financial
Advisors--Opinion of Tyco's Financial Advisor." After careful consideration, the
Tyco Board unanimously approved the proposed transaction and authorized Messrs.
Kozlowski and Swartz to complete the negotiation of open terms.
In the evening on March 16, the ADT Board held a telephonic meeting. Mr.
Ashcroft described the terms of the transaction as negotiated with Mr.
Kozlowski. Merrill Lynch, Pierce Fenner & Smith
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Incorporated ("Merrill Lynch"), ADT's financial advisor, rendered its oral
opinion that the Exchange Ratio was fair to ADT shareholders from a financial
point of view. See "Role of Financial Advisors--Opinion of ADT's Financial
Advisor." ADT's counsel discussed legal issues relating to the transaction.
After careful consideration, the ADT Board unanimously approved the transaction.
Later that evening, representatives of Tyco and ADT and the parties' legal
counsel met or spoke by telephone to resolve certain remaining legal issues
relating to the Merger Agreement. The agreement between ADT and Tyco was
executed in the early morning of March 17, and the transaction was publicly
announced that morning before the opening of business.
The Western Offer and Certain Other Events. According to Amendment No. 10
to Western's Schedule 13D with respect to ADT filed with the SEC on March 17,
1997 (together with earlier amendments, the "Western Schedule 13D"), Western is
currently the beneficial owner of 38,287,111 ADT Common Shares (including 14,115
ADT Common Shares issuable upon exchange of 500 of ADT's Liquid Yield Option(TM)
Notes ("LYONs")). This constitutes approximately 24.3% of the total number of
ADT Common Shares currently issued and outstanding.
Since Western began acquiring its ADT 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, Mr. 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 ADT Board to consider
withdrawing it from consideration at the Annual Meeting. The ADT 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 ADT
Common Shares (the "Republic Warrant"). On that same day, Mr. Ashcroft
telephoned Western's Chairman to inform him of the proposed Republic Merger. On
July 12, 1996, the Western Schedule 13D was amended to indicate that Western
might determine to oppose the Republic Merger and might choose to exercise its
appraisal rights under Bermuda law, although no final decision had yet been
taken. On September 13, 1996, the Western Schedule 13D was amended to indicate
that Western had determined to oppose the proposed Republic Merger. The
termination of the proposed Republic Merger was announced on September 30, 1996.
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 proposals to remove the current members of the
ADT Board, reduce the size of the ADT Board to two and elect two officers of
Western as directors (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 anti-takeover defenses contained in the ADT Bye-Laws and ADT's Rights
Agreement dated as of November 6, 1996, as amended (the "ADT Shareholders Rights
Plan"). The ADT 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
ADT Board met to consider the Western Proposals and the Western Offer and set
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the date for ADT's special general meeting of shareholders to consider the
Western Proposals as July 8, 1997 (the "Western Proposals Meeting").
On January 27, 1997, Western issued a press release announcing that on
December 23, 1996 Western had 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 Kansas City Power & Light ("KCP&L"), a
utility based in Missouri, 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 ADT Common Shares to be issued under the Republic Warrant.
On February 27, 1997, the ADT 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 ADT 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
Registration Statement on Form S-4 (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 ADT 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 ADT 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 ADT 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 ADT 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 ADT Common Share pursuant to the Western Offer was not set forth in the
March 3rd Press Release. However, the press release did state that ADT
shareholders would not receive more than 0.42017 of a share of Western common
stock for each ADT Common Share.
On March 3, 1997, the ADT 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 ADT Board considered in reaching its conclusion.
In order to implement the ADT Board's original intentions in adopting the
ADT Shareholders Rights Plan, on March 2, 1997 the ADT Board resolved to effect
certain changes to the ADT Shareholders Rights Plan as set forth in the First
Amendment to Rights Agreement, dated as of March 3, 1997 (the "Rights Plan
Amendment"). The Rights Plan Amendment limits the ability to redeem or revoke
the rights issued under the ADT Shareholders Rights Plan (the "Rights") by,
among other things, (i) amending the definition of a continuing director on the
ADT Board ("Continuing Director") to exclude persons elected to the ADT 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 ADT 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
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benefit plan of ADT) that has acquired beneficial ownership of 15% or more of
the ADT Common Shares issued and outstanding (or, in the case of any person that
beneficially owned more than 15% of the ADT Common Shares on November 4, 1996,
that person acquiring 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
ADT which causes the rights to be triggered and (ii) expanding the circumstances
in which supplements, deletions or amendments to the ADT Shareholders Rights
Plan must be approved by a majority of Continuing Directors. If the Western
Proposals were adopted so that the only members of the ADT Board were the
Western nominees, there would be no Continuing Directors on the ADT Board. As a
result of the Rights Plan Amendment, the Western nominees would be unable to
amend the ADT Shareholders Rights Plan or redeem the Rights, which would
negatively affect the ability of Western to complete the Western Offer.
On March 17, 1997, Western commenced the Western Offer and stated that it
had mailed a prospectus for the Western Offer and a proxy statement for the
Western Proposals to holders of ADT Common Shares. On the same day, Tyco and ADT
announced the Merger. See "--Events Leading to the Merger Agreement."
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
Merger. In that call, Mr. Ashcroft mentioned that, in light of the 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 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 a wholly owned subsidiary of
Republic, had exercised the Republic Warrant, purchasing 15,000,000 ADT Common
Shares at $20 per share. On May 7, 1997, Republic announced that it had sold
such shares to five institutions.
On March 28, 1997, the ADT Board resolved, by unanimous written consent, to
extend the Distribution Date (as defined in the ADT Shareholders Rights Plan)
for the Rights until August 15, 1997 or such earlier date as may be determined
by the ADT Board. On April 23, 1997, the ADT 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 May 16, 1997, ADT announced that ADT has had preliminary discussions
with Western concerning the possible termination of the Western Offer and
related proxy solicitation and settlement of outstanding litigation between
Western and ADT. There can be no assurance that these discussions will continue
or that any agreement will be reached with Western.
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 refused ADT Investments' demand. On April
8, 1997, ADT Investments filed a petition in the District Court of Shawnee
County, Kansas (the "Kansas Court") 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 annual meeting of
Western's stockholders scheduled for May 29, 1997. By letter dated April 28,
1997 Western refused ADT Investments' demand. On May 8, 1997, the Kansas Court
issued a summary order directing Western to produce to ADT Investments, by May
9, 1997, the information sought in its amended petition, including a complete
list of stockholders of Western. The
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summary order stated that the Kansas Court found that (i) ADT Investments had
complied with the requirements of applicable Kansas law, (ii) ADT Investments'
stated purpose for seeking the stockholder list and related records of Western
was reasonably related to ADT Investments' interests as a stockholder of Western
and was therefore a proper purpose under Section 17-6510 of the Kansas General
Corporation Code and (iii) Western had no basis on which to refuse to permit the
requested inspection. On May 9 and 12, 1997, Western furnished this information
to ADT Investments.
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
stockholders 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.
On May 9, 1997, ADT Investments II filed a petition for a writ of mandamus
in the Circuit Court of Jackson County, Missouri at Kansas City (the "Missouri
Court"). ADT Investment II's petition requested, among other things, that the
Missouri Court grant a writ of mandamus compelling the President, secretary and
treasurer of KCP&L to allow ADT's agents to inspect and copy the requested
documents of KCP&L, including KCP&L's stockholder list. On May 14, 1997, the
Missouri Court issued an order directing KCP&L to produce to ADT Investments II,
on May 14, 1997, the information sought in its amended petition for a writ of
mandamus, including a complete list of stockholders of KCP&L and on May 14, 1997
KCPL furnished this information to ADT Investments II.
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 ADT, the directors of ADT and
Republic. The complaint alleged that ADT and its directors breached their
fiduciary duties to WCI and ADT's other shareholders (i) by issuing to Republic
the Republic Warrant in connection with the Republic Merger, (ii) by adopting
the ADT Shareholders Rights Plan and (iii) by holding shares of ADT in one of
ADT'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 ADT and Republic from
exercising their rights under the Republic Warrant, (ii) directing ADT to redeem
the ADT Shareholders Rights Plan, and (iii) preventing ADT 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 ADT and its directors have attempted to interfere
with WCI's voting rights by seeking certain information from WCI pursuant to
procedures established under the ADT 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 ADT and its directors
breached their fiduciary duties by setting a July 8, 1997 date for the Western
Proposals Meeting, and (ii) that ADT 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 ADT's shareholders regarding the tender offer without
first making certain filings with the SEC. WCI asked for a court order (i)
enjoining ADT from holding the Western Proposals Meeting on July 8, 1997, (ii)
compelling ADT to hold the Western Proposals Meeting on or before March 20,
1997, and (iii) declaring that ADT had violated Section 14(d) and enjoining ADT
from making any further recommendations relating to the tender offer until the
required SEC filings are made.
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On January 23, 1997, WCI filed a motion for a preliminary injunction asking
the Court to enjoin ADT from holding the Western Proposals Meeting on July 8,
1997, and compelling ADT to hold the Western Proposals Meeting on or before
March 20, 1997. ADT and its directors 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 was no longer seeking
a Western Proposals Meeting on or before March 20, 1997 on the grounds that such
a meeting date would be impractical. In its supplemental brief, WCI requested
that the meeting date be set 30 days after its proxy materials for the Western
Proposals Meeting are distributed. ADT and its directors responded to this
supplemental motion. As of the date of this Joint Proxy Statement/Prospectus,
the Court has not rendered any decision with respect to plaintiff's motion for a
preliminary injunction.
On January 27, 1997, ADT 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 ADT 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
Rights Plan Amendment. In addition to the relief previously requested, the
fourth amended complaint seeks judicial nullification of the Rights Plan
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, ADT 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 ADT 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. ADT and the ADT Board believe that the
allegations in the WCI's fourth amended complaint are without merit and intend
vigorously to defend against them.
On March 24, 1997, WCI filed a motion for a preliminary injunction (i)
preventing Republic from selling or transferring any ADT Common Shares issued
upon the exercise of the Republic Warrant and (ii) preventing the Chairman of
ADT from exercising the proxy on those shares. On April 7, 1997, ADT and the ADT
Board filed papers in opposition to this motion. ADT and the ADT 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 Merger has been structured
in order to deprive WCI and ADT'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 ADT is acquiring Tyco in the transaction,
WCI maintains that in actuality Tyco is acquiring ADT and that the transaction
should be treated as an amalgamation between ADT and Tyco which would trigger
appraisal rights under Bermuda law. WCI alleges that ADT's actions are
oppressive and prejudicial to it. WCI asks the Bermuda Court to order that the
Merger be enjoined unless ADT's shareholders are permitted to exercise all
rights they would be entitled to, including appraisal rights, if the transaction
between ADT and Tyco were an amalgamation under Bermuda law. In order for WCI's
petition to prevail, the Bermuda Court must be of the opinion that the Merger
has been structured in a manner that is oppressive or prejudicial to the
interests of WCI and that the facts would justify the making of a winding up
order against ADT on the ground that it was just and equitable that ADT should
be wound up, but that to wind up ADT would unfairly prejudice WCI. It is ADT's
belief that one of the reasons that WCI has filed the petition seeking to enjoin
the
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Merger unless the Merger is structured to provide that ADT shareholders can
exercise appraisal rights is to raise questions as to whether the Merger will
qualify for accounting treatment as a pooling of interests. See "The Merger
Agreement--Conditions to the Merger--Conditions to Each Party's Obligations to
Effect the Merger." However, ADT believes that the allegations in WCI's petition
are without merit and intends to vigorously defend against them. On April 23,
1997, ADT filed a motion 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. A hearing on the motion
to strike has been scheduled for June 12 and 13, 1997.
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 ADT, certain of its present and former directors, Western and WCI. The
complaint was brought on behalf of a class of all shareholders of ADT and
alleges that Western and WCI have breached their fiduciary duties to ADT's
shareholders by offering an inadequate price for the outstanding ADT Common
Shares. The complaint seeks to enjoin Western and WCI from acquiring the
outstanding ADT Common Shares. The complaint also alleges that ADT and its
directors have refused to negotiate with Western and WCI and that the Republic
Warrant and the ADT Shareholders Rights Plan are improper. The complaint seeks
unspecified monetary relief from all defendants. ADT and the ADT Board believe
that the allegations in Gachot's complaint against ADT and the directors are
without merit and intend vigorously to 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 as a result of a hearing on May 21,
1997, this motion is under consideration on an expedited basis.
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. ADT Operations' motion for preliminary injunction will be
argued on June 13, 1997. 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. As a result of a hearing
held on May 21, 1997, the parties have the right to engage in documentary
discovery.
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 ADT, certain of its current and former directors, and
Republic. The complaint was brought by CCP in a derivative capacity on behalf of
ADT.
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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 ADT Shareholders 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. ADT and its directors believe
that the allegations in the complaint brought by CCP are without merit and
intend vigorously to defend against them.
TYCO'S AND ADT'S REASONS FOR THE MERGER
The Merger should provide opportunities to achieve substantial benefits for
Tyco and ADT shareholders that might not otherwise be available. Tyco and ADT
believe that the Merger will create the premier company in fire protection and
electronic security. Also, with its expanded markets, financial resources,
management, personnel and expertise, the Combined Company should be better able
to serve the existing customers of Tyco and ADT and to capitalize on growth
opportunities in the fire safety and electronic security markets.
The Boards believe that the Merger will provide the following benefits:
- Attractive Marketplace. Both the fire safety market, in which Tyco is
active, and the electronic security services market, in which ADT is
active, remain highly fragmented with substantial potential for growth.
The Combined Company will be in a position to exploit this growth
opportunity by providing a complete array of fire protection and
electronic security products and services. These products and services
include fire protection sprinkler systems, fire detection systems,
intruder alarm systems and access control systems, as well as the related
inspection and monitoring services. In the commercial and industrial
markets, the combination is expected to enhance service to existing
accounts, generate incremental revenues from this customer base, and
attract new customers interested in the efficiencies of a single source
for their fire safety and security needs. ADT's electronic security
service operations are expected to benefit particularly from access to
Tyco's strong worldwide presence in fire protection services. In the
residential market, where ADT has a significant presence, the Merger is
expected to provide a platform for acquisitions and facilitate an
expansion of Tyco's activity in residential fire protection systems and
services.
- Strong Recurring Revenue Base. Tyco has enhanced its recurring revenue
stream by increasing the service and inspection portion of its fire
protection business. ADT's contractually recurring revenue base currently
is in excess of $950 million annually. This stable revenue stream should
help the Combined Company to finance its operations, capital expenditures
and dividends, assist the Combined Company in maintaining a superior
credit rating and provide financial flexibility for acquisitions. It
should also mitigate the cyclicality of Tyco's fire protection
installation business.
- Synergies and Savings. The Merger is expected to provide opportunities
for savings in operating expenses, corporate overhead and taxes.
Following the Merger, Tyco and ADT expect to consolidate certain
operating locations, combine central station monitoring activities,
leverage on company-wide purchasing power and eliminate duplicative
corporate functions. In addition, with ADT as the continuing parent
corporation, the Merger is expected to provide opportunities for tax
savings. Total annual after-tax savings and synergies are estimated at
$53 million in the first year and $95 million in each of the next two
years. These savings will initially be offset by special, non-recurring
restructuring and other integration charges after the Merger, which
charges are currently estimated at approximately $600 million.
- Strong Management Team. A strong management team drawn from both
companies will manage the Combined Company. L. Dennis Kozlowski, who has
been Chairman, Chief Executive Officer and President of Tyco for the past
five years, will serve as Chairman, Chief Executive Officer and President
of the Combined Company. Mark H. Swartz, Tyco's Vice President and Chief
Financial Officer for the past two years, will be Vice President and
Chief Financial Officer of the Combined Company. Stephen J. Ruzika,
Executive Vice President and Chief Financial Officer of ADT, is
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expected to continue to lead the Combined Company's electronic security services
business and its new product development program.
- Diversification. Both Tyco and ADT are also engaged in other businesses.
Tyco is a manufacturer and distributor of disposable medical products,
packaging materials, flow control products and electrical and electronic
components, with strong leadership positions in each of the markets in
which it participates. ADT is the second largest provider of vehicle
auction and redistribution services in the United States. The Merger will
give shareholders of both Tyco and ADT an interest in a larger and more
diverse enterprise.
RECOMMENDATION OF THE TYCO BOARD
At a meeting of the Tyco Board held on March 16, 1997, after careful
consideration, the Tyco Board unanimously (i) determined that the Merger
Agreement (subject to negotiation of final legal terms satisfactory to Tyco's
Chairman and its Chief Financial Officer) and the Merger were fair to and in the
best interests of Tyco shareholders, (ii) approved the Merger Agreement and the
transactions that it contemplates (subject to the negotiation of final terms)
and (iii) recommended that the shareholders of Tyco approve the Merger Agreement
and the Merger.
INFORMATION AND FACTORS CONSIDERED BY THE TYCO BOARD. In reaching its
conclusion, the Tyco Board considered the following material information and
factors:
(i) all the reasons described above under "Tyco's and ADT's Reasons
for the Merger";
(ii) the terms and structure of the transaction and the terms and
conditions of the Merger Agreement, including the Exchange Ratio;
(iii) information concerning the business, assets, capital structure,
financial performance and condition and prospects of Tyco and ADT;
(iv) current and historical market prices and trading information with
respect to each company's common shares;
(v) the strategic fit between Tyco and ADT, and in particular the
opportunity that the Merger presents for Tyco to continue the expansion of
Tyco's already substantial service business, which has higher profit
margins and is less susceptible to cyclical variation than Tyco's fire
protection contracting business;
(vi) Tyco's history of growth through acquisitions, including its
substantial experience in integrating acquired businesses with existing
operations and thereby achieving synergies and cost savings;
(vii) the fact that ADT, a company domiciled in Bermuda, will be the
continuing parent corporation in the Merger, which will allow the Combined
Company to preserve certain tax advantages currently enjoyed by ADT (with
respect to their income, including dividends, interest and royalties, ADT
and its non-U.S. subsidiaries generally are not subject to U.S. tax and
generally are taxed at rates lower than the U.S. tax rate) and is expected
to provide the Combined Company with opportunities for tax savings;
(viii) the negative factor that Tyco shareholders will recognize gain
(but not loss) for U.S. federal income tax purposes on the exchange of Tyco
Common Shares for Combined Company Common Shares;
(ix) the risks that the Combined Company will not achieve expected
synergies and cost savings (as discussed under "Risk Factors" and
"--Cautionary Statement Concerning Forward-Looking Statements");
(x) the expectation that the earnings per share of the Combined
Company (before restructuring and similar charges) would not be dilutive to
Tyco shareholders in comparison with Tyco's earnings per share;
(xi) the opinion dated March 16, 1997 of Credit Suisse First Boston to
the Tyco Board that, based upon and subject to the factors and assumptions
set forth therein, as of such date, the
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Exchange Ratio was fair from a financial point of view to the shareholders of
Tyco (see "Role of Financial Advisors--Opinion of Tyco's Financial Advisor");
(xii) the anticipated treatment of the Merger as a pooling of
interests for financial accounting purposes;
(xiii) the prospects that the necessary regulatory approvals for the
Merger would be obtained on terms acceptable to Tyco; and
(xiv) the effect of the Merger on the customers and employees of the
two companies.
The foregoing discussion of the information and factors considered and
given weight by the Tyco Board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
Merger, the Tyco Board did not find it practicable to and did not attempt to
rank or assign relative weights to these factors. In addition, individual
members of the Tyco Board may have given different weights to different factors.
RECOMMENDATION OF THE TYCO BOARD. THE TYCO BOARD UNANIMOUSLY RECOMMENDS
THAT THE TYCO SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AND THE MERGER
AGREEMENT.
RECOMMENDATION OF THE ADT BOARD
At a meeting of the ADT Board held on March 16, 1997, after careful
consideration, the ADT Board unanimously (i) voted that the Merger Agreement,
the Merger and the other transactions contemplated by the Merger Agreement were
fair to and in the best interests of ADT shareholders, (ii) approved the Merger
Agreement and the transactions that it contemplates and (iii) recommended that
the shareholders of ADT approve the ADT Merger Proposals.
INFORMATION AND FACTORS CONSIDERED BY THE ADT BOARD. In reaching its
conclusion, the ADT Board considered the following material information and
factors:
(i) all the reasons described above under "Tyco's and ADT's Reasons
for the Merger";
(ii) the terms and structure of the transaction and the terms and
conditions of the Merger Agreement, including the Exchange Ratio and the
Reverse Stock Split Ratio;
(iii) information concerning the business, assets, capital structure,
financial performance and condition and prospects of ADT and Tyco;
(iv) current and historical market prices and trading information with
respect to each company's common shares;
(v) the strategic fit between ADT and Tyco, the opportunity for
significant synergies and cost savings and the possibility that ADT on its
own might not be able to achieve the level of synergies, cost savings and
operating efficiencies that may be available as a result of the Merger;
(vi) the risk that the combined company will not achieve the expected
synergies and cost savings or improvement in earnings (as discussed under
"Risk Factors" and "--Cautionary Statement Concerning Forward-Looking
Statements");
(vii) the oral opinion of Merrill Lynch addressed to the ADT Board,
subsequently confirmed in writing as of March 17, 1997 and as of the date
hereof, that, as of such dates, the Exchange Ratio was fair to the
shareholders of ADT from a financial point of view (a copy of the written
opinion of Merrill Lynch dated the date hereof, setting forth the
assumptions, limitations and qualifications of such opinion, is attached
hereto in its entirety as Annex III) (see "Role of Financial Advisors--
Opinion of ADT's Financial Advisor");
(viii) the fact that the Merger and the Reverse Stock Split will be
tax-free to U.S. ADT shareholders for federal income tax purposes, except
to the extent that those ADT shareholders receive cash in lieu of
fractional shares;
(ix) the fact that ADT will be the continuing parent corporation in
the Merger, which will allow the Combined Company to preserve certain tax
advantages currently enjoyed by ADT and is expected to provide the Combined
Company with opportunities for tax savings;
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(x) the anticipated treatment of the Merger as a pooling of interests
for financial accounting purposes;
(xi) the likelihood of obtaining required regulatory approvals; and
(xii) the impact of the Merger on the customers and employees of each
company.
The foregoing discussion of the information and factors considered and
given weight by the ADT Board is not intended to be exhaustive. In view of the
wide variety of factors considered in connection with its evaluation of the
Merger, the ADT Board did not find it practicable to and did not attempt to rank
or assign relative weights to these factors. In addition, individual members of
the ADT Board may have given different weights to different factors.
RECOMMENDATION OF THE ADT BOARD. THE ADT BOARD UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF ADT VOTE "FOR" THE ADT MERGER PROPOSALS.
CERTAIN OTHER MATTERS RELATING TO THE COMBINED COMPANY
ADT Indebtedness. ADT has outstanding $250.0 million of 8.25% Senior Notes
due August 2000 (the "Senior Notes") and $294.1 million of 9.25% Senior
Subordinated Notes due August 2003 (the "Senior Subordinated Notes," and
together with the Senior Notes, the "Notes"). Consummation of the Merger would
constitute an event of default under the indentures governing the Senior Notes
and the Senior Subordinated Notes unless the indentures are amended or the
covenants under the indentures are defeased. "Defeasance" is a procedure whereby
ADT deposits certain monies and follows certain procedures and thereby
terminates its obligations under the covenants contained in the indentures. The
indentures also contain restrictions on the ability of the Combined Company to
conduct its business in a manner consistent with the past practices of Tyco,
including limitations on investments and acquisitions, incurrence of
indebtedness, declaration of dividends and sales of assets. ADT is commencing
tender offers for all outstanding Notes and is soliciting consents of a majority
of the holders of the Senior Notes and the Senior Subordinated Notes to remove
from the indentures the covenants that would be violated by the Merger and the
covenants restricting the activities of the Combined Company. The tender offers
are conditioned, among other things, on the consummation of the Merger and the
receipt of a number of consents sufficient to modify the indentures for the
respective series of Notes as aforesaid. ADT expects to fund the tender offers
with cash from operations, cash provided by Tyco from its uncommitted lines of
credit and a credit facility being arranged by Tyco with a group of commercial
banks. The consents would become effective upon consummation of the Merger.
There is no assurance that the tender offers will be consummated or that the
consents will be obtained.
If consummation of the Merger were to constitute an event of default under
the Notes, holders of 25% or more of the Senior Notes could declare the Senior
Notes immediately due and payable, and holders of 25% or more of the Senior
Subordinated Notes could declare the Senior Subordinated Notes immediately due
and payable. If the Notes were accelerated following consummation of the Merger,
Tyco and ADT believe that the acceleration would not materially adversely affect
the Combined Company and that the Combined Company would have the financial
resources to retire all Notes presented for payment.
ADT guarantees indebtedness under (i) a credit agreement of its ADT
Operations subsidiary pursuant to a Guaranty dated as of January 9, 1997 and
(ii) a credit agreement of its ADT Finance PLC subsidiary pursuant to a Guaranty
dated as of March 25, 1997. The consummation of the Merger would result in a
breach by ADT of covenants under such guaranties restricting the ability of ADT
to operate certain businesses and make certain investments unless ADT obtains an
effective waiver of such covenants. ADT currently intends to obtain consents
from the lenders to the credit agreements to permit the consummation of the
Merger.
Western Resources Proxy Solicitation. In response to Western's
requisition, the ADT Board has convened the Western Proposals Meeting for July
8, 1997 to consider Western's proposals to remove the current members of the ADT
Board, to reduce the number of directors to two and to elect two officers of
Western as the ADT directors. Western is soliciting proxies in favor of these
proposals. See "--Background of the Merger--The Western Offer and Certain Other
Events" above. The ADT Meeting is expected to be held prior to the Western
Proposals Meeting. However, the Western Proposals Meeting could be held prior
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to the ADT Meeting if the ADT Meeting is delayed beyond July 8, 1997 or if a
court orders ADT to hold the Western Proposals Meeting prior to the time of the
ADT Meeting. In either case, the board of the Combined Company (the "Combined
Company Board") or the ADT Board, as the case may be, intends to solicit proxies
in opposition to the Western Proposals. If the ADT Bye-Law Amendment Proposal is
approved, the Western Proposals Meeting may be adjourned. See "Other ADT Meeting
Proposals--The ADT Bye-Law Amendment Proposal."
Rights Agreement. The Merger Agreement provides that, at the election of
Tyco communicated to ADT not less than fifteen business days prior to the ADT
Meeting, either ADT will amend the ADT Shareholders Rights Plan to provide
affirmatively that the Merger will not cause the Rights under the ADT
Shareholders Rights Plan to be distributed or become exercisable, or ADT will
redeem all outstanding Rights as of the Effective Time. It is Tyco's current
intention to require ADT to amend the ADT Shareholders Rights Plan, although
Tyco reserves its contractual right to require redemption of the Rights.
Tyco Indebtedness. Tyco is commencing a tender offer for $200,000,000
principal amount of its 9 1/2% Debentures due 2022 and a tender offer for
$145,000,000 principal amount of its 8 1/8% Notes due 1999. These tender offers
are conditioned, among other things, on the consummation of the Merger and the
tender of at least 25% of the outstanding principal amount of the respective
issues of Tyco debt. Tyco expects to fund the tender offers from its working
capital, funds available under certain uncommitted lines of credit and a credit
facility with a group of commercial banks. There is no assurance that the tender
offers will be consummated.
Other Plans for the Combined Company. Following consummation of the
Merger, management is expected to conduct a detailed review of the corporate
structure and operations of the Combined Company. Tyco and ADT anticipate that
this review will result in certain operating consolidations and elimination of
duplicate corporate functions in order to realize cost savings. Management may
also consider other corporate restructurings for the purpose of rationalizing
the international operations of the Combined Company, facilitating borrowings
and achieving tax and other benefits.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that are subject to risks
and uncertainties. Such forward-looking statements recite expectations for the
businesses of Tyco and ADT and the markets for their products and services.
These include, for example, projections of future performance and results of
operations, statements of management's plans and objectives, forecasts of market
trends, and synergies and cost savings of the Combined Company after the
Effective Time. Such statements may be found in this Joint Proxy
Statement/Prospectus under "Questions and Answers About the Merger," "Summary,"
"Risk Factors," "--Background of the Merger," "--Tyco's and ADT's Reasons for
the Merger," "--Recommendation of the Tyco Board," "--Recommendation of the ADT
Board" and "Role of Financial Advisors." Forward-looking statements also include
any other statements in this document that are preceded by, followed by or that
otherwise include the words "believes," "expects," "anticipates," "intends,"
"estimates" or similar expressions. For all such statements, Tyco and ADT claim
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. All forward-looking
statements are subject to known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of Tyco and ADT, which may
cause actual results, performance or achievements to differ materially from
anticipated results, performance or achievements. Factors that might affect
forward-looking statements include overall economic and business conditions, the
demand for products and services of the Combined Company, competitive factors in
the industries in which Tyco and ADT operate, changes in the laws affecting the
Combined Company, regulatory approvals and uncertainty about the consummation of
future acquisitions.
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that Tyco and ADT each
receive from Coopers & Lybrand L.L.P. and Coopers & Lybrand, respectively,
independent accountants, a letter dated as of the Effective Time to the effect
that they concur with the conclusions of Tyco's and ADT's management that the
transaction contemplated by the Merger Agreement, if consummated, will qualify
as a transaction to
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<PAGE> 34
be accounted for in accordance with the pooling of interests method of
accounting pursuant to Opinion No. 16, Business Combinations, of the Accounting
Principles Board of the American Institute of Certified Public Accountants ("APB
Opinion No. 16").
Under the pooling of interests method of accounting, the assets and
liabilities of Tyco will be carried forward to ADT at their historical cost
recorded bases. Results of operations of the Combined Company will include the
results of both Tyco and ADT for the entire fiscal year in which the Merger
occurs. The reported balance sheet amounts and results of operations of the
separate companies for prior periods will be combined, reclassified and
conformed, as appropriate, to reflect the combined financial position and
results of operations for the Combined Company. See "Unaudited Pro Forma
Combined Condensed Financial Information."
CERTAIN UNITED STATES FEDERAL INCOME, UNITED KINGDOM AND BERMUDA TAX
CONSEQUENCES
UNITED STATES
As used in this section, a "United States Holder" of Tyco Common Shares,
ADT Common Shares or Combined Company Common Shares means a holder that is, for
United States federal income tax purposes, a citizen or resident of the United
States, a corporation or partnership created or organized in or under the laws
of the United States, or any political subdivision thereof, or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.
The Merger. In the opinion of Kramer, Levin, Naftalis & Frankel, counsel
to Tyco, for U.S. federal income tax purposes, upon the exchange of Tyco Common
Shares for Combined Company Common Shares pursuant to the Merger, each Tyco
shareholder that is a United States Holder will recognize gain in an amount
equal to the excess, if any, of (x) the fair market value of the Combined
Company Common Shares received over (y) the Tyco shareholder's adjusted tax
basis in the Tyco Common Shares exchanged therefor. Such gain will be capital
gain if the Tyco shareholder holds the Tyco Common Shares as a capital asset,
and will be long-term gain if the Tyco shareholder's holding period for the Tyco
Common Shares is more than one year. The gain may also be subject to tax under
applicable state, local and foreign tax laws. A Tyco shareholder that realizes a
loss upon the exchange will not recognize such loss for U.S. federal income tax
purposes.
A Tyco shareholder that recognizes gain for U.S. federal income tax
purposes upon the exchange will have a tax basis in the Combined Company Common
Shares received equal to their fair market value, and such shareholder's holding
period for the Combined Company Common Shares will begin on the day following
the date of the exchange. A Tyco shareholder that realizes but is unable to
recognize a loss for U.S. federal income tax purposes will have a tax basis in
the Combined Company Common Shares received equal to the shareholder's basis in
the Tyco Common Shares exchanged therefor, and the shareholder's holding period
for the Combined Company Common Shares will include the holding period of the
Tyco Common Shares exchanged therefor.
The Reverse Stock Split. In the opinion of Davis Polk & Wardwell, special
counsel for ADT, ADT shareholders that are United States Holders will not be
subject to U.S. federal income taxation upon the exchange of Combined Company
Common Shares for ADT Common Shares pursuant to the Reverse Stock Split, except
to the extent that cash is received in lieu of fractional shares (discussed
below). The tax basis of the Combined Company Common Shares which will be held
by the ADT shareholders as a result of the Reverse Stock Split will be the same
as the tax basis of the ADT Common Shares held prior to the Reverse Stock Split
(minus the amount of this basis allocated to fractional shares), and the holding
period of such Combined Company Common Shares will include the holding period of
the ADT Common Shares held prior to the Reverse Stock Split. Each such ADT
shareholder receiving cash in lieu of a fractional share will recognize gain or
loss equal to the difference between (x) the amount of cash received and (y)
such ADT shareholder's adjusted tax basis in the fractional Combined Company
Common Share. Such gain or loss generally will be capital gain or loss if the
ADT shareholder held the ADT Common Shares as a capital asset, and will be
long-term gain or loss if the ADT shareholder's holding period for the ADT
Common Shares was more than one year.
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<PAGE> 35
Holding Combined Company Common Shares. In the opinion of Davis Polk &
Wardwell, distributions with respect to Combined Company Common Shares will be
includible in the gross income of a United States Holder of Combined Company
Common Shares as foreign source dividend income to the extent that such
distributions are made out of the Combined Company's current or accumulated
earnings and profits as determined for United States federal income tax
purposes. The amount of any distribution of property other than cash will be the
fair market value of such property on the date of distribution by the Combined
Company. United States Holders will not be entitled to claim a dividends
received deduction with respect to distributions by the Combined Company. United
States Holders will realize capital gain or loss for United States federal
income tax purposes on the sale or other disposition of Combined Company Common
Shares in the same manner as on the sale or other disposition of any other
shares held as capital assets. Gain, if any, will generally be United States
source gain. Certain noncorporate United States Holders may be subject to backup
withholding at a rate of 31% on dividends paid on the Combined Company Common
Shares or the proceeds of disposition of Common Shares. Backup withholding will
apply only if the Holder (i) fails to furnish its Taxpayer Identification Number
("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it
has failed to properly report payments of interest and dividends or (iv) under
certain circumstances fails to certify, under penalty of perjury, that it has
furnished a correct TIN and that it has not been notified by the IRS that it is
subject to backup withholding for failure to report interest and dividend
payments. The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that the
required information is furnished to the IRS.
UNITED KINGDOM
The Reverse Stock Split. In the opinion of Allen & Overy, special legal
advisors in England for ADT, a holder of existing ADT Common Shares who, under
the Reverse Stock Split, receives Combined Company Common Shares will not be
treated as effecting a disposal or part disposal of his existing ADT Common
Shares for the purposes of United Kingdom tax on capital gains except to the
extent that cash is received in lieu of fractional shares. The Combined Company
Common Shares which will be held by the ADT shareholders as a result of the
Reverse Stock Split will be treated as the same asset, acquired at the same time
and having the same base cost (minus the amount of the base cost allocated to
fractional shares), as the ADT Common Shares held prior to the Reverse Stock
Split.
Holding Combined Company Common Shares. In the opinion of Allen & Overy,
under current United Kingdom law, United Kingdom resident shareholders will be
liable to income tax or corporation tax on dividends paid by the Combined
Company at the rate applicable to their particular circumstances, although, if
such shareholders are not domiciled in the United Kingdom, any such liability is
limited to the extent that such dividends (if any) are remitted or deemed to be
remitted to the United Kingdom. If dividends are paid by or through a paying
agent or collecting agent in the United Kingdom, such agent may be required to
withhold or deduct for or on account of United Kingdom income tax at the lower
rate (currently 20 per cent) from the amount of such dividends unless evidence
in a form satisfactory to the Inland Revenue is produced that the person
beneficially entitled to the dividend is the beneficial owner of the Combined
Company Common Shares and is not resident in the United Kingdom for tax
purposes. The amount of United Kingdom tax withheld will be available as a
credit against the liability of United Kingdom resident shareholders to pay
income tax or corporation tax as appropriate in respect of the relevant
dividend.
BERMUDA
In the opinion of Appleby, Spurling & Kempe, attorneys in Bermuda for ADT,
there will be no Bermuda income, corporation or profits tax, withholding tax,
capital gains tax, capital transfer tax, estate duty or inheritance tax payable
in respect of an exchange of Combined Company Common Shares for Tyco Common
Shares pursuant to the Merger or of Combined Company Common Shares for ADT
Common Shares pursuant to the Reverse Stock Split. In addition, as of the date
hereof, there is no Bermuda income, corporation or profits tax, withholding tax,
capital gains tax, capital transfer tax, estate duty or inheritance tax payable
in respect of capital gains realized on a disposition of Combined Company Common
Shares or in respect of distributions by the Combined Company with respect to
Common
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<PAGE> 36
Shares. Furthermore, ADT has received from the Minister of Finance of Bermuda
under the Exempted Undertakings Tax Protection Act of 1966, as amended, an
undertaking that, in the event of there being enacted in Bermuda any legislation
imposing any tax computed on profits or income, including any dividend or
capital gains withholding tax, or computed on any capital assets, gain or
appreciation, or any tax in the nature of an estate or inheritance tax or duty,
the imposition of such tax shall not be applicable to ADT or any of its
operations, nor to ADT Common Shares, nor to obligations of ADT until the year
2016. This undertaking applies to Combined Company Common Shares. It does not,
however, prevent the application of Bermuda taxes to persons ordinarily resident
in Bermuda.
The foregoing discussion describes for shareholders only the material U.S.
federal income and Bermuda tax consequences of the Merger and the material U.S.
federal income, U.K. and Bermuda tax consequences of the Reverse Stock Split and
of holding Combined Company Common Shares, and does not purport to be a complete
analysis or description of all potential tax effects of these transactions. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular taxpayers in light of their personal circumstances or
to taxpayers subject to special treatment under the U.S. Internal Revenue Code
(the "Code") (for example, Tyco and ADT shareholders who acquired their shares
pursuant to the exercise of options or similar derivative securities or
otherwise as compensation, insurance companies, financial institutions, dealers
in securities, tax-exempt organizations, foreign corporations, foreign
partnerships or other foreign entities and individuals who are not citizens or
residents of the United States), or to certain classes of U.K. resident
shareholders such as dealers.
Other than the U.K. and Bermuda tax considerations described above, no
information is provided herein with respect to any tax consequences of the
Merger and the Reverse Stock Split for shareholders under applicable foreign,
state, local and other tax laws. The foregoing discussion is based upon the
provisions of the Code, applicable U.S. Treasury regulations thereunder, U.S.
Internal Revenue Service rulings, administrative pronouncements and judicial
decisions and U.K. law and practice, all as in effect on the date of this Joint
Proxy Statement/Prospectus. There can be no assurance that future legislative,
administrative or judicial changes or interpretations will not affect the
accuracy of the statements or conclusions set forth herein. Any such change
could apply retroactively and could affect the accuracy of this discussion. No
rulings have or will be sought from the U.S. Internal Revenue Service or the
U.K. Inland Revenue concerning the tax consequences of the Merger and the
Reverse Stock Split.
Each shareholder of Tyco and ADT is urged to consult such shareholder's own
tax advisor as to the specific tax consequences of the Merger and the Reverse
Stock Split for such shareholder under federal, state, local or any other
applicable tax laws.
REGULATORY MATTERS
Tyco and ADT have agreed to use their best efforts to take whatever actions
are required to obtain required regulatory approvals. See "The Merger
Agreement--Certain Covenants."
Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the United States Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Tyco and ADT filed the required notification and report forms under
the HSR Act with the FTC and the Antitrust Division on April 3, 1997 and the
applicable waiting period expired on May 3, 1997. The FTC and the Antitrust
Division have the authority to challenge the Merger on antitrust grounds before
or after the Merger is completed. Each state in which Tyco or ADT has operations
may also review the Merger under state antitrust law.
The Merger is subject to notification to and the approval of the Commission
of the European Communities (the "EC Commission") under Council Regulation
4064/89/EEC on the control of concentrations. On June 2, 1997 the EC Commission
notified Tyco and ADT that it had decided not to oppose the Merger.
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<PAGE> 37
DISSENTERS' RIGHTS OF OBJECTING SHAREHOLDERS
General
Under Massachusetts law, shareholders of Tyco who are not in favor of the
Merger are entitled to exercise the rights of objecting shareholders
("dissenters' rights") by following the procedures set forth below. Dissenters'
rights entitle objecting shareholders to receive, following consummation of the
Merger, payment for their Tyco Common Shares in cash and an appraisal thereof
rather than having their shares converted into Combined Company Common Shares as
provided in the Merger Agreement. To perfect this right, an objecting
shareholder must file a written objection to the Merger prior to the Tyco
Meeting, stating that he intends to demand payment for his shares if the Merger
is consummated, and not vote his shares in favor of the Merger. Such a
shareholder can nonetheless receive the same consideration that all other Tyco
shareholders receive in the Merger by not making a demand for payment for his
shares following notice to him of the consummation of the Merger. The cash
payment to which an objecting shareholder will be entitled is the value of his
Tyco Common Shares determined as of the day preceding the date of the vote of
Tyco shareholders approving the Merger, exclusive of any element of value
arising from the expectation or accomplishment of the Merger. Dissenters' rights
may be exercised by either a record holder or a beneficial holder of Tyco Common
Shares.
Holders of ADT Common Shares will have no dissenters' appraisal rights
under Bermuda law because the Merger is to be achieved through the merger of a
Massachusetts subsidiary of ADT with Tyco under Massachusetts law. Massachusetts
law does not expressly provide for a merger between a Massachusetts corporation
and a non-U.S. company.
A copy of the Massachusetts statutes that prescribe the procedures for the
exercise of dissenters' rights is attached as Annex IV to this Joint Proxy
Statement/Prospectus. Shareholders of Tyco who seek to exercise dissenters'
rights must carefully follow the procedures prescribed by Massachusetts law. The
following discussion is a summary of the requirements of Massachusetts law with
respect to dissenters' rights and is qualified in its entirety by reference to
Massachusetts law and the Massachusetts statutes attached as Annex IV to this
Joint Proxy Statement/Prospectus.
Procedural Requirements
Tyco shareholders wishing to dissent and to receive the appraised value of
their shares must follow certain procedures both (i) at or prior to the Tyco
Meeting and (ii) subsequent to the consummation of the Merger.
At or Prior to the Tyco Meeting. Tyco shareholders who desire to dissent
must:
- before the vote of Tyco shareholders on the Merger, file with Tyco a
written objection to the Merger stating that they intend to demand
payment for their shares if the Merger is effected; and
- not vote their shares in favor of the Merger.
The written objection to the Merger should be sent to Tyco International
Ltd., One Tyco Park, Exeter, New Hampshire 03833, Attention: Clerk.
A dissenting shareholder need not vote against the Merger, so long as his
shares are not voted in favor of the Merger. However, neither a vote against the
Merger nor the failure to vote for the Merger will constitute the written
objection required to be filed by a dissenting shareholder. A Tyco shareholder
who returns a signed proxy card that does not contain instructions for a vote
against the Merger or for abstention will be deemed to have voted in favor of
the Merger and, therefore, to have waived all dissenters' rights.
Following Consummation of the Merger. If the Merger is consummated and
there are Tyco shareholders who have complied with the pre-Merger procedures for
exercising their dissenters' rights, the
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<PAGE> 38
Surviving Corporation and those shareholders desiring to perfect their
dissenters' rights are required to observe the following procedures during the
indicated time periods:
<TABLE>
<CAPTION>
Time Period Procedure
<S> <C>
Within 10 days following the Notification. The Surviving Corporation must notify each
Effective time -- shareholder who has objected to the Merger and whose
shares were not voted in favor of the Merger that the
Merger has become effective.
Within 20 days after the date on Demand for Payment. Objecting shareholders who wish to
which the Surviving Corporation receive the appraised value for their shares must send to
sent notice of the the Surviving Corporation a written demand for payment.
effectiveness of the Merger to The written demand should be sent to Tyco International
objecting Tyco shareholders -- Ltd., One Tyco Park, Exeter, New Hampshire 03833,
Attention: Clerk.
Within 30 days after last day of Payment by Agreement. The Surviving Corporation must pay
the 20 day period for objecting each objecting shareholder who has timely delivered a
Tyco shareholders to demand written demand for payment the fair value of his shares,
payment for their shares -- unless the Surviving Corporation and such objecting
shareholder are unable to agree on such fair value.
Within four months after the end Filing a Bill in Superior Court. If the Surviving
of the aforementioned 30 day Corporation and any objecting shareholder have failed to
period -- agree on fair value, either the Surviving Corporation or
any such shareholder may file a bill in equity in the
superior court in Suffolk County, Commonwealth of
Massachusetts, for a determination of the fair value of
the shares of all objecting shareholders.
</TABLE>
Judicial Determination of Fair Value. If a bill has been timely filed for
a judicial determination of fair value, the court will conduct a hearing on the
matter. After the hearing, the court will enter a decree determining the fair
value of the Tyco Common Shares of the objecting shareholders as of the day
before the Tyco Meeting. Massachusetts law provides that the fair value of the
shares will be determined exclusive of any element of value arising from the
consummation or expectation of consummation of the Merger. The court will order
the Surviving Corporation to make payment of this value with interest to
objecting shareholders upon the transfer by them to the Surviving Corporation of
the certificates representing their Tyco Common Shares. The costs of the bill in
equity, exclusive of the costs of giving notice to shareholders and fees of
counsel or experts retained by any party, will be assessed among the parties as
determined by the court. Objecting shareholders may receive payment for their
shares that is more or less than the value of the Combined Company Common Shares
they would have received pursuant to the Merger Agreement.
Withdrawal or Loss of Dissenters' Rights
Tyco shareholders who have objected to the Merger and indicated their
intention to demand payment for their shares can nevertheless choose to receive
Combined Company Common Shares in the Merger by not timely delivering to the
Surviving Corporation a demand for payment following the Merger. If no such
demand is delivered by an objecting shareholder, such shareholder will receive
the same consideration in the Merger as non-objecting shareholders. After an
objecting shareholder delivers to the Surviving Corporation a timely demand for
payment, such demand may be withdrawn only with the written approval of the
Surviving Corporation.
If objecting shareholders have made a timely demand for payment but no bill
for a determination of fair value is filed in the Suffolk County Superior Court
within the required four-month period, objecting shareholders who have not
agreed with the Surviving Corporation on the value of their shares will lose
their dissenters' rights and will instead receive Combined Company Common Shares
in accordance with the Merger Agreement.
Other Matters Relating to Dissenters' Rights
Rights as a Shareholder of the Combined Company. An objecting shareholder
who has delivered a demand for payment to the Surviving Corporation following
the Merger will not be entitled to any rights
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<PAGE> 39
as a shareholder of the Combined Company, unless the shareholder has withdrawn
his demand with the approval of the Surviving Corporation or lost his
dissenters' rights, as described above (in which case such shareholder will
receive the same consideration as all other Tyco shareholders receive in the
Merger). Thus, such shareholder will not be entitled to receive any notice of
any shareholder meeting of the Combined Company, to vote as a shareholder of the
Combined Company for any purpose, or to receive any dividends or other
distributions as a shareholder of the Combined Company. Such shareholder will be
entitled, however, to receive dividends or other distributions payable on Tyco
Common Shares to shareholders of record at a date which is prior to the date of
the vote on the Merger at the Tyco Meeting.
Other Remedies. By statute, the enforcement by a Tyco shareholder of
dissenters' rights pursuant to the procedures set forth above is the
shareholder's exclusive remedy. However, a shareholder retains the right to
challenge any corporate action on the grounds that it is or will be illegal or
fraudulent as to such shareholder. Also, in Coggins v. New England Patriots
Football Club, Inc., 397 Mass. 525 (1986), the Massachusetts Supreme Judicial
Court held that dissenting shareholders are not limited to the statutory remedy
of judicial appraisal where violations of fiduciary duty are found.
Tax Consequences to Dissenting Shareholders. Cash received by a dissenting
Tyco shareholder will be treated as having been received as a distribution in
redemption of the shareholder's Tyco Common Shares. Such shareholder generally
will recognize gain or loss equal to the difference between (x) the amount of
cash received and (y) the shareholder's adjusted basis in the relevant Tyco
Common Shares. Such gain or loss will be capital gain or loss if the Tyco
shareholder held the Tyco Common Shares as a capital asset, and will be
long-term gain or loss if the Tyco shareholder's holding period for the Tyco
Common Shares was more than one year. A Tyco shareholder that exercises
dissenters' rights is urged to consult that shareholder's own tax advisor as to
the specific tax consequences for that shareholder under federal, state, local
or any other applicable tax laws.
Possible Effects on Accounting Treatment. It is a condition to the
obligation of Tyco and ADT to consummate the Merger that the Merger qualify for
pooling-of-interests accounting treatment. The exercise of dissenters' rights by
the holders of approximately 10% or more of the outstanding Tyco Common Shares
could prevent such qualification. See "--Accounting Treatment" and "The Merger
Agreement--Conditions to the Merger."
U.S. FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTION AGREEMENTS
This Joint Proxy Statement/Prospectus does not cover any resales of
Combined Company Common Shares to be received by the shareholders of Tyco upon
consummation of the Merger or to be held by ADT shareholders as a result of the
Reverse Stock Split, and no person is authorized to make any use of this Joint
Proxy Statement/Prospectus in connection with any such resale.
All Combined Company Common Shares received by Tyco shareholders in the
Merger or held by ADT shareholders as a result of the Reverse Stock Split will
be freely transferable, except that Combined Company Common Shares received by
persons who are deemed to be "affiliates" of Tyco under the U.S. Securities Act
of 1933, as amended (the "1933 Act"), at the time of the Tyco Meeting may be
resold by them only in transactions permitted by Rule 145 of the 1933 Act ("Rule
145") or as otherwise permitted under the 1933 Act. See also "Description of
Combined Company Capital Stock--Transfers." Persons who may be deemed to be
affiliates of Tyco for such purposes generally include individuals or entities
that control, are controlled by or are under common control with Tyco and may
include certain officers and directors of Tyco. The Merger Agreement requires
Tyco to use its best efforts to cause these affiliates to agree in writing that
they will comply with the restrictions under Rule 145. The Merger Agreement also
provides that each of Tyco and ADT will use its best efforts to cause its
respective affiliates to agree in writing that they will not sell Tyco Common
Shares, ADT Common Shares or Combined Company Common Shares at a time that would
prevent the Merger from qualifying as a pooling of interests for financial
accounting purposes.
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CURRENT DEVELOPMENTS
On April 11, 1997, Tyco entered into an agreement with AT&T to acquire its
submarine systems business ("SSI") for approximately $850 million in cash. SSI
is a world leader in the design, development, manufacture, installation, supply
and maintenance of undersea fiber optic telecommunication cable systems, with
expected calendar 1997 revenues of approximately $1 billion. With the
combination and integration of SSI and Tyco's Simplex Technologies unit, Tyco
believes it will have a competitive advantage in the global marketplace for
undersea telecommunications cable systems, by making it the only fully
integrated single source for cable system design, manufacturing, installation
and maintenance. The acquisition will be accounted for as a purchase and is
expected to be consummated in June 1997. Tyco is in the process of increasing
its bank credit facilities which will be used to fund the purchase of SSI. The
acquisition of SSI is not expected to have an impact on, or be affected by, the
Merger.
On May 13, 1997, Tyco entered into a definitive merger agreement for the
acquisition of INBRAND Corporation ("INBRAND") in a stock for stock transaction
valued at approximately $320 million. INBRAND, with annual revenues of $240
million, manufactures and distributes adult incontinence products, as well as
feminine hygiene products and disposable baby diapers, to hospitals, retail
outlets and alternate care sites throughout North America and Europe. The
acquisition, which will be accounted for as a pooling of interests, will be
structured with INBRAND shareholders receiving 0.43 of a Combined Company Common
Share (or, if the Merger Agreement is terminated, of a Tyco Common Share) for
each share of INBRAND common stock outstanding. According to publicly filed
documents, as of May 12, 1997, INBRAND had 11,760,123 shares of common stock
outstanding. The transaction is contingent upon customary regulatory review,
approval by the INBRAND shareholders and the prior consummation or termination
of the Merger Agreement.
On May 20, 1997, Tyco entered into a definitive merger agreement for the
acquisition of Keystone International, Inc. ("Keystone") in a stock for stock
transaction valued at approximately $1.2 billion. Keystone, with annual revenues
of approximately $700 million, designs, manufactures and markets on a worldwide
basis, industrial valves, actuators and accessories used to control the flow of
liquids, gases and solid materials. Keystone products are sold to the food and
beverage, water and sewage, petroleum production and refining, natural gas,
chemical, power, and pulp and paper industries. The transaction, which will be
accounted for as a pooling of interests, will be structured with Keystone
shareholders receiving 0.54183 of a Combined Company Common Share (or, if the
Merger Agreement is terminated, of a Tyco Common Share) for each share of
Keystone common stock outstanding. According to publicly filed documents, as of
May 1, 1997, Keystone had 35,623,829 shares of common stock outstanding. The
exchange ratio may be adjusted depending on the trading value of the Combined
Company Common Shares (or, if the Merger Agreement is terminated, Tyco Common
Shares). The transaction is contingent upon customary regulatory review,
approval by the Keystone shareholders and the prior consummation or termination
of the Merger Agreement.
Tyco reviews acquisition opportunities in the ordinary course of its
business, some of which may be material and some of which are currently under
investigation, discussion or negotiation.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Tyco Common Shares and ADT Common Shares are listed on the NYSE. The Tyco
ticker symbol on the NYSE is TYC. The ADT ticker symbol on the NYSE is ADT. ADT
Common Shares are also listed on the London Stock Exchange and the Bermuda Stock
Exchange.
The tables below set forth, for the calendar quarters indicated, the
intra-day high and low sale prices of Tyco Common Shares and ADT Common Shares
as reported on the NYSE Composite Transaction Tape, in each case based on
published financial sources, and the dividends declared on such shares. The
prices and dividends for Tyco have been restated to reflect a two-for-one stock
split effected in the form of a stock dividend which was distributed on November
14, 1995.
<TABLE>
<CAPTION>
ADT COMMON SHARES TYCO COMMON SHARES
----------------------------- ------------------------------
MARKET PRICE CASH MARKET PRICE CASH
--------------- DIVIDENDS --------------- DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter......................... $12 1/4 $ 9 5/8 $-- $26 13/16 $23 1/4 $0.05
Second Quarter........................ 12 1/4 10 1/8 -- 29 1/8 25 1/2 0.05
Third Quarter......................... 14 1/8 11 5/8 -- 31 5/8 26 11/16 0.05
Fourth Quarter........................ 15 1/4 13 -- 35 5/8 29 1/2 0.05
1996
First Quarter......................... $18 $14 $-- $39 1/4 $32 3/8 $0.05
Second Quarter........................ 19 1/2 16 1/4 -- 41 3/8 35 1/8 0.05
Third Quarter......................... 24 3/4 15 7/8 -- 44 7/8 35 1/2 0.05
Fourth Quarter........................ 23 1/4 18 1/2 -- 56 42 7/8 0.05
1997
First Quarter......................... $27 5/8 $21 1/4 $-- $62 $51 3/4 $0.05
Second Quarter (through June 2, 29 7/8 24 1/2 -- 64 5/8 54
1997)...............................
</TABLE>
On March 14, 1997, the last full trading day prior to the public
announcement of the proposed Merger, the closing price on the NYSE Composite
Transaction Tape was $60 1/4 per Tyco Common Share and $21 3/4 per ADT Common
Share. On June 2, 1997, the most recent practicable date prior to the printing
of this Joint Proxy Statement/Prospectus, the closing price on the NYSE
Composite Transaction Tape was $63 7/8 per Tyco Common Share and $29 1/2 per ADT
Common Share. Shareholders are urged to obtain current market quotations prior
to making any decision with respect to the Merger.
Tyco currently pays quarterly dividends of $0.05 per Tyco Common Share. ADT
currently pays no dividends. The Combined Company expects to continue Tyco's
dividend practice according to which it would pay quarterly dividends of $0.05
per Combined Company Common Share, although this may be changed at any time by
the Combined Company Board. The payment of dividends by the Combined Company in
the future will depend on business conditions, the Combined Company's financial
condition and earnings and other factors.
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<PAGE> 42
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The Merger is to be accounted for in accordance with the pooling of
interests method of accounting pursuant to APB Opinion No. 16. The pooling of
interests method of accounting assumes that Tyco and ADT have been merged since
their inception, and the historical consolidated financial statements for
periods prior to consummation of the Merger are restated as though the companies
have been combined since their inception. Accordingly, the accompanying
unaudited pro forma combined financial information gives effect to the
transaction in accordance with pooling of interests. Pursuant to Rule 11-02 of
Regulation S-X, the unaudited pro forma combined financial information excludes
the results of discontinued operations and extraordinary items.
The unaudited pro forma combined financial information should be read in
conjunction with (i) ADT's consolidated financial statements, including the
accounting policies and notes thereto, included in its annual report on Form
10-K for the year ended December 31, 1996, (ii) ADT's consolidated financial
statements and notes thereto included in its quarterly report on Form 10-Q for
the quarterly period ended March 31, 1997, (iii) Tyco's consolidated financial
statements, including the accounting policies and notes thereto, included in its
annual report on Form 10-K for the year ended June 30, 1996, and (iv) Tyco's
consolidated financial statements and notes thereto included in its quarterly
reports on Form 10-Q for the quarterly periods ended September 30, 1996,
December 31, 1996 and March 31, 1997. See "Where You Can Find More Information."
The unaudited pro forma combined financial information has been prepared in
United States dollars in accordance with generally accepted accounting
principles in the United States ("U.S. GAAP"). These principles require
management to make extensive use of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The unaudited pro forma combined
results of operations are not necessarily indicative of future operating
results.
Tyco's fiscal year-end is currently June 30, while ADT's is December 31.
For purposes of the unaudited pro forma combined results of operations, Tyco's
results have been adjusted to a calendar year basis to conform to that of ADT.
Certain figures for the years ended December 31, 1995 and 1994 have been
reclassified to conform to the 1996 presentation. In addition, certain figures
of Tyco and ADT at March 31, 1997, for the three months ended March 31, 1997 and
1996 and for the years ended December 31, 1996, 1995 and 1994 have been
reclassified to conform to the combined presentation.
The unaudited pro forma combined condensed balance sheet gives effect to
the Merger as if it had occurred on March 31, 1997, combining the balance sheets
of Tyco and ADT at March 31, 1997. The unaudited pro forma combined statements
of income give effect to the Merger as if it had occurred on January 1, 1994,
combining the results of Tyco and ADT for each of the three years in the period
ended December 31, 1996 and for each of the three month periods ended March 31,
1997 and 1996.
36
<PAGE> 43
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN MILLIONS, EXCEPT SHARE NUMBER AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADT TYCO ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................................... $ 460.7 $ 1,654.2 $ $ 2,114.9
Cost of sales................................. (239.3) (1,194.5) (1,433.8)
Selling, general and administrative
expenses.................................... (155.5) (264.8) (420.3)
-------- --------- ----- ---------
Operating (loss) income....................... 65.9 194.9 260.8
Interest income(2)............................ 4.7 -- 0.9 5.6
Interest expense(2)........................... (21.4) (20.1) (0.9) (42.4)
-------- --------- ----- ---------
(Loss) income from continuing operations
before income taxes......................... 49.2 174.8 224.0
Income taxes.................................. (14.2) (68.1) (82.3)
-------- --------- ----- ---------
(Loss) income from continuing operations...... $ 35.0 $ 106.7 $ $ 141.7
======== ========= ===== =========
Primary earnings per common share
(Loss) income from continuing operations...... $ 0.23 $ 0.67 $ -- $ 0.61
======== ========= ===== =========
Fully diluted earnings per common share
(Loss) income from continuing operations...... $ 0.22 $ 0.67 $ -- $ 0.60
======== ========= ===== =========
Weighted average number of common shares (in
thousands)
Primary....................................... 149,093 159,841 231,604
======== ========= =========
Fully diluted................................. 173,714 160,003 243,617
======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
37
<PAGE> 44
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN MILLIONS, EXCEPT SHARE NUMBER AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADT TYCO ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................................... $ 411.3 $1,257.6 $ $ 1,668.9
Cost of sales.................................. (221.5) (910.1) (1,131.6)
Selling, general and administrative expenses... (131.9) (195.3) (327.2)
Charge for the impairment of long-lived
assets....................................... (744.7) -- (744.7)
-------- -------- ---- ---------
Operating (loss) income........................ (686.8) 152.2 (534.6)
Interest income(2)............................. 6.5 -- 0.3 6.8
Interest expense(2)............................ (27.4) (16.3) (0.3) (44.0)
Other expenses less income..................... (0.3) -- (0.3)
-------- -------- ---- ---------
(Loss) income from continuing operations before
income taxes................................. (708.0) 135.9 (572.1)
Income taxes................................... 2.4 (56.4) (54.0)
-------- -------- ---- ---------
(Loss) income from continuing operations....... $ (705.6) $ 79.5 $ (626.1)
======== ======== ==== =========
Primary earnings per common share
(Loss) income from continuing operations....... $ (5.20) $ 0.52 $ -- $ (2.87)
======== ======== ==== =========
Weighted average number of common shares (in
thousands)................................... 135,841 152,791 218,175
======== ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
38
<PAGE> 45
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT SHARE NUMBER AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADT TYCO ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................................... $1,704.0 $ 5,721.8 $ $ 7,425.8
Cost of sales................................. (920.0) (4,132.3) (5,052.3)
Selling, general and administrative
expenses.................................... (567.5) (926.9) (1,494.4)
Restructuring and other non-recurring
charges..................................... (237.3) -- (237.3)
Charge for the impairment of long-lived
assets...................................... (744.7) -- (744.7)
-------- --------- ---- ---------
Operating (loss) income....................... (765.5) 662.6 (102.9)
Interest income(2)............................ 27.5 -- 3.0 30.5
Interest expense(2)........................... (101.0) (81.3) (3.0) (185.3)
Gain (loss) on disposal of businesses......... 1.7 -- 1.7
Other income less expenses.................... 128.8 -- 128.8
-------- --------- ---- ---------
(Loss) income from continuing operations
before income taxes......................... (708.5) 581.3 (127.2)
Income taxes.................................. 21.8 (233.2) (211.4)
-------- --------- ---- ---------
(Loss) income from continuing operations...... $ (686.7) $ 348.1 $ $ (338.6)
======== ========= ==== =========
Primary earnings per common share
(Loss) income from continuing operations...... $ (5.01) $ 2.25 $ -- $ (1.53)
======== ========= ==== =========
Weighted average number of common shares (in
thousands).................................. 137,114 154,468 220,465
======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
39
<PAGE> 46
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS, EXCEPT SHARE NUMBER AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADT TYCO ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................................... $1,783.8 $ 4,842.8 $ $ 6,626.6
Cost of sales................................. (990.4) (3,546.3) (4,536.7)
Selling, general and administrative
expenses.................................... (558.4) (772.7) (1,331.1)
Restructuring and other non-recurring
charges..................................... (34.2) -- (34.2)
-------- --------- ---- ---------
Operating (loss) income....................... 200.8 523.8 724.6
Interest income(2)............................ 16.2 -- 1.1 17.3
Interest expense(2)........................... (116.3) (62.0) (1.1) (179.4)
Gain (loss) on disposal of businesses......... (36.6) -- (36.6)
Other income less expenses.................... (5.0) -- (5.0)
-------- --------- ---- ---------
(Loss) income from continuing operations
before income taxes......................... 59.1 461.8 520.9
Income taxes.................................. (28.1) (188.8) (216.9)
-------- --------- ---- ---------
(Loss) income from continuing operations...... $ 31.0 $ 273.0 $ $ 304.0
======== ========= ==== =========
Primary earnings per common share
(Loss) income from continuing operations...... $ 0.22 $ 1.79 $ -- $ 1.39
======== ========= ==== =========
Weighted average number of common shares (in
thousands).................................. 138,283 152,655 219,215
======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
40
<PAGE> 47
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT SHARE NUMBER AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADT TYCO ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales..................................... $1,629.4 $ 4,230.6 $ $ 5,860.0
Cost of sales................................. (913.4) (3,097.0) (4,010.4)
Selling, general and administrative
expenses.................................... (505.5) (700.5) (1,206.0)
Restructuring and other non-recurring
charges..................................... (4.5) (37.2) (41.7)
-------- --------- ---- ---------
Operating (loss) income....................... 206.0 395.9 601.9
Interest income(2)............................ 15.2 -- 1.3 16.5
Interest expense(2)........................... (99.3) (60.8) (1.3) (161.4)
Gain (loss) on disposal of businesses......... (0.3) -- (0.3)
Other income less expenses.................... (4.1) -- (4.1)
-------- --------- ---- ---------
(Loss) income from continuing operations
before income taxes......................... 117.5 335.1 452.6
Income taxes.................................. (34.9) (151.4) (186.3)
-------- --------- ---- ---------
(Loss) income from continuing operations...... $ 82.6 $ 183.7 $ $ 266.3
======== ========= ==== =========
Primary earnings per common share
(Loss) income from continuing operations...... $ 0.51 $ 1.24 $ -- $ 1.18
======== ========= ==== =========
Weighted average number of common shares (in
thousands).................................. 136,148 148,668 214,200
======== ========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
41
<PAGE> 48
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
AT MARCH 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADT TYCO ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 492.0 $ 63.2 $ $ 555.2
Accounts receivable, net............................ 318.7 956.9 1,275.6
Contracts in process................................ -- 125.1 125.1
Inventories......................................... 41.3 839.9 881.2
Deferred income taxes............................... -- 147.5 147.5
Prepaid expenses and other current assets........... 66.8 92.8 159.6
-------- -------- ------ --------
Total current assets................................ 918.8 2,225.4 3,144.2
Property, plant and equipment, net.................. 1,527.6 997.6 2,525.2
Goodwill and other intangibles, net................. 476.6 2,071.5 2,548.1
Reorganization value in excess of identifiable -- 97.8 97.8
assets...........................................
Deferred income taxes............................... -- 61.9 61.9
Long-term investments............................... 100.6 -- 100.6
Other long-term assets.............................. 70.8 152.1 222.9
-------- -------- ------ --------
Total assets........................................ $3,094.4 $5,606.3 $8,700.7
======== ======== ====== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt..................................... $ 74.3 $ 115.7 $ $ 190.0
Accounts payable(2)................................. 173.8 598.2 (30.8) 741.2
Other current liabilities(2)(5)..................... 267.8 706.0 112.8 1,086.6
Contracts in process--billings in excess of cost.... -- 148.0 148.0
Income taxes(2)..................................... -- 103.6 12.0 115.6
Deferred income taxes............................... -- 12.1 12.1
-------- -------- ------ --------
Total current liabilities........................... 515.9 1,683.6 94.0 2,293.5
Long-term debt...................................... 1,057.1 838.2 1,895.3
Deferred revenue.................................... 163.2 -- 163.2
Deferred income taxes............................... 102.1 25.8 127.9
Other long-term liabilities......................... 169.3 212.9 382.2
-------- -------- ------ --------
Total liabilities................................... 2,007.6 2,760.5 94.0 4,862.1
-------- -------- ------ --------
Retained (deficit) earnings(5)...................... (1,564.7) 1,525.6 (94.0) (133.1)
Other shareholders' equity.......................... 2,651.5 1,320.2 3,971.7
-------- -------- ------ --------
Total shareholders' equity.......................... 1,086.8 2,845.8 (94.0) 3,838.6
-------- -------- ------ --------
Total liabilities and shareholders' equity.......... $3,094.4 $5,606.3 $8,700.7
======== ======== ====== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
42
<PAGE> 49
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(1) The pro forma combined per share amounts are based on the combined weighted
average of ADT Common Shares and Tyco Common Shares for all periods
presented based on ADT shareholders, through a reverse stock split, holding
0.48133 of a Combined Company Common Share for each ADT Common Share and the
receipt by Tyco shareholders in the Merger of one Combined Company Common
Share for each Tyco Common Share.
(2) Certain reclassifications, none of which affects (loss) income from
continuing operations, have been made to the Tyco statements of income in
the pro forma combined statements of income to classify interest income on a
consistent basis. The pro forma adjustments to the balance sheet were
required to classify on a consistent basis income taxes payable and employee
payroll withholdings.
(3) Primary (loss) earnings per common share from continuing operations for ADT,
after deducting dividends on ADT convertible preference shares, was based on
adjusted net (loss) income from continuing operations available to common
shareholders of ($687.0) million in 1996, $30.7 million in 1995 and $69.3
million in 1994.
Primary (loss) earnings per common share from continuing operations for ADT,
after deducting dividends on ADT convertible preference shares, was based on
adjusted net (loss) income from continuing operations available to common
shareholders of $35.0 million and ($705.7) million in the three months ended
March 31, 1997 and 1996, respectively.
Fully diluted earnings per common share from continuing operations for ADT,
after adding Liquid Yield Option Notes discount amortization, was based on
adjusted net income from continuing operations available to common
shareholders of $38.5 million in the three months ended March 31, 1997.
(4) There were no material transactions between Tyco and ADT during any of the
periods presented.
(5) Total transaction costs to be incurred by Tyco and ADT in connection with
the Merger are estimated to be approximately $94 million. These costs,
related to legal, printing, accounting, financial advisory services,
severance costs payable at the Effective Time and other expense, will be
charged against income upon consummation of the Merger.
(6) A restructuring charge to operations by the Combined Company is expected to
occur subsequent to the Merger to reflect the combination of the two
companies. Such charges, which are preliminarily estimated to be
approximately $600 million, may include amounts with respect to the
elimination of excess facilities, the write-off of certain goodwill and
fixed assets, severance costs and the satisfaction of certain liabilities.
The effects of these costs have not been reflected in this pro forma
combined condensed financial information.
(7) The Tyco share and per share amounts for 1995 and 1994 have been restated to
reflect a two-for-one stock split effected in the form of a stock dividend
which was distributed on November 14, 1995.
(8) In 1996 ADT recorded certain non-recurring items including (i) a non-cash
charge relating to the write-down of specific assets to their estimated fair
values in accordance with SFAS 121, which occurred in the three month period
ended March 31, (ii) a charge principally relating to costs associated with
integrating the businesses of ASH in the United Kingdom and the United
States into ADT, together with the costs of administrative accounting,
management information and technological infrastructure enhancements
currently being implemented in the United States electronic security
services division, (iii) a gain arising on the sale of ADT's entire interest
in Limelight Group plc, which was recorded in the balance sheet at a nominal
value and (iv) a gain represented by cash receivable as a result of the
settlement of ADT's litigation against BDO Binder Hamlyn. ADT's historical
net income for 1996 before these non-recurring items amounted to $140.3
million, or $0.98 per share ($0.93 per share on a fully diluted basis). On a
pro forma combined basis, net income for
43
<PAGE> 50
1996 before these non-recurring items is $488.4 million, or $2.19 per share
($2.14 per share on a fully diluted basis).
(9) In the three months ended March 31, 1997, ADT recorded certain non-recurring
charges in connection with the ADT-Tyco transaction and the unsolicited
proposals of Western. ADT's historical net income before these non-recurring
items amounted to $44.6 million, or $0.30 per share ($0.28 per share on a
fully diluted basis). On a pro forma combined basis, net income for the
three months ended March 31, 1997 before these non-recurring items is $151.3
million, or $0.65 per share ($0.64 per share on a fully diluted basis).
In the three months ended March 31, 1996, ADT recorded certain non-recurring
charges which principally represented non-cash charges relating to the write
down of specific assets to their estimated fair values in accordance with
SFAS 121. ADT's historical net income before these non-recurring items
amounted to $28.9 million, or $0.21 per share ($0.20 per share on a fully
diluted basis). On a pro forma combined basis, net income for the three
months ended March 31, 1996 before these non-recurring items is $108.4
million, or $0.50 per share ($0.48 per share on a fully diluted basis).
44
<PAGE> 51
ROLE OF FINANCIAL ADVISORS
In connection with the proposed Merger, Tyco and ADT retained financial
advisors to assist their Boards of Directors in connection with their
consideration of the Merger Agreement. Tyco retained Credit Suisse First Boston
as its exclusive financial advisor, and ADT retained Merrill Lynch as its
financial advisor. Tyco and ADT entered into engagement letters with their
financial advisors providing for customary fee, expense reimbursement and
indemnification terms.
In deciding to approve the Merger, the Boards of Directors of Tyco and ADT
considered opinions of their respective financial advisors with respect to the
fairness of the Exchange Ratio to their respective shareholders from a financial
point of view. These opinions are described below and are attached as Annexes II
and III to this Joint Proxy Statement/Prospectus. You are encouraged to read
these opinions in their entirety and to consider them carefully.
OPINION OF TYCO'S FINANCIAL ADVISOR
Tyco retained Credit Suisse First Boston to act as its exclusive financial
advisor in connection with the Merger based upon Credit Suisse First Boston's
experience and expertise. On March 16, 1997, Credit Suisse First Boston
delivered to the Tyco Board its written opinion that, based upon and subject to
the factors and assumptions set forth therein, as of such date, the Exchange
Ratio was fair from a financial point of view to the shareholders of Tyco.
Credit Suisse First Boston subsequently delivered to the Tyco Board its written
opinion dated the date hereof (the "Credit Suisse First Boston Opinion") that,
based upon and subject to the factors and assumptions set forth therein, as of
such date, the Exchange Ratio was fair from a financial point of view to the
shareholders of Tyco. No limitations were imposed by the Tyco Board upon Credit
Suisse First Boston with respect to investigations made or procedures followed
by Credit Suisse First Boston in rendering its opinions.
The full text of the Credit Suisse First Boston Opinion, which sets forth
the assumptions and qualifications made, matters considered and limitations on
the review undertaken by Credit Suisse First Boston, is attached as Annex II to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Shareholders of Tyco are urged to read the Credit Suisse First Boston Opinion in
its entirety and to consider it carefully. The opinion of Credit Suisse First
Boston dated March 16, 1997 was provided to the Tyco Board for its information
in connection with its consideration of the Merger and does not constitute a
recommendation to any shareholder as to how to vote on the Merger. The summary
of the Credit Suisse First Boston Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the Credit Suisse First Boston Opinion set forth in Annex II and incorporated
herein by reference.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Credit Suisse First Boston Opinion or the
presentation made by Credit Suisse First Boston to the Tyco Board. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinions, Credit
Suisse First Boston did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Credit
Suisse First Boston believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying the Credit Suisse First
Boston Opinion.
In performing its analyses, Credit Suisse First Boston made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Tyco or ADT. Any estimates contained in the analyses performed by
Credit Suisse First Boston are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or
45
<PAGE> 52
securities might actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. In addition, the opinion of
Credit Suisse First Boston dated March 16, 1997 and Credit Suisse First Boston's
presentation to the Tyco Board were among several factors taken into
consideration by the Tyco Board in making its determination to approve the
Merger. Consequently, the Credit Suisse First Boston analyses described below
should not be viewed as, and were not, determinative of the opinion of the Tyco
Board or Tyco's management with respect to the Exchange Ratio.
In arriving at its opinions, Credit Suisse First Boston reviewed certain
publicly available business and financial information relating to Tyco and ADT,
as well as the Merger Agreement. Credit Suisse First Boston also reviewed
certain other information, including financial forecasts, provided to it by Tyco
and ADT, and met with the managements of Tyco and ADT to discuss the business
and prospects of Tyco and ADT. In addition, Credit Suisse First Boston reviewed
certain estimates provided to it by Tyco of the synergies and savings expected
to result from the Merger, and met with the management of Tyco to discuss such
synergies and savings. Credit Suisse First Boston also considered certain
financial and stock market data of Tyco and ADT, compared that data with similar
data for other publicly held companies in businesses similar to those of Tyco
and ADT and considered the financial terms of certain other business
combinations and other transactions which have recently been effected. In
addition, Credit Suisse First Boston considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that it deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the foregoing
information and relied on such information being complete and accurate in all
material respects. With respect to financial forecasts, Credit Suisse First
Boston assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Tyco and ADT
as to the future financial performance of Tyco and ADT. Credit Suisse First
Boston also assumed that the estimates provided to it by Tyco of the synergies
and savings expected to result from the Merger reflect the best currently
available estimates and judgments of such management as to such synergies and
savings. Credit Suisse First Boston relied on the conclusions of Tyco as to the
impact of the Merger on the current tax status of ADT. Credit Suisse First
Boston did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Tyco or ADT, nor was it furnished with
any such evaluations or appraisals. The Credit Suisse First Boston Opinion is
necessarily based upon financial, economic, market and other conditions as they
existed and could be evaluated on the date hereof. Credit Suisse First Boston
did not express any opinion as to what the value of the Combined Company Common
Shares actually will be when issued to Tyco's shareholders pursuant to the
Merger or the prices at which the Combined Company Common Shares will trade
subsequent to the Merger.
The following is a summary of the analyses performed by Credit Suisse First
Boston in connection with the preparation of the opinion of Credit Suisse First
Boston dated March 16, 1997. Credit Suisse First Boston reviewed and updated
such analyses in connection with its preparation of the Credit Suisse First
Boston Opinion.
Comparative Stock Price Performance Analysis. Credit Suisse First Boston
reviewed the per share daily closing prices of Tyco Common Shares and of ADT
Common Shares over the period from March 14, 1996 to March 14, 1997 compared
with the performance of the Standard & Poor's 500 Index ("S&P 500").
Discounted Cash Flow Analysis. Credit Suisse First Boston performed a
discounted cash flow analysis for fiscal years 1997 to 2006 to estimate the
present value of the stand-alone unlevered free cash flows that the ADT Security
Services businesses (i.e., all of ADT excluding CarCop and the vehicle auction
businesses) ("Security Services") are expected to generate if Security Services
performs in accordance with scenarios based on certain financial forecasts. For
purposes of this analysis, unlevered free cash flows were defined as net income
plus depreciation plus amortization plus deferred taxes less capital
expenditures less investment in working capital.
46
<PAGE> 53
Credit Suisse First Boston performed its analyses based on financial
forecasts provided to it by ADT, which were adjusted for three separate
scenarios for Security Services: a management case (the "ADT Management Case"),
an adjusted ADT Management Case (the "Adjusted Case") and a conservative case
(the "Conservative Case"). The ADT Management Case reflects ADT's current
budget, including ADT management forecasts for fiscal years 1997 through 2001
and forecasts for fiscal years 2002 through 2006 based upon the first five
years' performance, as adjusted to reflect reduced growth rates in new
subscribers. The Adjusted Case was developed by Credit Suisse First Boston and
reviewed and approved by Tyco management. The Adjusted Case adjusts the ADT
Management Case to provide for slower installation growth in the residential and
commercial markets and higher expenses. The Conservative Case was developed by
Credit Suisse First Boston. The Conservative Case reflects adjustments to the
Adjusted Case to provide for slower installation growth in the residential and
commercial markets and higher expenses.
Credit Suisse First Boston calculated terminal values for Security Services
by applying a range of multiples of earnings before interest, taxes,
depreciation and amortization ("EBITDA") to the fiscal year 2006 EBITDA from
7.0x to 8.0x in each of the above three scenarios. These EBITDA multiples were
based on ADT's current trading multiples of 9.7x fiscal year 1996 EBITDA and
7.6x fiscal year 1997 estimated EBITDA as well as ADT's tax rate of 30% for book
purposes and 11.0% to 15.0% on a cash basis. The unlevered free cash flow
streams and terminal values were then discounted using a range of discount rates
from 11.5% to 12.5%. The discount rate range was selected based on an analysis
of ADT's weighted average cost of capital. Based on this analysis, the
enterprise values for Security Services ranged from $5.1 billion to $6.1 billion
for the ADT Management Case, $4.2 billion to $5.0 billion for the Adjusted Case
and $3.9 billion to $4.6 billion for the Conservative Case. Credit Suisse First
Boston calculated the implied equity value ranges for each of these cases by
subtracting from the enterprise value ranges the value of ADT's non-convertible
debt of $792 million and adding the value of ADT's cash, long-term investments,
option and warrant proceeds of $831 million and the estimated value range for
ADT's Car Cop and Auto Auction businesses of $500 to $600 million. Based on this
analysis and assuming 193.8 million fully-diluted ADT Common Shares outstanding,
the implied equity values for ADT ranged from $29.10 to $34.77 per ADT Common
Share for the ADT Management Case, $24.45 to $29.10 per ADT Common Share for the
Adjusted Case, and $22.91 to $27.03 per ADT Common Share for the Conservative
Case. Accordingly, based upon the March 14, 1997 closing price of Tyco Common
Stock of $60.25, the foregoing analysis could be used to imply a range of
exchange ratios of 0.380 to 0.577.
Credit Suisse First Boston also considered the potential synergies and
savings that Tyco management anticipates would result from the Merger. Based on
Tyco management's estimated savings of $40.0 million, $50.0 million and $60.0
million in fiscal years 1998, 1999 and 2000, respectively, and an assumed growth
rate of 3.0% per year thereafter with an 11.0% to 12.0% capitalization rate,
Credit Suisse First Boston estimated a range of present values for such savings
of $364.0 million to $411.0 million (or $1.88 to $2.12 per ADT Common Share).
Including synergies, the implied equity values (based on the same adjustments to
enterprise value described above) for ADT ranged from $30.98 to $36.89 per ADT
Common Share for the ADT Management Case, $26.33 to $31.22 per ADT Common Share
for the Adjusted Case and $24.79 to $29.15 per ADT Common Share for the
Conservative Case. Accordingly, based upon the March 14, 1997 closing price of
Tyco Common Stock of $60.25, the foregoing analysis could be used to imply a
range of exchange ratios of 0.411 to 0.612.
Contribution Analysis. Credit Suisse First Boston reviewed the relative
contribution of Tyco and ADT to fiscal years 1997 and 1998 operating cash flow
and net income and derived therefrom an implied exchange ratio and estimated
implied ADT share values. Fiscal years 1997 and 1998 operating cash flow and net
income estimates were based on, for Tyco, discussions with Tyco management and,
for ADT, the Adjusted Case. For Tyco, operating cash flow and net income for
fiscal year 1997 were estimated to be $963.0 million and $391.7 million,
respectively, which amounts do not reflect the impact of certain acquisitions
consummated by Tyco during the third quarter of fiscal year 1997 (or $5.70 and
$2.32, respectively, per Tyco Common Share (based on Tyco Common Shares
outstanding assuming Tyco's February 27, 1997 equity offering had been completed
on July 1, 1996)), and, for fiscal year 1998, $1.076 billion and $487.8 million,
respectively, which amounts do not reflect the impact of certain acquisitions
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<PAGE> 54
consummated by Tyco during the third quarter of fiscal year 1997 (or $6.37 and
$2.89, respectively, per Tyco Common Share (based on Tyco Common Shares
outstanding assuming Tyco's February 27, 1997 equity offering had been completed
on July 1, 1996)). For ADT, operating cash flow and net income for fiscal year
1997 were estimated to be $514.7 million and $178.9 million, respectively (or
$2.66 and $0.92, respectively, per ADT Common Share), and, for fiscal year 1998,
$630.8 million and $267.8 million, respectively (or $3.26 and $1.38,
respectively, per ADT Common Share). This analysis yielded implied exchange
ratios, based on estimated operating cash flow and net income for fiscal year
1997, of 0.466 and 0.398, respectively, and, for fiscal year 1998, 0.511 and
0.479, respectively. Credit Suisse First Boston assumed a share price for Tyco
Common Shares of $60.25 which indicated estimated implied ADT Common Share
values, based upon operating cash flow and net income for fiscal year 1997, of
$28.08 and $24.00, respectively, and, for fiscal year 1998, $30.80 and $28.85,
respectively.
Pro Forma Analysis. Based on the Adjusted Case forecasts for ADT and Tyco
management's forecasts for Tyco, Credit Suisse First Boston analyzed pro forma
earnings per share ("EPS") for Tyco for fiscal years 1998, 1999 and 2000.
Excluding one-time restructuring charges, Credit Suisse First Boston estimated
increases in EPS for the Combined Company in fiscal years 1998, 1999 and 2000 of
6.9%, 14.1% and 15.6%, respectively.
Pursuant to a letter agreement dated March 15, 1997 between Tyco and Credit
Suisse First Boston, Tyco agreed to pay Credit Suisse First Boston for services
rendered thereunder a fee of up to $5 million, to be paid upon the closing of
the Merger. Tyco also agreed to reimburse Credit Suisse First Boston for all
out-of-pocket expenses, including the fees and expenses of its legal counsel and
any other advisor retained by Credit Suisse First Boston, resulting from or
arising out of the engagement. Tyco further agreed to indemnify Credit Suisse
First Boston and certain related persons and entities for certain losses,
claims, damages or liabilities (including actions or proceedings in respect
thereof) related to or arising out of, among other things, its engagement as
financial advisor.
Tyco retained Credit Suisse First Boston based upon Credit Suisse First
Boston's experience and expertise. In the past, Credit Suisse First Boston has
performed certain investment banking services for Tyco and ADT and has received
customary fees for such services. Credit Suisse First Boston is an
internationally recognized investment banking and advisory firm. Credit Suisse
First Boston, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. In the ordinary course of business,
Credit Suisse First Boston and its affiliates may actively trade the debt and
equity securities of both Tyco and ADT for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
OPINION OF ADT'S FINANCIAL ADVISOR
The ADT Board engaged Merrill Lynch to act as its financial advisor in
connection with the transactions contemplated by the Merger Agreement based upon
Merrill Lynch's qualifications, expertise and reputation, as well as Merrill
Lynch's prior investment banking relationships and familiarity with ADT and
Tyco. In addition, Merrill Lynch has been acting, and continues to act, as
financial advisor to ADT in connection with the Western Offer and the Western
Proposals Meeting. On March 16, 1997, Merrill Lynch rendered its oral opinion,
which Merrill Lynch subsequently confirmed in writing as of March 17, 1997 and
as of the date hereof (the opinion dated as of the date hereof, the "Merrill
Lynch Opinion"), to the ADT Board that, as of such dates, and based upon the
assumptions made, matters considered and limits of review described in the
opinion, the Exchange Ratio was fair to the shareholders of ADT from a financial
point of view.
A copy of the Merrill Lynch Opinion, setting forth the assumptions made,
matters considered and limitations on the scope of review undertaken by Merrill
Lynch, is attached as Annex III to this Joint Proxy Statement/Prospectus.
Merrill Lynch addressed its opinion to the ADT Board. The Merrill Lynch Opinion
is directed only to the fairness of the Exchange Ratio to the shareholders of
ADT from a financial
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point of view and does not address the merits of the underlying decision of ADT
to engage in the Merger or constitute a recommendation to any shareholder as to
how such shareholder should vote on matters relating to the Merger. The
following discussion regarding the Merrill Lynch Opinion is qualified in its
entirety by reference to the full text of the Merrill Lynch Opinion.
In arriving at the Merrill Lynch Opinion, Merrill Lynch (i) reviewed Tyco's
Annual Reports on Form 10-K and related audited financial statements for the
five fiscal years ended June 30, 1996, Tyco's Quarterly Reports on Form 10-Q and
the related unaudited financial statements for the quarterly periods ending
September 30, 1996 and December 31, 1996, and Tyco's Prospectus dated February
5, 1997 and the related Prospectus Supplement dated February 27, 1997 with
respect to the offer and sale by Tyco of 10,000,000 Tyco Common Shares (the
"February 1997 Offering"); (ii) 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 ADT's
proposed merger with Republic 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 ASH; (iii) reviewed certain financial
information, including financial forecasts, relating to the financial condition,
business, earnings, cash flow, assets, liabilities, and prospects of Tyco and
ADT, that were furnished to Merrill Lynch by Tyco and ADT, respectively; (iv)
conducted discussions with members of senior management of Tyco and ADT
concerning their respective financial condition, business, earnings, cash flow,
assets, liabilities, operations, contingencies and prospects; (v) reviewed
certain information relating to the proposed acquisitions by Tyco of Keystone,
INBRAND and the submarine systems business of AT&T Corp. (together with Keystone
and INBRAND, the "Tyco Acquisition Companies"), including, with respect to
Keystone and INBRAND, their respective publicly available historical audited
financial statements for their three most recent fiscal years and their
respective publicly available unaudited financial statements for each of the
quarterly periods ended since the end of their most recent respective fiscal
years, as well as financial and other information relating to the proposed
acquisitions that was furnished to Merrill Lynch by Tyco's management; (vi)
reviewed the historical market prices and trading activity for Tyco Common
Shares and ADT Common Shares and compared such data with indices that Merrill
Lynch deemed relevant; (vii) compared the respective financial condition and
results of operations of Tyco and ADT with that of certain publicly traded
companies that Merrill Lynch deemed to be relevant; (viii) compared the proposed
financial terms of the transactions contemplated by the Agreement with the
financial terms of certain other mergers and acquisitions that Merrill Lynch
deemed to be relevant; (ix) reviewed the amount and timing of the projected cost
savings, the related expenses required to achieve such savings, and the revenue
enhancements expected to result from the Merger (the "Expected Synergies"), as
presented by the managements of ADT and Tyco; (x) considered the pro forma
impact of the transactions contemplated by the Merger Agreement on the income
statement, balance sheet and cash flows of ADT; (xi) reviewed a draft of the
Merger Agreement dated March 15, 1997; and (xii) reviewed such other financial
studies and analyses and performed such other investigations and took into
account other matters that Merrill Lynch deemed necessary.
In preparing the Merrill Lynch Opinion, with ADT's consent Merrill Lynch
assumed and relied on the accuracy and completeness of all information supplied
or otherwise made available to Merrill Lynch by ADT and Tyco. Merrill Lynch did
not assume responsibility for independently verifying that information or
undertake an independent evaluation or appraisal of the assets or liabilities,
contingent or otherwise, of ADT, Tyco or the Tyco Acquisition Companies or any
of their subsidiaries, nor was Merrill Lynch furnished any such evaluation or
appraisal. In addition, Merrill Lynch did not conduct any physical inspection of
the properties or facilities of ADT, Tyco or the Tyco Acquisition Companies.
With respect to the financial forecasts (including the Expected Synergies)
furnished by ADT and Tyco, with ADT's consent, Merrill Lynch assumed that those
forecasts were reasonably prepared and reflected the best currently available
estimates, allocations and judgements of the respective managements of ADT and
Tyco as to the future financial performance of ADT, Tyco or the Combined
Company, as the case may be. Merrill Lynch also assumed with ADT's consent that
the Merger will be accounted for as a pooling of interests under U.S. GAAP.
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The Merrill Lynch Opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on the date of the
Merrill Lynch Opinion. In rendering the Merrill Lynch Opinion, Merrill Lynch
assumed with ADT's consent that, in the course of obtaining the necessary
regulatory or other consents or approvals for the Merger, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits of
the Merger.
Merrill Lynch was not authorized or requested to, and, accordingly, with
ADT's consent did not, solicit any other company or person with respect to
entering into a business combination with or acquisition of ADT.
In rendering the Merrill Lynch Opinion, Merrill Lynch took the Western
Offer into account and noted that the value of the consideration offered by
Western is capped at $22.50 per ADT Common Share compared to an implied price of
$29.00 per ADT Common Share under the Merger, based on Tyco's closing price of
$60.25 per Tyco Common Share as of March 14, 1997.
The following summarizes certain financial and comparative analyses
presented by Merrill Lynch to the ADT Board at its meeting on March 16, 1997.
These analyses were also among the analyses considered by Merrill Lynch in
rendering the Merrill Lynch Opinion. This summary does not purport to be a
complete description of the analyses underlying the Merrill Lynch Opinion.
In performing its analyses, Merrill Lynch utilized two sets of projections
provided by ADT's management (respectively, "ADT's Sensitivity Case" and "ADT's
Base Case") and two sets of projections provided by Tyco's management
(respectively, "Tyco's Sensitivity Case" and "Tyco's Base Case"), as well as
estimates of future earnings and earnings growth published by First Call Corp.
("First Call") and I/B/E/S International, Inc. ("I/B/E/S"). First Call and
I/B/E/S are on-line data services that monitor and publish compilations of
earnings estimates produced by selected research analysts on certain public
companies.
Overview of Proposed Merger. Based on Tyco's closing stock price of $60.25
per Tyco Common Share as of March 14, 1997 (the last trading day prior to public
announcement of the proposed transaction) ("Tyco's Closing Price") and the
Exchange Ratio, Merrill Lynch determined that the proposed transaction provided
an implied price to ADT shareholders of $29.00 per ADT Common Share (determined
by multiplying Tyco's Closing Price by the Exchange Ratio) (the "Implied Price")
and an implied premium to ADT shareholders of (i) 33.3% based on ADT's closing
stock price of $21.75 per ADT Common Share on March 14, 1997 (the last trading
day prior to announcement of the proposed Merger) ("ADT's Closing Price") and
(ii) 44.1% based on ADT's closing stock price of $20.13 per ADT Common Share on
December 17, 1996 (the last trading day prior to the initial announcement of the
Western Offer) (the "Reference Price"). In addition, Merrill Lynch determined
that, on a pro forma fully-diluted basis, ADT shareholders would own
approximately 35.6% of the Combined Company and Tyco shareholders would own
approximately 64.4% of the Combined Company.
Merrill Lynch analyzed the aggregate transaction value of the Merger, based
on the Implied Price, as a multiple of certain ADT historical and projected
(based on ADT's Sensitivity Case) financial data, as follows:
<TABLE>
<CAPTION>
EARNINGS BEFORE
INTEREST AND TAXES
EBITDA ("EBIT")
- ------------------- ------------------- ADT'S ANNUALIZED
FY 1996 FY 1997 FY 1996 FY 1997 RECURRING REVENUES
- ------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C>
12.2x 9.3x 24.0x 15.9x 6.0x
</TABLE>
Merrill Lynch further determined that the Implied Price represented a
multiple of ADT's EPS based on First Call estimates of 24.6x for FY1997 and
20.7x for FY1998. The foregoing data was presented by Merrill Lynch as
conventional valuation measures of the Implied Price. As noted below, Merrill
Lynch did not ascribe any particular weight to this data nor did it draw any
specific conclusions therefrom.
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Merrill Lynch analyzed a variety of price-to-earnings ratios (each, a "P/E
Ratio") for Tyco (based on Tyco's Closing Price) and ADT (based on ADT's Closing
Price and the Implied Price) using calendarized earnings estimates based on data
provided by ADT and Tyco, as well as First Call and I/B/E/S data. The P/E Ratios
for Tyco and ADT were as follows:
<TABLE>
<CAPTION>
1997 P/E RATIOS 1998 P/E RATIOS
------------------------------------ ------------------------------------
SENSITIVITY SENSITIVITY
BASED ON CASE BASE CASE FIRST CALL CASE BASE CASE FIRST CALL
- -------------------------------------- ----------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tyco's Closing Price.................. 22.5x 21.8x 21.8x 19.8x 18.1x 18.4x
ADT's Closing Price................... 16.7x 16.4x 18.4x 13.5x 12.8x 15.5x
ADT's Implied Price................... 22.3x 21.8x 24.6x 18.0x 17.1x 20.7x
</TABLE>
Merrill Lynch also analyzed Tyco's and ADT's 1997 P/E Ratios divided by
their respective estimated five-year earnings growth rates as published by
I/B/E/S ("P/E Growth Multiple") as follows:
<TABLE>
<CAPTION>
BASED ON SENSITIVITY CASE BASE CASE FIRST CALL
- -------------------------------------------------------- ----------------- ---------- -----------
<S> <C> <C> <C>
Tyco's Closing Price.................................... 125% 121% 121%
ADT's Closing Price..................................... 93% 91% 102%
ADT's Implied Price..................................... 124% 121% 137%
</TABLE>
The foregoing analysis was presented by Merrill Lynch to illustrate the
relative P/E Ratios and earnings growth estimates for Tyco and ADT based on a
variety of earnings assumptions. As noted below, Merrill Lynch did not ascribe
any particular weight to this analysis nor did it draw any specific conclusions
therefrom.
Merrill Lynch reviewed and charted the daily closing price of ADT Common
Shares and Tyco Common Shares for the year ended March 12, 1997 and the weekly
closing price of ADT Common Shares and Tyco Common Shares for the three years
ended March 12, 1997. Merrill Lynch indexed that data against the closing price
performance of the S&P 500 over the same periods. Merrill Lynch also reviewed
and charted the daily trading volume of Tyco Common Shares over the one- and
three-year periods ended March 12, 1997.
ADT Discounted Cash Flow Analysis. Merrill Lynch presented a discounted
cash flow analysis of ADT based upon ADT's Sensitivity Case and ADT's Base Case
with respect to ADT's five-year stream of unlevered free cash flow and each of
(i) terminal values based upon multiples of 8.0x, 8.5x and 9.0x projected FY
2001 EBITDA ("EBITDA Terminal Value Methodology") and (ii) terminal values based
upon multiples of 17.0x, 18.0x and 19.0x projected FY 2001 tax effected EBIT
before goodwill amortization ("EBITA") ("EBITA Terminal Value Methodology"),
applying a range of discount rates resulting from an analysis of ADT's weighted
average cost of capital of 11.0%, 11.5%, 12.0%, 12.5% and 13.0%. This analysis
resulted in (a) with respect to ADT's Base Case, total equity value per share
ranging from (I) $29.63 to $35.64 based on EBITDA Terminal Value Methodology and
(II) $29.35 to $35.09 based on EBITA Terminal Value Methodology, and (b) with
respect to ADT's Sensitivity Case, total equity value ranging from (I) $26.16 to
$31.40 based on EBITDA Terminal Value Methodology and (II) $25.14 to $29.98
based on EBITA Terminal Value Methodology. Merrill Lynch also performed and
summarized a variety of sensitivity analyses with respect to ADT's discounted
cash flows (under both ADT's Sensitivity Case and ADT's Base Case) that
considered the effect of changes to certain variables, including ADT's
residential installation growth rate, residential installation fees and
cancellation rates. Merrill Lynch performed the ADT discounted cash flow
analysis as one of several methodologies assessing the equity value of ADT on a
standalone basis and to enable a comparison with a variety of valuation
methodologies assessing the equity value of Tyco.
ADT Comparable Companies Analysis. Merrill Lynch compared certain
financial and operating information data, including market value of common
equity ("Market Value") and market capitalization (Market Value plus preferred
equity at liquidation value, short-term debt, long-term debt and minority
interest, less cash and marketable securities) ("Market Capitalization"), for
ADT with the following companies (collectively, the "ADT Public Comparables"):
Borg-Warner Security Corporation, Holmes Protection Group, Inc., Honeywell Inc.,
Pittston Brink's Group, Protection One, Inc., and Rollins, Inc. In performing
the comparable companies analysis with respect to ADT, Merrill Lynch used
calendarized
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earnings estimates for the ADT Public Comparables based on First Call and
I/B/E/S data, and Merrill Lynch used the Reference Price for ADT. Merrill Lynch
determined that with respect to (i) Market Capitalization as a multiple of sales
for the latest twelve months ("LTM") for the ADT Public Comparables, the mean
was 1.65x and the median was 1.33x, compared to 2.16x for ADT, (ii) Market
Capitalization as a multiple of LTM EBITDA for the ADT Public Comparables, the
mean was 9.0x and the median was 9.1x, compared to 8.4x for ADT, and (iii)
Market Capitalization as a multiple of LTM EBIT for the ADT Public Comparables,
the mean was 13.1x and the median was 13.3x, compared to 16.6x for ADT. Merrill
Lynch also determined that with respect to P/E Ratios for the ADT Public
Comparables, the mean was 24.2x for 1996, 19.0x for 1997 and 14.9x for 1998 and
the median was 25.2x for 1996, 17.5x for 1997 and 14.9x for 1998, compared to
21.0x for 1996, 17.1x for 1997 and 14.4x for 1998 for ADT. Merrill Lynch also
determined the mean and median 1997 P/E Ratios as multiples of the sum of
current dividend yield plus the five-year I/B/E/S projected EPS growth rate for
the ADT Public Comparables were 1.25x and 1.22x, respectively, compared to 0.95x
for ADT. Merrill Lynch also determined that with respect to (i) the LTM EBITDA
margin for the ADT Public Comparables, the mean was 18.4% and the median was
14.1%, compared to 25.8% for ADT, (ii) the LTM EBIT margin for the ADT Public
Comparables, the mean was 8.8% and the median was 9.0%, compared to 13.0% for
ADT, (iii) the estimated EPS growth rate from 1996 to 1997 for the ADT Public
Comparables, the mean was 30.7% and the median was 15.1%, compared to 22.9% for
ADT, (iv) the I/B/E/S five-year projected EPS growth rate for the ADT Public
Comparables, the mean was 17.4% and the median 15.0%, compared to 18.0% for ADT,
and (v) the dividend yield for the ADT Public Comparables, the mean was 0.8% and
the median was 0.2%, compared to 0.0% for ADT. Merrill Lynch determined,
however, that because of ADT's size and market leadership position and the
quality of its contractually recurring revenue base, as well as the differing
lines of business comprising each of the ADT Public Comparables, the comparable
company analysis was not indicative of the value of ADT Common Shares.
ADT Comparable Acquisitions Analysis. Merrill Lynch also reviewed the
financial terms of fourteen acquisitions of security companies (the "Selected
Acquisitions"). Merrill Lynch analyzed ratios comparing offer value ("Offer
Value") and transaction value ("Transaction Value") to various financial data.
Merrill Lynch determined that, with respect to (i) Offer Value (for acquisitions
of less than 100% of the target's equity, Offer Value was equal to purchase
price grossed-up as if 100% of the target's entity was acquired) as a multiple
of net income, the mean was 26.0x and the median was 26.6x, (ii) Offer Value as
a multiple of book value, the mean was 1.41x and the median was 2.09x, (iii)
Transaction Value as a multiple of LTM EBIT, the mean was 14.9x and the median
was 14.1x, (iv) Transaction Value as a multiple of LTM EBITDA, the mean was 9.7x
and the median was 9.3x, and (v) Transaction Value as a multiple of LTM sales,
the mean was 1.86x and the median was 2.14x. Merrill Lynch determined, however,
that because of ADT's size and market leadership position, and the quality of
its contractually recurring revenue base, the comparable acquisitions analysis
was not indicative of the value of ADT Common Shares.
Tyco Comparable Companies Analysis. Merrill Lynch compared certain
financial and operating information data, including Market Value and Market
Capitalization, for Tyco with the following companies (the "Tyco Public
Comparables"): AlliedSignal Inc., Dover Corporation, Emerson Electric Co.,
General Electric Company and United Technologies Corporation. Using earnings
estimates for the Tyco Public Comparables and Tyco based on First Call estimates
calendarized to reflect a December 31st year end, Merrill Lynch determined that
with respect to Market Value as a multiple of (i) LTM net income applicable to
common for the Tyco Public Comparables, the mean was 21.0x and the median was
21.2x, compared to 29.1x for Tyco, (ii) estimated 1997 EPS for the Tyco Public
Comparables, the mean was 18.5x and the median was 19.0x, compared to 21.8x for
Tyco, (iii) estimated 1998 EPS for the Tyco Public Comparables, the mean was
16.4x and the median was 16.5x, compared to 18.4x for Tyco, (iv) LTM cash flow
(income available to common plus depreciation, depletion and amortization and
deferred taxes, less unremitted earnings of unconsolidated subsidiaries) for the
Tyco Public Comparables, the mean was 13.0x and the median was 13.6x, compared
to 17.2x for Tyco, and (v) latest fiscal quarter common shareholders' equity for
the Tyco Public Comparables, the mean was 4.73x and the median was 4.74x,
compared to 4.55x for Tyco. Merrill Lynch also determined that for the Tyco
Public Comparables the mean quotient of 1997 P/E Ratio divided by I/B/E/S
projected five-year EPS growth was 150%,
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compared to 121% for Tyco. Merrill Lynch determined that with respect to Market
Capitalization as a multiple of (i) LTM EBITDA for the Tyco Public Comparables,
the mean was 9.8x and the median was 10.0x, compared to 12.8x for Tyco, (ii) LTM
EBIT for the Tyco Public Comparables, the mean was 12.9x and the median was
12.3x, compared to 16.1 for Tyco, and (iii) LTM sales for the Tyco Public
Comparables, the mean was 1.67x and the median was 1.60x, compared to 1.86x for
Tyco.
Comparative Discounted Cash Flow Analysis. Merrill Lynch analyzed the
relative discounted cash flow values of a Tyco Common Share and an ADT Common
Share by using data from the ADT discounted cash flow analysis described above
(utilizing discount rates of 11.5%, 12.0% and 12.5% and terminal EBITDA
multiples of 8.0x, 8.5x and 9.0x) and data from a discounted cash flow analysis
of Tyco performed using methods similar to those used in performing the ADT
discounted cash flow analysis. With respect to Tyco, Merrill Lynch applied
discount rates of 12.0%, 12.5% and 13.0% (derived from an analysis of Tyco's
weighted average cost of capital) and terminal EBITDA multiples of 11.5x, 12.0x
and 12.5x resulting in Tyco equity values per share ranging from (i) $71.15 to
$80.19 based on Tyco's Base Case and (ii) $64.92 to $73.17 based on Tyco's
Sensitivity Case. Merrill Lynch then compared the Tyco equity values per Tyco
Common Share and the equity values per ADT Common Share and arrived at ranges of
implied exchange ratios ("DCF Implied Exchange Ratios") from (i) 0.424 to 0.436
based on ADT's Base Case and Tyco's Base Case, (ii) 0.374 to 0.384 based on
Tyco's Base Case and ADT's Sensitivity Case, (iii) 0.465 to 0.478 based on
Tyco's Sensitivity Case and ADT's Base Case and (iv) 0.410 to 0.421 based on
Tyco's Sensitivity Case and ADT's Sensitivity Case. Merrill Lynch also noted
that none of the DCF Implied Exchange Ratios was equal to or greater than the
Exchange Ratio of 0.48133.
Impact of Expected Synergies. Merrill Lynch also calculated discounted
cash flow values for two projected cases for Expected Synergies (the "High
Synergy Case" and the "Low Synergy Case") to ascertain the effect of attributing
some or all of the Expected Synergies to Tyco's equity value for purposes of the
Comparative Discounted Cash Flow Analysis. For this purpose, Merrill Lynch
attributed 50% and 100% of the discounted cash flow values of the Expected
Synergies to Tyco's equity values per share for purposes of the analysis of
relative discounted cash flows referred to in the preceding paragraph. Merrill
Lynch concluded that the effect of attributing the Expected Synergies to Tyco's
equity value, in all cases, would reduce the DCF Implied Exchange Ratios and
correspondingly widen the gap therefrom to the Exchange Ratio of 0.48133.
Contribution Analysis. Merrill Lynch performed a contribution analysis and
determined the respective contributions of ADT and Tyco to the projected pro
forma combined fully-diluted net income applicable to common and cash flow
(fully-diluted net income applicable to common plus depreciation and
amortization less capital expenditures), assuming no synergies or transaction
adjustments. Merrill Lynch noted that ADT shareholders would account for 35.6%
of the Combined Company's common equity on a fully-diluted basis. Based on
Tyco's Base Case and ADT's Base Case, Merrill Lynch estimated that ADT would
contribute (i) 34.3% in FY 1997, 36.1% in FY 1998, 37.6% in FY 1999, 38.1% in FY
2000 and 38.5% in FY 2001 to the Combined Company's projected pro forma
fully-diluted net income applicable to common and (ii) 11.5% in FY 1997, 20.1%
in FY 1998, 27.1% in FY 1999, 27.3% in FY 2000 and 27.7% in FY 2001 to the
Combined Company's projected pro forma cash flow. Based on Tyco's Base Case and
ADT's Sensitivity Case, Merrill Lynch estimated that ADT would contribute (i)
33.8% in FY 1997, 34.7% in FY 1998, 35.5% in FY 1999, 35.1% in FY 2000 and 34.7%
in FY 2001 to the Combined Company's projected pro forma fully-diluted net
income applicable to common and (ii) 10.7% in FY 1997, 19.9% in FY 1998, 27.0%
in FY 1999, 27.2% in FY 2000 and 27.3% in FY 2001 to the Combined Company's
projected pro forma cash flow. Based on Tyco's Sensitivity Case and ADT's Base
Case, Merrill Lynch estimated that ADT would contribute (i) 35.1% in FY 1997,
38.2% in FY 1998, 40.5% in FY 1999, 40.7% in FY 2000 and 41.1% in FY 2001 to the
Combined Company's projected pro forma fully-diluted net income applicable to
common and (ii) 11.8% in FY 1997, 21.5% in FY 1998, 29.2% in FY 1999, 29.1% in
FY 2000 and 29.4% in FY 2001 to the Combined Company's projected pro forma cash
flow. Based on Tyco's Sensitivity Case and ADT's Sensitivity Case, Merrill Lynch
estimated that ADT would contribute (i) 34.6% in FY 1997, 36.8% in FY 1998,
38.2% in FY 1999, 37.6% in FY 2000 and 37.1% in FY 2001 to the Combined
Company's projected pro forma fully-diluted net income applicable to common and
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(ii) 11.0% in FY 1997, 21.2% in FY 1998, 29.1% in FY 1999, 28.9% in FY 2000 and
29.0% in FY 2001 to the Combined Company's projected pro forma cash flow.
Pro Forma Accretion/Dilution Analysis. Merrill Lynch performed an
accretion/dilution analysis to ascertain the projected effect of the Merger on
ADT's estimated EPS. Based on the High Synergy Case, from ADT's perspective, the
pro forma impact on ADT's estimated EPS would be (i) accretive by 3.7% in FY
1997 and 2.3% in FY 1998 and dilutive by 0.6% in FY 1999, 2.5% in FY 2000 and
3.9% in FY 2001 based on Tyco's Base Case and ADT's Base Case, (ii) accretive by
5.2% in FY 1997, 6.3% in FY 1998, 5.5% in FY 1999, 5.9% in FY 2000 and 6.8% in
FY 2001 based on Tyco's Base Case and ADT's Sensitivity Case, (iii) accretive by
1.4% in FY 1997 and dilutive by 3.0% in FY 1998, 7.1% in FY 1999, 8.2% in FY
2000 and 9.6% in FY 2001 based on Tyco's Sensitivity Case and ADT's Base Case
and (iv) accretive by 2.8% in FY 1997 and 0.6% in FY 1998 and dilutive by 1.6%
in FY 1999 and 0.6% in FY 2000 and accretive by 0.1% in FY 2001 based on Tyco's
Sensitivity Case and ADT's Sensitivity Case. Based on the Low Synergy Case, from
ADT's perspective, the pro forma impact on ADT's estimated EPS would be (i)
accretive by 2.3% in FY 1997 and dilutive by 0.2% in FY 1998, 3.7% in FY 1999,
5.1% in FY 2000 and 6.2% in FY 2001 based on Tyco's Base Case and ADT's Base
Case, (ii) accretive by 3.8% in FY 1997, 3.6% in FY 1998, 2.1% in FY 1999, 3.0%
in FY 2000 and 4.2% in FY 2001 based on Tyco's Base Case and ADT's Sensitivity
Case, (iii) nil in FY 1997, and dilutive by 5.5% in FY 1998, 10.1% in FY 1999,
10.8% in FY 2000 and 11.8% in FY 2001 based on Tyco's Sensitivity Case and ADT's
Base Case and (iv) accretive by 1.4% in FY 1997 and dilutive by 2.0% in FY 1998,
4.9% in FY 1999, 3.5% in FY 2000 and 2.5% in FY 2001 based on Tyco's Sensitivity
Case and ADT's Sensitivity Case.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Merrill
Lynch believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all factors and analyses, could create an incomplete view of the
process underlying its opinion. Merrill Lynch considered the results of all such
analyses and did not assign relative weights to its analyses in preparing its
opinion. Consequently, the ranges of valuations resulting from any particular
analysis described above should not be taken to be Merrill Lynch's view of the
actual value of ADT.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ADT and/or Tyco. The
analysis performed by Merrill Lynch is not necessarily indicative of actual
values, trading values or actual future results that might be achieved, all of
which may be significantly more or less favorable than suggested by such
analysis. No public company utilized as a comparison is identical to ADT or
Tyco, and none of the Selected Acquisitions or other business combinations
utilized as a comparison is identical to the transactions contemplated by the
Merger Agreement. Accordingly, an analysis of publicly traded comparable
companies and comparable business combinations resulting from the transactions
is not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies or the company or transaction to which they are being
compared. In connection with its analyses, Merrill Lynch utilized, with ADT's
consent, estimates and forecasts of future results provided by the respective
managements of ADT and Tyco. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. Because such analyses
are inherently subject to uncertainty, being based upon numerous factors or
events beyond the control of ADT, Tyco and/or Merrill Lynch, none of ADT, Tyco
and Merrill Lynch assume responsibility if future results or actual values are
materially different from these forecasts or assumptions. The analyses described
above were prepared solely as part of Merrill Lynch's analysis of the fairness
of the Exchange Ratio and were provided to the ADT Board. Merrill Lynch's
analyses do not purport to be appraisals or to reflect the prices at which a
company might be sold. In addition, as described above, the Merrill Lynch
Opinion was one of many factors taken into consideration by the ADT Board in
making its determination to approve the Merger. Consequently, the analyses
described above should not be viewed as determinative of the opinion of either
the ADT Board or ADT management with respect to the value of ADT or a
combination of ADT with Tyco or whether
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either the ADT Board or ADT management would have been willing to agree to a
different exchange ratio. The ADT Board placed no limits on the scope of
analysis performed, or opinions expressed, by Merrill Lynch.
Pursuant to the terms of an engagement letter dated March 17, 1997 (the
"March 17 Engagement Letter"), ADT has agreed to pay Merrill Lynch (i) a fee of
$2,000,000 upon signing the engagement letter and (ii) if the Merger or a
similar combination involving ADT and Tyco is consummated during the period of
Merrill Lynch's engagement under the March 17 Engagement Letter or within one
year thereafter, an additional fee of $10,000,000 with respect to Merrill Lynch
acting as financial advisor to ADT in connection with the Merger. In addition,
ADT also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including all reasonable fees and expenses of its attorneys, and to
indemnify Merrill Lynch and certain related persons against certain liabilities,
including liabilities under securities laws, arising out of its engagement
pursuant to the March 17 Engagement Letter. Merrill Lynch and ADT further agreed
that 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 a separate engagement letter dated March 3, 1997,
pursuant to which Merrill Lynch had been retained by ADT as its financial
advisor with respect to the Western Offer.
Merrill Lynch has, in the past, provided, and continues to provide,
financial advisory and financing services to ADT and has received, and continues
to receive, customary fees for the rendering of those services. In addition, in
the ordinary course of Merrill Lynch's securities business, Merrill Lynch may
actively trade debt and/or equity securities of ADT and its affiliates for its
own account and the accounts of its customers, and Merrill Lynch therefore may
from time to time hold a long or short position in such securities.
Merrill Lynch has, in the past, provided, and continues to provide,
financial advisory and financing services to Tyco, including acting as lead
managing underwriter with respect to the February 1997 Offering and has received
customary fees for the rendering of those services. In addition, in the ordinary
course of Merrill Lynch's securities business, Merrill Lynch may actively trade
debt and/or equity securities of Tyco and its affiliates for its own account and
the accounts of its customers, and Merrill Lynch therefore may from time to time
hold a long or short position in such securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Tyco management and of the Tyco Board may be deemed to
have interests in the Merger that are different from, or in addition to, the
interests of Tyco shareholders generally. The Tyco Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby. In addition, certain
members of ADT management and of the ADT Board may be deemed to have interests
in the Merger that are different from, or in addition to, the interests of ADT
shareholders generally. The ADT Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. These interests are described below.
TYCO AND ADT DIRECTORS AND OFFICERS INSURANCE; INDEMNIFICATION OF TYCO AND ADT
DIRECTORS AND OFFICERS
The Merger Agreement provides that the Surviving Corporation will indemnify
each present and former director and officer of Tyco and its subsidiaries
against all liabilities arising out of the transactions contemplated by the
Merger Agreement and for any act or omission occurring prior to the Effective
Time to the same extent as these directors and officers were indemnified by
Tyco. The Surviving Corporation is prohibited from amending its by-law
provisions with respect to indemnification in a manner adverse to the officers,
directors, employees and agents of Tyco at the Effective Time and is required to
maintain director and officer insurance for the persons currently covered by
Tyco's director and officer insurance policy with coverage comparable to such
policy, subject to certain limitations. These obligations continue for a period
of six years from the Effective Time and are guaranteed by the Combined Company.
The Combined Company is required to provide similar indemnification, similarly
to maintain its bye-law provisions with respect to indemnification and similarly
to provide director and officer insurance with respect to officers and directors
of ADT for a period of six years from the Effective Time. See "The Merger
Agreement--Certain Covenants--Indemnification and Insurance of Tyco and ADT
Directors and Officers."
ADT EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
Michael A. Ashcroft, Chairman, Chief Executive Officer and President of
ADT, is party to an employment agreement with ADT. Under this employment
agreement, if Mr. Ashcroft's employment is terminated by ADT without cause or by
Mr. Ashcroft for cause, Mr. Ashcroft is entitled to receive 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. The Combined Company will
not continue to employ Mr. Ashcroft as Chairman, Chief Executive Officer and
President, and, accordingly, he will be entitled to receive such severance
benefits under his employment agreement. Following consummation of the Merger,
Mr. Ashcroft's services will be retained until the end of 1997 to assist the
Combined Company in the transition relating to the Merger and Mr. Ashcroft will
be paid $14,500,000 at the Effective Time in full and final settlement of
severance payments to which he is entitled under his employment agreement in
respect of salary, bonus payment and pension payments and also in lieu of
compensation to the end of 1997. Such payment includes a bonus for 1997 at the
same rate as that paid for 1996. Stephen J. Ruzika, Executive Vice President,
Chief Financial Officer and a Director of ADT, is party to an employment
agreement with ADT. Under this employment agreement, if Mr. Ruzika's employment
is terminated by ADT without cause or by Mr. Ruzika for cause, Mr. Ruzika is
entitled to receive a severance payment equal to twice his base salary, bonus
and certain fringe benefits. The Combined Company will not continue to employ
Mr. Ruzika as Chief Financial Officer, but Mr. Ruzika is expected to 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 such
severance benefits under his employment agreement. Under a bonus plan with the
Company, Mr. Ruzika is entitled to receive $200,000 each time the ADT 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, until the ADT
Common Share price exceeds $30.00 for 30 continuous trading days. If the ADT
Common Share price exceeds $30.00 in or prior to May 1999, Mr. Ruzika is
entitled to receive an additional payment of $1,000,000. Prior to the
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announcement of the Merger, Mr. Ruzika earned a bonus at an ADT Common Share
price level of $22.00. On March 16, 1997, the last trading day prior to the
announcement of the Merger, the closing ADT Common Share price on the NYSE was
$21 3/4. See "Comparative Per Share Market Price and Dividend Information." The
price of ADT Common Shares has been, and may continue to be, affected by the
announcement of the Merger and may be affected by consummation of the Merger.
Following consummation of the Merger, it is expected that the Combined Company
will agree upon appropriate arrangements with Mr. Ruzika for the provision of
his services to the Combined Company following the Merger. Separately, Mr.
Ruzika will be paid $4,516,900 at the Effective Time in full and final
settlement of severance payments to which he is entitled under his employment
agreement in respect of salary and bonus plan payments up to the Effective Time.
Such severance payment assumes that Mr. Ruzika will by then have received all
bonus plan payments relating to a price level for ADT Common Shares of $27
(described above) and assumes that the bonus plan payments due upon attainment
of price levels of $28 to $30 remain outstanding and unpaid. If Mr. Ruzika is
entitled to any bonus payments as a result of these $28 to $30 price levels
being attained and is paid them prior to Effective Time, these payments will be
deducted from the severance payment payable at the Effective Time. This
severance payment also includes the additional $1,000,000 bonus plan payment
described above. Mr. Ruzika will also be entitled to receive the one year of
other benefits previously provided to him under his employment agreement.
Mr. Ruzika is also a beneficiary under the ADT supplemental employee
retirement plan (the "ADT SERP") and the Supplemental Benefit Agreement between
Mr. Ruzika and ADT Management Services Limited (the "Supplemental Benefit
Agreement"). Ronnie G. Lakey, a director of ADT (UK) Holdings PLC with
responsibility for ADT's electronic security service operations in Canada and
Europe, is a beneficiary under the ADT SERP. Pursuant to the ADT SERP and the
Supplemental Benefit Agreement, Messrs. Ruzika and Lakey become fully vested in
their benefits under these plans upon the occurrence of a change of control of
ADT or, in Mr. Ruzika's case, a change of control of ADT Management Services
Limited, a subsidiary of ADT. In addition, if the employment of Mr. Ruzika or
Mr. Lakey is terminated within one year of the date of such a change in control,
he will be entitled to receive a lump sum distribution equal to the present
value of his accrued benefit under the plans and an additional amount calculated
to place him in the same after-tax position as he would have been in had he
received a lump-sum distribution of his accrued benefits on his normal
retirement date.
Raymond A. Gross, Senior Vice President of ADT Security Services, Inc.
("ADT Security"), a subsidiary of ADT, has entered into a severance agreement
with ADT Security. Under this agreement, if a change in control occurs and
either the employment of Mr. Gross is terminated without cause or he terminates
his employment for good reason, he will be entitled to receive (a) severance pay
equal to twice his annual base salary, as of the date of the change in control
or the date of termination, whichever is higher, plus twice the amount of his
bonus in the year prior to termination and (b) benefits for the twelve months
following termination substantially similar to those which he is receiving as of
the date of the change in control or the date of termination, whichever is
higher.
The Merger Agreement provides that the Merger will be deemed a change in
control for purposes of the ADT SERP, the Supplemental Benefit Agreement and Mr.
Gross's severance agreement, unless to do so would reasonably be expected to
adversely affect the ability to treat the Merger as a pooling of interests for
financial accounting. Tyco and ADT do not believe that deeming the Merger a
change in control for these purposes will have such an effect.
For a more detailed discussion of the employment agreements and other
arrangements discussed in this section, see "Election of Directors--ADT
Executive Compensation--Employment Contracts, Termination of Employment and
Change in Control Arrangements."
For a period of one year from the Effective Time, current members of the
ADT Board John E. Danneberg, Alan B. Henderson, William W. Stinson and Raymond
S. Troubh, who will not be continuing on the ADT Board after the Effective Time,
will continue to receive amounts equal to the directors' fees they would
otherwise have received had they remained on the ADT Board.
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THE MERGER AGREEMENT
The Merger Agreement is summarized below. The full text of the Merger
Agreement is attached as Annex I, and this summary is qualified by reference to
that full text.
GENERAL
The Merger Agreement provides for the merger of Merger Subsidiary with and
into Tyco, with Tyco surviving the Merger as a wholly-owned subsidiary of ADT.
The Combined Company will be renamed Tyco International Ltd. The Merger will
become effective at the Effective Time, which is expected to occur no later than
the second business day after the last of the conditions precedent to the Merger
set forth in the Merger Agreement has been satisfied or waived, unless Tyco and
ADT agree upon a different date.
MERGER CONSIDERATION
The Merger Agreement provides that each Tyco Common Share outstanding
immediately prior to the Effective Time (excluding any shares to be canceled as
described in the next sentence and shares in respect of which the holder has
exercised dissenters' rights in compliance with applicable law) will be
converted at the Effective Time, subject to the prior effectiveness of the
Reverse Stock Split, into the right to receive and will be exchanged for one
fully paid and nonassessable Combined Company Common Share. All Tyco Common
Shares that are owned by Tyco as treasury stock and any Tyco Common Shares owned
by ADT or any direct or indirect wholly-owned subsidiary of ADT will, at the
Effective Time, be canceled and retired and will cease to exist and no payment
will be made for such shares.
The existing ADT Common Shares will remain outstanding. However,
immediately prior to (but conditioned upon the occurrence of) the Effective
Time, each ADT Common Share then outstanding will be consolidated in the Reverse
Stock Split Ratio of 0.48133 of a Combined Company Common Share, par value $.20
per share, for each ADT Common Share, par value $.10 per share. See subsection
(xiii) under "--Termination of the Merger Agreement--Right to Terminate" for a
description of the circumstances under which the Reverse Stock Split Ratio may
be adjusted. Cash will be paid to holders of ADT Common Shares in lieu of
fractional entitlements to Combined Company Common Shares arising from the
Reverse Stock Split.
TREATMENT OF TYCO STOCK OPTIONS
Pursuant to the Merger Agreement, each outstanding option (a "Tyco Stock
Option") granted by Tyco to purchase shares of Tyco Common Shares under the Tyco
1995 Stock Option Plan (the "Tyco Option Plan") or any other stock plan or
agreement of Tyco (collectively, the "Tyco Plans"), whether vested or unvested,
will be assumed by the Combined Company and will be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
that Tyco Stock Option, the same number of Combined Company Common Shares as the
holder of such Tyco Stock Option would have been entitled to receive pursuant to
the Merger if that holder had exercised such Tyco Stock Option in full
immediately prior to the Effective Time, at a price per Combined Company Common
Share equal to (A) the aggregate exercise price for the Tyco Common Shares
otherwise purchasable pursuant to such Tyco Stock Option divided by (B) the
aggregate number of Combined Company Common Shares deemed purchasable pursuant
to such Tyco Stock Option; provided that the number of Combined Company Common
Shares that may be purchased upon exercise of any such Tyco Stock Option shall
not include any fractional share and, upon exercise of such Tyco Stock Option, a
cash payment shall be made for any fractional Combined Company Common Shares
resulting from this calculation based upon the closing price of the Combined
Company Common Shares on the trading day immediately preceding the date of
exercise. There are presently outstanding options to acquire 3,884,479 Tyco
Common Shares issued under the Tyco Option Plan, and options to acquire 271,188
Tyco Common Shares issued by entities previously acquired by Tyco whose stock
options were assumed by Tyco. See "Other ADT Meeting Proposals--The Option and
Warrant Proposal--Tyco Stock Options and Other Rights."
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TREATMENT OF TYCO WARRANTS
At the Effective Time, each Warrant expiring July 7, 1999 to purchase
2.5897 Tyco Common Shares at a purchase price of $15.46, subject to adjustment
(an "A Warrant"), and each Warrant expiring July 7, 1999 to purchase 2.5897 Tyco
Common Shares at a purchase price of $20.62, subject to adjustment (a "B
Warrant" and, together with the A Warrants, the "Warrants"), shall be assumed by
the Combined Company and deemed to constitute a warrant to acquire, on the same
terms and conditions as were applicable under such Warrant prior to the
Effective Time, the same number (rounded to the nearest whole number) of
Combined Company Common Shares as the holder of such Warrant would have been
entitled to receive pursuant to the Merger if such holder had exercised such
Warrant in full immediately prior to the Effective Time, at a price per share
equal to (A) the aggregate exercise price of Tyco Common Shares otherwise
purchasable pursuant to the Warrant divided by (B) the number of Combined
Company Common Shares deemed purchasable pursuant to such Warrant. There are
currently outstanding A Warrants to acquire 127,568 Tyco Common Shares and B
Warrants to acquire 82,610 Tyco Common Shares. See "Other ADT Meeting
Proposals--The Option and Warrant Proposal--Tyco Stock Options and Other
Rights."
TYCO RESTRICTED STOCK PLAN
The Combined Company is required to assume Tyco's 1994 Restricted Stock
Plan for Key Employees (the "1994 Restricted Stock Plan") and to reserve for
issuance under this plan a number of Combined Company Common Shares equal to the
number of Tyco Common Shares reserved for issuance under the plan immediately
prior to the Effective Time multiplied by the Exchange Ratio.
EXCHANGE OF SHARES
Prior to the Effective Time, Tyco and ADT will jointly appoint an exchange
agent (the "Exchange Agent") for the purpose of exchanging certificates
representing Tyco Common Shares for certificates representing Combined Company
Common Shares. Promptly after the Effective Time, ADT will instruct the Exchange
Agent to mail to each holder of Tyco Common Shares a letter of transmittal for
use in the exchange and instructions explaining how to surrender certificates to
the Exchange Agent. Holders of Tyco Common Shares who surrender their
certificates to the Exchange Agent, together with a properly completed letter of
transmittal, will receive certificates for Combined Company Common Shares
representing the number of shares described under "--Merger Consideration."
Holders of unexchanged Tyco Common Shares will not be entitled to receive any
dividends or other distributions payable by the Combined Company after the
Effective Time until their certificates are surrendered. Upon surrender,
however, subject to applicable laws, such holders will receive accumulated
dividends and distributions payable on the related Combined Company Common
Shares subsequent to the Effective Time, without interest.
CERTAIN COVENANTS
Interim Operations of ADT. From March 17, 1997 until the Effective Time,
ADT is required to conduct its business, and to cause the businesses of its
subsidiaries to be conducted, in the ordinary course of business and in a manner
consistent with past practice, and ADT will use reasonable commercial efforts to
preserve substantially intact the business organizations of ADT and its
subsidiaries, to keep available the services of their present officers,
employees and consultants and to preserve their present relationships with
customers, suppliers and other persons with which they have significant business
relationships. Without limiting the foregoing, during this period, each of ADT
and its subsidiaries is subject to restrictions (subject to certain limited
exceptions) on, among other things: (i) amending the ADT memorandum of
association (the "ADT Memorandum") or the ADT Bye-Laws; (ii) issuing, selling,
pledging, disposing of or encumbering, or authorizing the issuance, sale,
pledge, disposition or encumbrance of, any shares of capital stock of any class,
or any options, convertible securities or other rights of any kind to acquire
any shares of capital stock, or any other ownership interest, in ADT or any of
its subsidiaries or affiliates (except for the issuance of options in the
ordinary course of business and consistent with past practice to purchase up to
an aggregate of 1 million ADT Common Shares (other than to ADT's chief executive
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officer or chief financial officer)); (iii) selling, pledging, disposing of or
encumbering any assets; (iv) declaring, setting aside, making or paying any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock (except for certain
intercompany dividends), splitting, combining or reclassifying any of its
capital stock, proposing to issue any other securities in respect thereof, or
amending the terms or changing the period of exercisability of, purchasing,
repurchasing, redeeming or otherwise acquiring any of its securities; (v)
acquiring any corporation, partnership or other business organization or
division thereof, incurring any indebtedness for borrowed money or issuing any
debt securities or guarantees except in the ordinary course of business
consistent with past practice, authorizing any capital expenditures other than
certain agreed expenditures and any capital expenditures incurred in connection
with the installation of subscriber systems in the ordinary course of business;
(vi) increasing the compensation payable to its officers or employees, or
granting any severance pay to, or entering into any employment or severance
agreement with any director, officer or other employee or amending any
collective bargaining or compensation plan or arrangement for the benefit of any
current or former directors, officers or employees; (vii) changing its
accounting policies; (viii) making any material tax election inconsistent with
past practice; (ix) paying or satisfying any material claims, liabilities or
obligations other than in the ordinary course of business; or (x) taking any
other action that would make any representation or warranty of ADT contained in
the Merger Agreement incorrect or prevent ADT or Merger Subsidiary from
performing its covenants under the Merger Agreement.
Interim Operations of Tyco. From March 17, 1997 until the Effective Time,
Tyco is required to conduct its business, and cause the businesses of its
subsidiaries to be conducted, in the ordinary course of business and in a manner
consistent with past practice. Without limiting the foregoing, during this
period, Tyco has agreed that it will not, among other things: (i) amend the
articles of organization of Tyco (the "Tyco Articles") or the Tyco Bylaws ("Tyco
Bylaws"); (ii) acquire or agree to acquire any business or any corporation or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets of any other person which would materially delay or
prevent the consummation of the transactions contemplated by the Merger
Agreement; (iii) declare, set aside, make or pay any dividend or other
distribution (in cash, stock, property or any combination thereof) on its
capital stock, except that Tyco may declare and pay cash dividends of $0.05 per
Tyco Common Share per quarter consistent with past practice and except for
certain intercompany dividends; or (iv) take or agree to take any action which
would make any of the representations or warranties of Tyco in the Merger
Agreement untrue or incorrect or prevent Tyco from performing its covenants
under the Merger Agreement.
No Solicitation by ADT. ADT has agreed in the Merger Agreement that it
will not, directly or indirectly, through any officer, director, employee,
representative or agent, solicit or encourage the initiation of any inquiries or
proposals regarding any merger, or any acquisition of any capital stock or any
material portion of the assets of ADT or similar transactions involving ADT or
any subsidiaries of ADT (any of the foregoing inquiries or proposals being
referred to as an "Acquisition Proposal"). However, this covenant will not
prevent the ADT Board from (i) considering, negotiating, approving and
recommending to the shareholders of ADT a bona fide Acquisition Proposal not
solicited in violation of the Merger Agreement, (ii) taking and disclosing to
its shareholders a position contemplated by Rule 14e-2 under the Exchange Act or
(iii) making any disclosure to its shareholders, provided that as to each of
clauses (i), (ii) and (iii), the ADT Board determines in good faith (upon advice
of independent counsel) that such action is necessary for it to act in a manner
consistent with its fiduciary duties under applicable law. If, in accordance
with these requirements, the ADT Board determines that it is required to furnish
material nonpublic information to a person who makes a bona fide Acquisition
Proposal, ADT may provide such person with access to information regarding ADT
so long as such person has executed a confidentiality agreement substantially
similar to the one then in effect between Tyco and ADT. ADT must notify Tyco
promptly of the receipt of any Acquisition Proposal or any request for nonpublic
information relating to ADT or any of its subsidiaries or for access to the
properties, books or records of ADT or any subsidiary of ADT by any person that
informs the ADT Board or such subsidiary that it is considering making, or has
made, an Acquisition Proposal. ADT has agreed to immediately cease and cause to
be terminated any existing discussions or negotiations with any persons other
than Tyco with respect to any Acquisition Proposal and that it will not release
any third party from the confidentiality provisions of any
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confidentiality agreement to which ADT is a party in respect of any information
delivered by ADT in connection with any Acquisition Proposal.
No Solicitation by Tyco. Tyco has agreed in the Merger Agreement that it
will not, directly or indirectly, through any officer, director, employee,
representative or agent, solicit or encourage the initiation of any inquiries or
proposals regarding any Change of Control Proposal (as defined below). However,
this covenant will not prevent the Tyco Board from (i) considering, negotiating,
approving and recommending to the shareholders of Tyco a bona fide Change of
Control Proposal not solicited in violation of the Merger Agreement, (ii) taking
and disclosing to its shareholders a position contemplated by Rule 14e-2 under
the Exchange Act or (iii) making any disclosure to its shareholders, provided
that as to each of clauses (i), (ii) and (iii), the Tyco Board determines in
good faith (upon advice of independent counsel) that such action is necessary
for it to act in a manner consistent with its fiduciary duties under applicable
law. If in accordance with these requirements, the Tyco Board determines that it
is required to furnish material nonpublic information to a person who makes a
bona fide Change of Control Proposal, Tyco may provide such person with access
to information regarding Tyco so long as such person has executed a
confidentiality agreement substantially similar to the one then in effect
between ADT and Tyco. Tyco must notify ADT promptly of the receipt of any Change
of Control Proposal or any request for nonpublic information relating to Tyco or
any of its subsidiaries or for access to the properties, books or records of
Tyco or any subsidiary of Tyco by any person that informs the Tyco Board or such
subsidiary that it is considering making, or has made, a Change of Control
Proposal. "Change of Control Proposal" means (x) any merger or any acquisition
of any capital stock of Tyco or similar transactions involving Tyco as a result
of which the shareholders of Tyco immediately prior to the consummation of such
transaction would own less than 50% of the voting stock of Tyco or, if Tyco is
not the surviving corporation, the surviving corporation, immediately following
the consummation of such transaction or (y) the sale of all or substantially all
of the assets of Tyco.
ADT's Covenant to Recommend. ADT has agreed to call the ADT Meeting as
promptly as practicable and to use its reasonable best efforts to hold the ADT
Meeting as soon as practicable after the date of this Joint Proxy
Statement/Prospectus. Unless otherwise required under the applicable fiduciary
duties of the directors of ADT, as determined by such directors in good faith
after consultation with and based upon the advice of independent legal counsel,
ADT has agreed to solicit from its shareholders proxies in favor of the ADT
Merger Proposals, and to take all other actions necessary or advisable to secure
the vote or consent of its shareholders to obtain such approvals. The ADT Board
is not permitted to withdraw or modify, in a manner adverse to Tyco, its
approval or recommendation of the ADT Merger Proposals, approve or recommend any
Acquisition Proposal or cause ADT to enter into any agreement with respect to
any Acquisition Proposal except upon the advice of independent counsel that such
action is required in order for the ADT Board to act in a manner consistent with
its fiduciary duties and, with respect to the approval or recommendation of any
Acquisition Proposal or entering into any agreement with respect to any
Acquisition Proposal, after the third business day (or second business day in
the case of an amendment to an Acquisition Proposal) following Tyco's receipt of
written notice of the information with respect to the Acquisition Proposal that
is required by the Merger Agreement.
Tyco's Covenant to Recommend. Tyco has agreed to call the Tyco Meeting as
promptly as practicable and to use its reasonable best efforts to hold the Tyco
Meeting as soon as practicable after the date of this Joint Proxy
Statement/Prospectus. Unless otherwise required under the applicable fiduciary
duties of the directors of Tyco, as determined by such directors in good faith
after consultation with and based upon the advice of independent legal counsel,
Tyco has agreed to solicit from its shareholders proxies in favor of adoption of
the Merger Agreement and approval of the transactions contemplated thereby, and
to take all other actions necessary or advisable to secure the vote or consent
of its shareholders to obtain such approvals. The Tyco Board is not permitted to
withdraw or modify, in a manner adverse to ADT, its approval or recommendation
of the Merger Agreement, the Merger or any of the other transactions
contemplated by the Merger Agreement, approve or recommend any Change of Control
Proposal or cause Tyco to enter into any agreement with respect to any Change of
Control Proposal except upon the advice of independent counsel that such action
is required in order for the Tyco
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Board to act in a manner consistent with its fiduciary duties and, with respect
to the approval or recommendation of any Change of Control Proposal or entering
into any agreement with respect to any Change of Control Proposal, after the
third business day (or second business day in the case of an amendment to a
Change of Control Proposal) following ADT's receipt of written notice of the
information with respect to the Change of Control Proposal that is required by
the Merger Agreement.
Certain Employee Benefits Matters. The Merger Agreement provides that Tyco
will take all action as may be required under the Tyco Plans, such that,
following the Effective Time, each of the Tyco Stock Options will be treated as
described above under "--Treatment of Tyco Stock Options." Tyco and ADT have
agreed that all outstanding ADT stock options (other than stock options granted
after March 17, 1997) shall be fully exercisable at the Effective Time and that
consummation of the Merger Agreement shall constitute a "change of control" of
ADT for purposes of the severance and other similar agreements which contain
"change of control" provisions. However, the actions in the preceding sentence
shall not be effected if any such transaction would reasonably be expected to
affect adversely the ability of ADT to account for the Merger as a pooling of
interests. Subsequent to the date of the Merger Agreement, Tyco and ADT have
reached an agreement that all outstanding ADT stock options shall not become
exercisable at the Effective Time.
ADT Shareholder Rights Plan. Prior to the Effective Time, at the election
of Tyco communicated to ADT not less than 15 business days prior to the ADT
Meeting, ADT has agreed to take such action as shall be required to either (i)
amend the ADT Shareholder Rights Plan to provide that no Distribution Date (as
defined in the ADT Shareholder Rights Plan) shall occur and no person shall
become an Acquiring Person (as defined in the ADT Shareholder Rights Plan) by
reason of the consummation of the Merger or the transactions contemplated by the
Merger Agreement or (ii) redeem or otherwise terminate all Rights, such that all
Rights shall be of no further force and effect. If Tyco does not communicate any
such election to ADT, Tyco will be deemed to have made the election described in
clause (i) of the preceding sentence.
Indemnification and Insurance of Tyco and ADT Directors and
Officers. Pursuant to the Merger Agreement, the parties have agreed that for a
period of six years from the Effective Time: (i) the by-laws of the Surviving
Corporation with respect to indemnification shall not be amended, repealed or
otherwise modified in any way adverse to the rights of individuals who at the
Effective Time were directors, officers, employees or agents of Tyco or any of
its subsidiaries; (ii) the Surviving Corporation shall indemnify and hold
harmless each present and former director or officer of Tyco or any of its
subsidiaries against costs, expenses, claims and liabilities arising out of the
transactions contemplated by the Merger Agreement or with respect to any acts or
omissions occurring at or prior to the Effective Time to the same extent as
provided in the Tyco Articles (as in effect as of the date of the Merger
Agreement) or the Tyco Bylaws (as in effect as of the date of the Merger
Agreement) or any applicable contract or agreement (as in effect as of the date
of the Merger Agreement); (iii) ADT shall cause the Surviving Corporation to
maintain in effect, if available, directors' and officers' liability insurance
covering those persons currently covered by Tyco's directors' and officers'
liability insurance policy on terms comparable to those now applicable to
directors and officers of Tyco or its subsidiaries, provided that if the cost of
such insurance exceeds 200% of the annual premium currently paid by Tyco for
such coverage, the Combined Company or the Surviving Corporation shall only be
required to purchase a policy with the greatest coverage available for such 200%
of the annual premium and (iv) from and after the Effective Time, the Combined
Company shall guarantee the obligations of the Surviving Corporation as provided
in this sentence. In addition, the Merger Agreement provides that for a period
of six years from the Effective Time: (a) the ADT Bye-Laws which contain the
provisions with respect to indemnification shall not be amended, repealed or
otherwise modified in any way adverse to the rights of individuals who at the
Effective Time were directors, officers, employees or agents of ADT or any of
its subsidiaries; (b) ADT shall indemnify and hold harmless each present and
former director or officer of ADT or any of its subsidiaries against costs,
expenses, claims and liabilities arising out of the transactions contemplated by
the Merger Agreement or with respect to any acts or omissions occurring at or
prior to the Effective Time to the same extent as provided in the ADT Memorandum
(as in effect as of the date of the Merger Agreement) or the
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ADT Bye-Laws (as in effect as of the date of the Merger Agreement) or any
applicable contract or agreement (as in effect as of the date of the Merger
Agreement); and (c) the Combined Company shall maintain in effect, if available,
directors' and officers' liability insurance covering those persons currently
covered by ADT's directors' and officers' liability insurance policy on terms
comparable to those now applicable to directors and officers of ADT or its
subsidiaries, provided that if the cost of such insurance exceeds 200% of the
annual premium currently paid by ADT for such coverage, the Combined Company
shall only be required to purchase a policy with the greatest coverage available
for such 200% of the annual premium.
Certain Other Covenants. The Merger Agreement contains certain mutual
covenants of the parties, including covenants: to use all reasonable efforts to
take all actions necessary or advisable to consummate the transactions
contemplated by the Merger Agreement, to make all necessary registrations and
filings and to satisfy all conditions precedent to their obligations under the
Merger Agreement; to use their best efforts to cause their respective
accountants to deliver to the other party a customary accountant's "comfort
letter"; not to take any action that would reasonably be expected to adversely
affect the ability of the Combined Company to account for the business
combination to be effected by the Merger as a pooling of interests; and, subject
to certain exceptions, to consult with each other before issuing any press
release with respect to the Merger or the Merger Agreement and not to issue any
such press release or make any public statement without the prior consent of the
other party, which shall not be unreasonably withheld. In addition, the Merger
Agreement contains covenants relating to preparation and distribution of this
Joint Proxy Statement/Prospectus; listing of the Combined Company Common Shares
on the NYSE; notification of certain matters; access to information; and
cooperation in connection with certain governmental filings and in obtaining any
necessary governmental or other third party consents or approvals.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains substantially reciprocal representations and
warranties made by Tyco and ADT to each other as to, among other things:
organization and qualification; capitalization; ownership of subsidiaries;
corporate authorization to enter into the contemplated transactions; absence of
any breach of organizational documents and certain material agreements as a
result of the contemplated transactions; compliance with law; financial
statements; filings with the SEC; absence of certain material changes since a
specified balance sheet date; absence of undisclosed material liabilities;
litigation; employee matters; labor matters; disclosure in filings with the SEC;
restrictions on business activities; title to property and real property
matters; tax matters; environmental matters; intellectual property; interested
party transactions; insurance; product liability and recalls; the receipt of
opinions of financial advisors; pooling of interests accounting treatment for
the Merger; and brokers and broker fees. The representations and warranties in
the Merger Agreement do not survive the Effective Time.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. The
obligations of Tyco, ADT and Merger Subsidiary to effect the Merger are subject
to the satisfaction (or waiver by the party for whose benefit the applicable
condition exists) at or prior to the Effective Time of the following conditions:
(i) the effectiveness of the registration statement on Form S-4 filed in
connection with this Joint Proxy Statement/Prospectus and the absence of any
stop order suspending such effectiveness or proceedings for that purpose; (ii)
the obtaining of approvals of the shareholders of ADT and Tyco; (iii) all
actions having been taken such that the Reverse Stock Split and the Share
Amendment will become effective immediately prior to (but conditioned upon the
occurrence of) the Effective Time; (iv) the Combined Company Common Shares to be
issued in the Merger having been authorized for listing on the NYSE, subject to
official notice of issuance; (v) the expiration or termination of the applicable
waiting periods under the HSR Act; (vi) the absence of any pending or threatened
action or proceeding (or any investigation or other inquiry that might result in
such an action or proceeding) by any governmental authority or administrative
agency before any governmental authority, administrative agency or court of
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competent jurisdiction, domestic or foreign, and the absence of any judgment,
decree or order of any governmental authority, administrative agency or court or
any other legal restraint (A) preventing or seeking to prevent consummation of
the Merger or the effectiveness of the Reverse Stock Split, the Share Amendment
or the New Director Election, (B) prohibiting or seeking to prohibit, or
limiting or seeking to limit, the Combined Company from exercising all material
rights and privileges pertaining to its ownership of the Surviving Corporation
or the ownership or operation by the Combined Company or any of its subsidiaries
of all or a material portion of the business or assets of the Combined Company
or any of its subsidiaries, or (C) compelling or seeking to compel the Combined
Company or any of its subsidiaries to dispose of or hold separate all or any
material portion of the business or assets of the Combined Company or any of its
subsidiaries (including the Surviving Corporation and its subsidiaries), in each
case as a result of the Merger or the transactions contemplated by the Merger
Agreement, (vii) the absence of the enactment, entering, enforcement or deemed
applicability to the Merger of any statute, rule, regulation or order which
would make the consummation of the Merger or the effectiveness of the Reverse
Stock Split, the Share Amendment or the New Directors Election illegal; and
(viii) the receipt of written opinions of Coopers & Lybrand L.L.P. and Coopers &
Lybrand, in form and substance satisfactory to Tyco and ADT, that the Merger
will qualify for accounting treatment as a pooling of interests.
Conditions to the Obligations of Tyco. The obligation of Tyco to effect
the Merger is further subject to all of the following conditions: (i) the
representations and warranties of ADT and Merger Subsidiary contained in the
Merger Agreement being true and correct in all material respects at and as of
the Effective Time (except for changes contemplated by the Merger Agreement and
those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date)), (ii)
the performance in all material respects by ADT and Merger Subsidiary of their
agreements and covenants required by the Merger Agreement to be performed by
them on or prior to the Effective Time; (iii) all material consents,
authorizations or orders required to be obtained, and all filings required to be
made, by ADT and Merger Subsidiary for the authorization, execution and delivery
of the Merger Agreement and the consummation by them of the transactions
contemplated thereby having been obtained and made by ADT and Merger Subsidiary;
(iv) Tyco having received an agreement in connection with restrictions on
affiliates under pooling of interests accounting treatment from each "affiliate"
of ADT; and (v) the ADT Shareholder Rights Plan having been amended or the
Rights having been redeemed or otherwise terminated as provided in the Merger
Agreement.
Conditions to the Obligations of ADT. The obligations of ADT and Merger
Subsidiary to effect the Merger are further subject to all of the following
conditions: (i) the representations and warranties of Tyco contained in the
Merger Agreement being true and correct in all material respects at and as of
the Effective Time (except for changes contemplated by the Merger Agreement and
those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of that date)), (ii)
the performance in all material respects by Tyco of its agreements and covenants
required by the Merger Agreement to be performed by it on or prior to the
Effective Time; (iii) all material consents, authorizations or orders required
to be obtained, and all filings required to be made, by Tyco for the
authorization, execution and delivery of the Merger Agreement and the
consummation by Tyco of the transactions contemplated thereby having been
obtained and made by Tyco; and (iv) ADT having received an agreement in
connection with restrictions on affiliates under Rule 145 of the Securities Act
and pooling of interests accounting treatment from each "affiliate" of Tyco.
TERMINATION OF THE MERGER AGREEMENT
Right to Terminate. The Merger Agreement may be terminated at any time
prior to the Effective Time by mutual written consent of Tyco and ADT. The
Merger Agreement may also be terminated:
(i) by either Tyco or ADT, if the Merger has not been consummated by
August 15, 1997;
(ii) by either Tyco or ADT, if a court of competent jurisdiction or
governmental or administrative agency shall have issued a nonappealable
final order, decree or ruling or taken any other action having the effect
of permanently restraining, enjoining or otherwise prohibiting the
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Merger, the Reverse Stock Split, the Share Amendment, the ADT Name Change or the
New Directors Election;
(iii) by ADT, if the requisite vote of the shareholders of Tyco shall
not have been obtained by August 15, 1997, or by Tyco, if the requisite
vote of the shareholders of ADT shall not have been obtained by August 15,
1997;
(iv) by Tyco, if (A) the ADT Board shall withdraw, modify or change
its approval or recommendation of the Merger Agreement, the Merger or the
other transactions contemplated by the Merger Agreement in a manner adverse
to Tyco or shall have resolved to do so; (B) the ADT Board shall have
recommended to the shareholders of ADT an Alternative Transaction (as
defined below); or (C) a tender offer or exchange offer for 25% or more of
the outstanding ADT Common Shares is commenced (other than by Tyco or a
Tyco affiliate) and the ADT Board recommends that the shareholders of ADT
tender their shares in such tender or exchange offer;
(v) by ADT, if the ADT Board shall withdraw, modify or change its
approval or recommendation of the Merger Agreement or the Merger in a
manner adverse to Tyco or shall have resolved to do so, in each case in
compliance with the Merger Agreement;
(vi) by Tyco or ADT, if any representation or warranty of ADT or Tyco,
respectively, set forth in the Merger Agreement shall be untrue when made,
such that the closing conditions in the Merger Agreement based on the truth
of the representations and warranties would not be satisfied; provided that
if such misrepresentation is curable prior to August 15, 1997, then the
Merger Agreement will not be terminable for so long as the misrepresenting
party continues to exercise its reasonable best efforts to cure the
misrepresentation;
(vii) by ADT, if any representation or warranty of Tyco shall have
become untrue such that ADT's closing condition set forth in the Merger
Agreement based on the truth of its representations and warranties would
not be satisfied, or by Tyco, if any representation or warranty of ADT
shall have become untrue such that Tyco's closing condition set forth in
the Merger Agreement based on the truth of ADT's representations and
warranties would not be satisfied; provided that if any such
misrepresentation is curable prior to August 15, 1997, then the Merger
Agreement shall not be terminable for so long as the misrepresenting party
continues to exercise its reasonable best efforts to cure the
misrepresentation;
(viii) by Tyco or ADT, upon a breach of any covenant or agreement on
the part of ADT or Tyco, respectively, set forth in the Merger Agreement,
such that the closing condition to the Merger Agreement based on such
party's compliance with its covenants and agreements would not be
satisfied; provided that if such breach is curable prior to August 15,
1997, then the Merger Agreement will not be terminable for so long as the
breaching party continues to exercise reasonable best efforts to cure the
breach;
(ix) by ADT, if the Tyco Board shall withdraw, modify or change its
approval or recommendation of the Merger Agreement, the Merger or the other
transactions contemplated by the Merger Agreement in a manner adverse to
ADT or shall have resolved to do so;
(x) by Tyco, if the Tyco Board shall withdraw, modify or change its
approval or recommendation of the Merger Agreement or the Merger in a
manner adverse to ADT or shall have resolved to do so, in each case in
compliance with the Merger Agreement;
(xi) by ADT or Tyco, if the 10-Day Reference Price (as defined below)
for any 10 consecutive trading day period commencing on or after April 8,
1997 shall be below $56; provided that such right to terminate may only be
exercised in respect of any such 10-day period within three trading days
following the expiration of such 10-day period;
(xii) by Tyco, if the 10-Day Reference Price for the 10 consecutive
trading days ending on the fourth trading day prior to the ADT Meeting (the
"Final 10-Day Reference Price") is less than $56,
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and Tyco has not agreed to change the Reverse Stock Split as provided in
subclause (y) of clause (xiii) below; or
(xiii) by ADT, if (x) the Final 10-Day Reference Price is less than
$56 and (y) on or before the second trading day prior to the date of the
ADT Meeting, Tyco has not agreed by notice to ADT in writing to change the
Reverse Stock Split Ratio so that each ADT Common Share shall be
consolidated in the ratio of one Combined Company Common Share for a number
of ADT Common Shares not more than the number determined by dividing the
Final 10-Day Reference Price by $27, provided that the Reverse Stock Split
Ratio will thereafter, for all purposes of the Merger Agreement, be deemed
to be such ratio.
"10-Day Reference Price" means the average of the Daily Per Share Prices
for any ten consecutive trading days. The "Daily Per Share Price" for any
trading day means the weighted average of the per share selling prices of shares
of Tyco Common Shares on the NYSE (as reported in the NYSE Composite
Transactions) for that day.
"Alternative Transaction" means any of (i) a transaction pursuant to which
any person (or group of persons) other than Tyco or its affiliates (a "Third
Party") acquires or would acquire more than 25% of the outstanding shares of any
class of equity securities of ADT, or, in the case of any person (or group of
persons other than Tyco and its affiliates) which had filed a Statement on
Schedule 13D as of the date of the Merger Agreement indicating that it was the
beneficial owner of more than 25% of the outstanding ADT Common Shares, would
acquire an additional 5% or more of such securities; (ii) a merger or other
business combination involving ADT pursuant to which any Third Party acquires
more than 25% of the outstanding equity securities of ADT or the entity
surviving such merger or business combination; or (iii) any other transaction
pursuant to which any Third Party acquires or would acquire control of assets of
ADT, or any of its subsidiaries having a fair market value (as determined by the
Board of Directors of Tyco in good faith) equal to more than 25% of the fair
market value of all of the assets of ADT and its subsidiaries, taken as a whole,
immediately prior to such transaction. The term Alternative Transaction does not
include any acquisition of securities by a broker dealer in connection with a
bona fide public offering of such securities.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void and there will be no liability on the part
of any party thereto or any of its affiliates, directors, officers or
shareholders except for the termination fees described below and except that no
party will be relieved from liability for any breach of the Merger Agreement.
Termination Fees and Expenses Payable by ADT. ADT will pay Tyco a fee of
$150,000,000 (the "Fee"), plus Tyco's reasonable out-of-pocket expenses relating
to the transactions contemplated by the Merger Agreement (including, but not
limited to, fees and expenses of counsel and accountants and out-of-pocket
expenses (but not fees) of financial advisors) ("Expenses") of up to $7,500,000,
upon the first to occur of any of the following events; provided that no Fee or
Expenses will be payable by ADT if the Merger Agreement has been previously
terminated and such previous termination did not entitle Tyco to receive a Fee
pursuant to this provision:
(i) the Final 10-Day Reference Price is equal to or greater than $56
and either (x) the shareholders of ADT shall not have approved each of the
Reverse Stock Split, the Share Amendment, the issuance of Combined Company
Common Shares in the Merger, the ADT Name Change and the New Directors
Election on or before August 15, 1997 or (y) the shareholders of ADT shall
have affirmatively disapproved any of such actions at any time on or before
August 15, 1997;
(ii) the shareholders of ADT shall have approved an Acquisition
Proposal (other than with Tyco or its affiliates) on or before August 15,
1997;
(iii) if following the termination of the Merger Agreement by Tyco
pursuant to subsection (xi) under "--Right to Terminate" above, ADT shall
accept and consummate an Acquisition Proposal at a
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price per share of ADT Common Shares in excess of $29, which Acquisition
Proposal is publicly announced within 60 days of such termination;
(iv) the termination of the Merger Agreement by Tyco pursuant to
subsection (iv) under "--Right to Terminate" above;
(v) the termination of the Merger Agreement by ADT pursuant to
subsection (v) under "--Right to Terminate" above; or
(vi) the termination of the Merger Agreement by Tyco pursuant to
subsection (viii) under "--Right to Terminate" above.
Upon a termination of the Merger Agreement by Tyco pursuant to subsection
(vi) under "--Right to Terminate" above, ADT shall pay to Tyco the Expenses of
Tyco relating to the transactions contemplated by the Merger Agreement, up to
$7,500,000.
Termination Fees and Expenses Payable by Tyco. Tyco will pay ADT the Fee,
plus ADT's reasonable out-of-pocket Expenses of up to $7,500,000, upon the first
to occur of any of the following events; provided that no Fee or Expenses shall
be payable by Tyco if the Merger Agreement has been previously terminated and
such previous termination did not entitle ADT to receive a Fee pursuant to this
provision:
(i) the shareholders of ADT shall have approved each of the Reverse
Stock Split, the Share Amendment, the issuance of Combined Company Common
Shares in the Merger, the ADT Name Change and the New Directors Election on
or before August 15, 1997 and either (x) the shareholders of Tyco shall not
have approved and adopted the Merger Agreement by August 15, 1997 or (y)
the shareholders of Tyco shall have affirmatively disapproved the Merger
Agreement at any time on or before August 15, 1997;
(ii) the termination of the Merger Agreement by ADT pursuant to
subsection (ix) under "--Right to Terminate" above;
(iii) the termination of the Merger Agreement by Tyco pursuant to
subsection (x) under "--Right to Terminate" above; or
(iv) the termination of the Merger Agreement by ADT pursuant to
subsection (viii) under "--Right to Terminate" above.
Upon a termination of the Merger Agreement by ADT pursuant to subsection
(vi) under "--Right to Terminate" above, Tyco shall pay to ADT the Expenses of
ADT relating to the transactions contemplated by the Merger Agreement, up to
$7,500,000.
OTHER EXPENSES
Except as described above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring such costs or expenses, except that Tyco and ADT will
share equally all SEC filing fees and printing expenses incurred in connection
with the printing and filing of this Joint Proxy Statement/Prospectus and any
amendments or supplements hereto.
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THE MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of Tyco Common Shares by the Tyco
Board for use at the Tyco Meeting and (ii) from the holders of ADT Common Shares
by the ADT Board for use at the ADT Meeting. This Joint Proxy
Statement/Prospectus and accompanying form of proxy are first being mailed to
the respective shareholders of Tyco and ADT on or about June __, 1997.
TIMES AND PLACES; PURPOSES
The Tyco Meeting will be held at The Helmsley Park Lane Hotel, 36 Central
Park South, New York, New York 10019, on July 2, 1997, starting at 10:00 a.m.,
local time. At the Tyco Meeting, the shareholders of Tyco will be asked to
consider and vote upon (i) the approval of the Merger and the Merger Agreement
(the "Tyco Merger Proposal") and (ii) such other matters as may properly come
before the Tyco Meeting. See also "Proposal to Adjourn the Tyco Meeting."
The ADT Meeting will be held at Cedar House, 41 Cedar Avenue, Hamilton
HM12, Bermuda, on July 2, 1997, starting at 10:00 a.m., local time. At the ADT
Meeting, the shareholders of ADT will be asked to consider and vote upon (i) the
ADT Merger Proposals, (ii) the Other ADT Meeting Proposals and (iii) such other
matters as may properly come before the ADT Meeting.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
TYCO
Outstanding Voting Shares. Notice of the Tyco Meeting is being sent to all
holders of record of the Tyco Common Shares at the close of business on May 13,
1997, which has been fixed as the record date for the Tyco Meeting. All holders
of record of the Tyco Common Shares on the record date for the Tyco Meeting will
be entitled to attend, and vote at, the Tyco Meeting. At the close of business
on that date there were 168,358,092 outstanding Tyco Common Shares.
Vote Required. Each holder of record of Tyco Common Shares on the record
date for the Tyco Meeting is entitled to one vote for each Tyco Common Share
held of record by him or her. Under Massachusetts law, the presence, either in
person or by duly executed proxy, of the holders of a majority of the
outstanding Tyco Common Shares entitled to vote is necessary to constitute a
quorum. Massachusetts law requires the affirmative vote of the holders of
two-thirds of the Tyco Common Shares outstanding and entitled to vote to approve
the Tyco Merger Proposal. IF YOU ARE A TYCO SHAREHOLDER AND FAIL TO RETURN YOUR
CARD, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE MERGER UNLESS YOU APPEAR
IN PERSON AT THE TYCO MEETING AND VOTE IN FAVOR OF THE MERGER.
Voting Your Proxy. The Tyco Board is soliciting proxies for the Tyco
Meeting in favor of the Tyco Merger Proposal. A gold form of proxy is enclosed
with this document. You are requested to complete and return this gold form of
proxy as soon as possible. In order to be valid, the gold form of proxy for the
Tyco Meeting must be completed in accordance with the instructions on it and
received either at the Tyco Meeting or by mail prior to the Tyco Meeting at the
address set forth below:
ChaseMellon Shareholder Services, L.L.C.
Midtown Station
P.O. Box 947
New York, New York 10138-0747
ADT
Outstanding Voting Shares. Notice of the ADT Meeting is being sent to all
holders of record of the ADT Common Shares at the close of business on May 13,
1997, which has been fixed as the record date for notice of the ADT Meeting.
Except as provided in the ADT Bye-Laws, all holders of record of the ADT Common
Shares on the date of the ADT Meeting will be entitled to attend, and vote at,
the ADT
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Meeting. As of the record date for notice of the ADT Meeting, there were
outstanding and entitled to vote 157,010,468 ADT Common Shares, including
3,182,787 ADT Common Shares owned by a subsidiary of ADT. Except as provided in
the ADT Bye-Laws, all of such ADT Common Shares are entitled to vote at the ADT
Meeting and, on a poll, each ADT Common Share is entitled to one vote on each
proposal.
Vote Required. ADT Common Shares will vote together as a single class with
respect to the ADT Merger Proposals and the Other ADT Meeting Proposals. The
affirmative vote of the majority of ADT Common Shares represented and voting at
the ADT Meeting is required for the approval of each proposal to be put before
the ADT shareholders at the ADT 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 ADT Meeting not less than
two holders of ADT 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 ADT Meeting, the ADT Meeting shall
be adjourned to a future date as determined by the directors of ADT.
Voting Your Proxy. The ADT Board is soliciting proxies for the ADT Meeting
in favor of the ADT Merger Proposals and the Other ADT Meeting Proposals. A blue
form of proxy is enclosed with this document. You are requested to complete and
return this blue form of proxy as soon as possible. In order to be valid, the
blue form of proxy for the ADT 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 ADT's agents or Registrar, whose names and addresses are set out
below:
In the United States:
by 10:00 a.m. on July 1, 1997 (Eastern Daylight Time):
by hand delivery at:
D.F. King & Co., Inc.
77 Water Street, 20th Floor
New York, New York 10005
USA
by mail to:
D.F. King & Co., Inc.
Wall Street Station
P.O. Box 411
New York, New York 10269-0069
USA
In the United Kingdom:
by 10:00 a.m. on July 1, 1997 (British Summer Time) by hand or mail at:
D.F. King (Europe) Limited
Royex House, Aldermanbury Square
London EC2V 7HR
United Kingdom
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In Bermuda:
to the Registrar by 10:00 a.m. on July 1, 1997 (Bermuda time) by hand or
mail at:
AS&K Services Limited
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM EX
Bermuda
As an alternative to appointing a proxy, an ADT shareholder which is a
corporation may appoint any person to act as its representative by delivering
written evidence of the appointment of the representative, by hand or mail, at
any of the offices of ADT's agents or Registrar, whose names and addresses are
set forth above, up to one hour before the time fixed for the commencement of
the ADT Meeting. A representative so authorized may exercise the same powers,
including voting rights, as the appointing corporation could exercise if it were
an individual shareholder.
PROXIES
All Tyco Common Shares and ADT Common Shares represented by properly
executed forms of proxy received, in the case of the Tyco Meeting, prior to or
at the Tyco Meeting, or, in the case of the ADT Meeting, by the times and dates
set forth above, and not revoked, will be voted in accordance with the
instructions indicated in such forms of proxy (unless, in the case of ADT, the
Secretary of ADT has received written instructions altering the way in which the
proxy is to vote, in which case the proxy will vote in accordance with the
instructions as altered). If no instructions are indicated on a properly
executed returned form of proxy, such forms of proxy will be voted FOR the
approval of the Tyco Merger Proposal or the ADT Merger Proposals and the Other
ADT Meeting Proposals, as the case may be.
A properly executed form of proxy for the Tyco Meeting marked "ABSTAIN"
will be counted for purposes of determining whether there is a quorum. However,
since the affirmative vote of two thirds of the outstanding Tyco Common Shares
is required for approval of the Tyco Merger Proposal, a form of proxy marked
"ABSTAIN" will have the same effect as a vote against the Tyco Merger Proposal
unless the shareholder delivering the proxy appears in person at the Tyco
Meeting and votes in favor of the Merger. In addition, the failure of a Tyco
shareholder to return a form of proxy will have the same effect as a vote
against the Tyco Merger Proposal. A properly executed proxy for the ADT Meeting
marked "ABSTAIN" will be counted for purposes of determining whether there is a
quorum but will not be voted.
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 applicable Meeting,
but will be considered to be voted only as to those matters actually voted on.
In accordance with NYSE rules, brokers and nominees are precluded from
exercising their voting discretion with respect to the approval and adoption of
non-routine matters such as the Merger, the ADT Merger Proposals and the Other
ADT Meeting 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 Tyco Merger Proposal, the ADT Merger
Proposals and the Other ADT Meeting Proposals. Since the affirmative vote
described above is required for approval of the Tyco Merger Proposal, a "broker
non-vote" with respect to such proposal will have the same effect as a vote
against such proposal.
The Tyco Board and the ADT Board are not currently aware of any business to
be acted upon at their Meetings other than as described in this Joint Proxy
Statement/Prospectus. If, however, other matters are properly brought before
either Meeting, or any adjournments thereof, including any motion to adjourn the
meeting, the persons appointed as proxies, except as otherwise provided on the
proxy card, will
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have discretion to vote or act thereon according to their best judgment. See
"Proposal to Adjourn the Tyco Meeting."
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to ChaseMellon Shareholder Services, L.L.C. for Tyco shareholders, or
to D.F. King & Co., Inc., D.F. King (Europe) Limited or AS&K Services Limited
for ADT shareholders in the United States, the United Kingdom or Bermuda and
elsewhere, respectively, a signed notice of revocation or a later-dated signed
form of proxy or by attending the applicable Meeting and voting in person. In
addition, ADT shareholders may alter the instructions as to how their proxy is
to vote (without revoking the proxy) by notifying the proxies of such intention.
Attendance at the ADT Meeting or the Tyco Meeting will not in itself constitute
the revocation of a proxy.
ADT shareholders should be aware that if the ADT Merger Proposals are
approved and if the Merger is consummated, the Western Proposals and the Western
Offer may be less likely to succeed because the Merger will produce a material
increase in the number of shares outstanding, which would significantly increase
the cost to Western of acquiring ADT or the completion of the Merger may cause
Western to withdraw or terminate its exchange offer. In addition, if the Merger
is completed before the Western Proposals Meeting, existing Tyco shareholders
would become shareholders of the Combined Company entitled to vote on the
Western Proposals and the interests of current shareholders of ADT (including
Western) in the Combined Company would be significantly reduced. Any ADT
shareholder who wishes to revoke a proxy previously granted in connection with
the Western Proposals Meeting should consult the instructions regarding
revocation of proxies contained in the proxy statement pursuant to which the
form of such proxy was furnished.
It is the policy of Tyco and ADT to maintain the confidentiality of proxy
cards, ballots and voting tabulations that identify individual shareholders,
except where disclosure is mandated by law and in other limited circumstances.
The cost of solicitation of proxies will be paid by Tyco for Tyco proxies
and by ADT for ADT proxies. In addition to solicitation by mail, arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy materials to beneficial owners; and Tyco or ADT,
as the case may be, will, upon request, reimburse such brokerage houses and
custodians for their reasonable expenses in so doing. Tyco has retained Hill and
Knowlton, Inc. to aid in the solicitation of proxies for the Tyco Meeting and to
verify certain records related to such solicitations. Hill and Knowlton, Inc.
will receive customary fees and expense reimbursement for such services. ADT has
retained D.F. King & Co., Inc. to aid in the solicitation of proxies for the ADT
Meeting and to verify certain records related to such solicitations. D.F. King &
Co., Inc. will receive customary fees and expense reimbursement, for such
services. To the extent necessary in order to ensure sufficient representation
at the applicable Meeting, Tyco or ADT may request by telephone or telegram the
return of proxy cards. The extent to which this will be necessary depends
entirely upon how promptly proxy cards are returned. SHAREHOLDERS ARE URGED TO
SEND IN THEIR PROXIES WITHOUT DELAY.
SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. TRANSMITTAL FORMS WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR TYCO COMMON SHARES AND THE EXCHANGE OF CERTIFICATES FOR ADT
COMMON SHARES WILL BE MAILED BY THE COMBINED COMPANY TO FORMER TYCO SHAREHOLDERS
AND TO ADT SHAREHOLDERS AS SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE
MERGER.
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BUSINESSES OF TYCO AND ADT
TYCO
Tyco, through its divisions and operating subsidiaries, engages in the
design, manufacture, installation and service of fire protection and suppression
systems, and the manufacture and distribution of disposable medical supplies and
other specialty products, flow control products and electrical and electronic
components. Tyco, which operates in more than 50 countries around the world, had
sales of over $5 billion during its fiscal year ended June 30, 1996.
FIRE AND SAFETY SERVICES
Tyco is the largest contractor in the world for the design and installation
of fire detection, suppression and sprinkler systems, and for the servicing for
such systems. Tyco is also a leading manufacturer and distributor of fire
detection and suppression products.
Tyco's Grinnell subsidiary ("Grinnell"), which was founded in 1850, is the
largest installer, manufacturer and supplier of automatic fire sprinkler and
fire alarm and detection systems in North America. Wormald International Limited
("Wormald"), which was founded in 1889, operates as a major fire protection
company with contracting, manufacturing and distribution operations throughout
Western Europe and the Asia-Pacific region. Grinnell and Wormald, in
combination, is the largest fire protection company in the world, forming a
network of over 300 offices on five continents. The acquisition of Thorn
Security Group ("Thorn") in July 1996 further expands Tyco's worldwide position
in the fire detection and security systems market.
Contracting and Service. Tyco designs, fabricates, installs and services
automatic fire sprinkler systems, fire alarm and detection systems, special
hazard suppression systems and security systems in buildings and other
installations. Grinnell's fire protection contracting and service business in
North America operates through a network of offices located in the United
States, Canada, Mexico and Puerto Rico. Internationally, Tyco engages in fire
protection contracting and service through a network of offices in the United
Kingdom, Continental Europe, Saudi Arabia, United Arab Emirates, Australia, New
Zealand, Southeast Asia and South America.
Tyco installs fire protection systems in both new and existing structures.
Typically, the contracting businesses bid on contracts for fire protection
installation which are let by owners, architects, construction engineers and
mechanical or general contractors. In recent years, the business of retrofitting
existing buildings in the United States and Canada has grown as a result of
local and state legislation requiring installation of fire protection systems
and reduced insurance premiums available on structures with automatic sprinkler
systems. The retrofitting and servicing of fire protection systems in existing
buildings represented approximately 65% of Grinnell's North American contracting
sales in fiscal 1996. Revenue from the servicing, maintenance, repair and
inspection of fire protection, detection and suppression systems installed by
Tyco and other contractors has increased in recent years.
A majority of the fire suppression systems installed by Tyco are
water-based, but Tyco is also the world's leader in providing custom designed
special hazard fire protection systems which incorporate various specialized
non-water agents such as foams, dry chemicals and gases. Systems using agents
other than water are suited for fire protection in certain manufacturing, power
generation, petrochemical, offshore oil exploration, transportation,
telecommunications, mining and marine applications. Tyco holds exclusive
manufacturing and distribution rights in several regions of the world for
INERGEN(R) fire suppression products. INERGEN(R), an alternative to the ozone
depleting agent known as halon, consists of a mixture of three inert gases
designed to effectively extinguish fires without polluting the environment or
damaging costly equipment.
In Australia, New Zealand and Asia, Tyco, through its O'Donnell Griffin
division, engages in the installation of electrical wire and related electrical
equipment in new and existing structures and offers
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specialized electrical contracting services in these markets for different types
of construction, including applications for railroad and bridge construction.
Substantially all of the mechanical components (and, in North America, most
of the pipe) used in the fire protection systems installed by Tyco are
manufactured by Tyco. Tyco also has fabrication plants worldwide that cut,
thread and weld pipe, which is then shipped with other prefabricated components
to job sites for installation. Tyco has developed its own computer-aided-design
technology that reduces the time required to design systems for specific
applications and coordinates fabrication and delivery of system components. Tyco
also installs alarms, detection and activation devices and centralized monitors.
With the acquisition of Thorn, Tyco is now a major manufacturer of alarms,
detection and activation devices and central monitoring stations.
Manufacturing. Tyco manufactures most of the components used in its own
fire protection contracting business, as well as a variety of products for sale
to other fire protection contractors. In North America, Tyco manufactures pipe
and pipe fittings, fire hydrants, sprinkler heads and substantially all of the
mechanical sprinkler components used in an automatic fire suppression system. In
the United Kingdom, France, Germany and Asia-Pacific, Tyco manufactures and
sells sprinkler heads, specialty valves, fire doors and electronic panels for
use in fire detection systems. In Mexico, Tyco manufactures fire extinguishers,
fire hose and related equipment. With the recent addition of Thorn, Tyco now
manufactures a complete line of alarm and detection equipment that is installed
by Tyco's units and sold to other alarm and detection installers.
Tyco's Ansul subsidiary manufactures and sells various lines of dry
chemical, liquid and gaseous portable fire extinguishers and related agents for
industrial, government, commercial and consumer applications. Ansul also
manufactures and sells special hazard fire suppression systems designed for use
in restaurants, marine applications, mining applications, the petrochemical
industry, confined industrial spaces and commercial spaces housing electronic
and other delicate equipment. Ansul also manufactures spill control products
designed to absorb, neutralize and solidify spills of various hazardous
materials.
Environmental Services. Tyco's The Earth Technology Corporation ("Earth
Tech") is a provider of a broad range of environmental, consulting and
engineering services throughout the United States. The principal services of
Earth Tech consist of full-spectrum environmental and hazardous waste management
services, infrastructure design and construction services, facilities
engineering and construction management services for institutional, civic,
commercial and industrial clients, and contract operations and management
services for water, waste water and remediation treatment facilities operated by
municipal and industrial clients. Services are provided through a network of 40
offices located throughout North America.
DISPOSABLE AND SPECIALTY PRODUCTS
Tyco's Disposable and Specialty Products Group consists of Kendall, Ludlow
Laminating and Coating, Armin Plastics, Twitchell, and Accurate Forming. Kendall
manufactures and distributes medical supplies, disposable medical products and
adhesive products and tapes. Ludlow Laminating and Coating manufactures
laminated and coated products. Armin manufactures polyethylene film and
packaging products. Twitchell manufactures extrusion coated polyester yarns and
woven fabrics and Accurate Forming manufactures deep-drawn metal parts. In the
first quarter of fiscal 1997, Tyco acquired Carlisle Plastics, Inc.
("Carlisle"), a leading manufacturer of specialty packaging materials and
garment hangers.
Kendall. Kendall conducts its operations through four business units:
Kendall Healthcare, Kendall International, Kendall-Polyken and Ludlow Technical
Products.
The Kendall Healthcare business unit markets a broad range of wound care,
vascular therapy, urological care, incontinence care, anesthetic care and other
products to U.S. and Canadian hospitals and alternate site health care
customers. Kendall Healthcare is the industry leader in gauze production with
its Kerlix(R) and Curity(R) brands. Kendall Healthcare's other core domestic
product category consists of its vascular therapy products, principally
anti-embolism stockings, marketed under the T.E.D.(R) brand name, sequential
pneumatic compression devices sold under the SCD(TM) brand name and a venous
plexus foot
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pump. Kendall Healthcare pioneered the pneumatic compression form of treatment
and continues to be the dominant participant in the pneumatic compression and
elastic stocking segments of the vascular therapy market.
Kendall's Professional Medical Products, Inc. ("ProMed") is a leading
provider of incontinent care products, marketing primarily to nursing homes and
other institutional providers of long term care. ProMed also offers a range of
other patient care products, including urological, wound care, surgical care and
respiratory care products.
Kendall's Superior Healthcare Group, Inc. manufactures a broad line of
disposable medical supplies including respiratory, urology and nursing care
products. Kendall's Sheridan Catheter Corporation is a manufacturer of airway
management, temperature monitoring and specialty products serving patients in
anesthesia, critical care and emergency medicine.
Kendall International is responsible for the manufacturing, marketing,
distribution and export of Kendall products in numerous countries worldwide.
Kendall International's operations are organized primarily into three geographic
regions: Europe, Latin America and the Far East. Kendall International generally
markets a range of products similar to those of Kendall Healthcare, although the
mix of product lines varies from country to country.
The Kendall-Polyken division manufactures and markets specialty adhesive
products and tapes for industrial applications, including external corrosion
protection tape products for oil, gas and water pipelines. Other industrial
applications include tapes used in the automotive industry for wire harness
wraps, sealing and other purposes, and tapes used in the aerospace and heating,
ventilation and air conditioning (HVAC) industries. Kendall-Polyken also
produces duct, packaging and electrical tapes for consumer applications and
bandages and medical tapes for Kendall's healthcare product units and for
others.
The tape business acquired by Kendall from Nashua Corporation manufactures
duct, foil and strapping tapes and spray adhesives for industrial and consumer
markets worldwide. Kendall's Betham Corporation develops pressure sensitive
adhesives and coatings, principally for the automotive, medical and specialty
markets.
The Technical Products division manufactures and sells a variety of
disposable medical products, specialized paper and film products. These products
include disposable electrodes for medical devices, hydrogels, adhesive tapes,
pressure sensitive coated papers and films used for business forms and in
printing applications, high quality facsimile paper and recording chart papers
for medical and industrial instrumentation. The Technical Products division has
six subsidiaries. Uni-Patch is a manufacturer and distributor of transcutaneous
electrical nerve stimulation electrodes and related products which are used
primarily in physical therapy and other forms of rehabilitation medicine.
Classic Medical Products is a manufacturer of medical electrodes for EKGs and
similar diagnostic tests. Promeon is a leading manufacturer of gels which are
used with medical electrodes for testing and other monitoring purposes. LMI is a
manufacturer of medical electrodes. Cambrex is a producer of hydrogel wound care
products. Sentry Medical manufactures neonatal electrodes, diagnostic and
monitoring electrodes, electrotherapy electrodes and cable and lead wires.
Ludlow Laminating and Coating. Ludlow Laminating and Coating produces
protective packaging and other materials made of coated or laminated
combinations of paper, polyethylene and foil. Coated packaging materials provide
barriers against grease, oil, light, heat, moisture, oxygen and other
contaminants that could damage the contained products. The division produces
structural coated and laminated products such as plastic coated kraft,
linerboard and bleached boards for rigid urethane insulation panels, automotive
components and wallboard panels. Other applications include packaging for
photographic film, frozen foods, health care products, electrical and metallic
components, agricultural chemicals, cement and specialty resins.
Armin. Armin manufactures polyethylene film and packaging products in a
wide range of size, gauge, construction strength, stretch capacity, clarity and
color. Armin extrudes low density, high density and linear low density
polyethylene film from resin purchased in pellet form, incorporating such
additives
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as coloring, slip and anti-block chemicals. Armin's products include plastic
supermarket packaging, greenhouse sheeting, shipping covers and liners and a
variety of other packaging configurations for the aerospace, agricultural,
automotive, construction, cosmetics, electronics, food processing, healthcare,
pharmaceutical and shipping industries. Armin also manufactures a number of
other polyethylene products, such as reusable plastic pallets, transformer pads
for electric utilities, and a large variety of disposable gloves for the
cosmetic, medical, foodhandling and pharmaceutical industries.
Twitchell. Twitchell manufactures extrusion coated polyester yarns and
woven PVC-coated yarn fabrics and woven and knit paper fabrics. These fabrics
are sold for use principally in outdoor furniture, wall coverings, window
screening, awnings, housewares and other specialty products. Non-woven fabric is
coated and sold for use as disposable medical clothing.
Accurate Forming. Accurate Forming manufactures deep-drawn metal parts,
primarily barrels, caps and clips for pens and pencils and containers, caps and
closures for cosmetics, pharmaceutical packaging and automotive applications.
Carlisle. Carlisle is a leading producer of industrial and consumer
plastic products. Carlisle's products include trash bags, flexible packaging,
sheeting and garment hangers. Carlisle supplies plastic trash bags to mass
merchants, grocery chains and institutional customers. Carlisle manufactures
Ruffies(R), a national brand consumer trash bag, for mass merchants and other
retail stores. Carlisle also provides heavy duty trash can liners for
institutional customers, such as food service distributors, janitorial supply
houses, restaurants, hotels and hospitals.
Film-Gard(R), Carlisle's leading plastic sheeting product, is sold to
consumers and professional contractors through do-it-yourself outlets, home
improvement centers and hardware stores. A wide range of Film-Gard products are
sold for various uses, including painting, renovation, construction, landscaping
and agriculture. Carlisle's industrial packaging film is sold for use as shrink
wrap and for other packaging requirements.
Carlisle sells molded plastic garment hangers to garment manufacturers,
national retailers, regional or local retailers and mass merchants. Garment
manufacturers place their clothes on Carlisle's hangers before shipping to
retail outlets. Carlisle creates, manufactures and sells customized hanger
designs to national retailers. Regional or local retailers buy standard Carlisle
hanger lines for retail clothing displays. Carlisle also supplies mass merchants
with consumer plastic hangers for sale to the general public.
FLOW CONTROL PRODUCTS
Tyco is a manufacturer and distributor of flow control products in North
America, Europe and Asia-Pacific. Flow control products include pipe, fittings,
valves, meters and related products which are used to transport, control and
measure the flow of liquids and gases. Tyco's Flow Control Group includes
Grinnell, Allied Tube & Conduit, Mueller Co. and a number of specialized
manufacturers of valves, fittings and couplings.
Manufacturing. Tyco manufactures and distributes a wide range of flow
control products, including pipe and pipe fittings, tubing, valves, meters,
couplings, pipe hangers, strut and related components. These products are used
in plumbing, heating, ventilation and air conditioning (HVAC) systems,
mechanical contracting, power generation, water and gas utilities, oil and gas
exploration, petrochemical and numerous other industrial applications. Tyco also
manufactures certain related products such as steel tubing, custom iron
castings, malleable iron pipe fittings and fencing materials.
Allied is the leading North American manufacturer of pipe and other tubular
products. Allied manufactures a full line of steel pipe for the fire protection
and construction industries and for commercial, residential and institutional
markets. Its mechanical tube division offers steel tubing in a wide assortment
of shapes and sizes for a variety of industrial and commercial applications.
Allied's fence division is a leader in the manufacture of products for the
residential and industrial/commercial fence markets. Allied also manufactures
metal framing systems used in the construction, industrial and OEM markets.
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Mueller, a manufacturer of water and gas distribution products,
manufactures fire hydrants, iron butterfly and gate valves, service-line brass
valves and fittings, gas valves and meter bars, water meters, backflow
preventers and related products for sale to independent distributors and, to a
lesser extent, directly to waterworks contractors, municipalities and gas
companies throughout the United States and Canada.
Over the past five years, Tyco has expanded its worldwide manufacturing and
distribution presence through a series of acquisitions and internal growth. In
North America, Grinnell manufactures forged steel fittings and valves. In
Switzerland, Neotecha manufactures Teflon lined specialty valves for use in
highly corrosive environments. In the United Kingdom, Charles Winn (Valves) Ltd.
and Hindle Cockburns manufacture specialty high performance butterfly valves and
ball valves that are used principally in the oil and gas, chemical and
processing industries. In Spain, Belgicast manufactures valves used for
waterworks and other industrial applications. In Malaysia, Tyco manufactures
couplings, fittings, steel tubing and metal framing products.
In September 1996, Tyco acquired Henry Pratt Co., James Jones Company and
Edward Barber & Co from Watts Industries, Inc. These three operations, located
in the United States and the United Kingdom, are engaged in the manufacture and
sale of valves, hydrants and fittings used primarily in water utility,
wastewater treatment and power generation markets.
ELECTRICAL AND ELECTRONIC COMPONENTS
Tyco's Electrical and Electronic Components group consists of Simplex
Technologies, Inc. ("Simplex"), Allied's electrical conduit division and Tyco's
Printed Circuit Group. Simplex manufactures underwater communications cable and
cable assemblies. Allied manufactures and distributes electrical conduit and
related components used in commercial electrical installations. The Printed
Circuit Group manufactures printed circuit boards and assembles backplanes for
the electronics industry.
Simplex. Simplex is the largest U.S. manufacturer of undersea fiber optic
telecommunications cable. Simplex also manufactures cable and cable assemblies
for the U.S. Navy, underwater electric power cable and optical ground wire for
use by power authorities and utilities, and electro-mechanical cable for unique
field applications. Simplex's principal customer is SSI, which accounted for
approximately 78% of its revenues in fiscal 1996. Tyco has entered into an
agreement to acquire SSI. See "Current Developments."
Under a multi-year engineering development program, Simplex and AT&T Labs,
Inc. have developed a proprietary encapsulation process for SSI supplied optic
fibers used in underwater telecommunications cables. Simplex manufactures the
cable and performs system assembly and has proprietary rights to the
encapsulation process. Over the past ten years, Simplex has manufactured more
than 110,000 kilometers of undersea optical cable deployed by AT&T and others.
For more than thirty years, Simplex has been the primary supplier of cable
and cable assemblies to the U.S. Navy for use in data-gathering systems. Cable
for U.S. Navy systems is manufactured under various types of contracts,
including cost-plus-incentive fee, time and material, and fixed-price.
Allied Electrical Conduit. Allied's electrical conduit division is one of
the leading producers of steel electrical conduit in the United States.
Electrical conduit is galvanized steel tubing designed to contain
current-carrying electrical wires both inside and outside building structures.
The conduit also serves as an electrical ground that ensures proper operation of
circuit interruptors and provides a channel into which additional wires can be
inserted or removed as electrical needs change. The division manufactures a full
line of electrical conduit as well as metal framing and other products.
Printed Circuit Group. Tyco's Printed Circuit Group of companies is one of
the largest independent manufacturers of complex multi-layered printed circuit
boards and assemblers of backplanes in the United States. Printed circuit boards
are used in the electronics industry to mount and interconnect components to
create electronic systems. They are categorized by the number of sides or layers
that contain circuitry, which could be single-sided, double-sided or
multi-layer. In general, single and double-sided boards are less advanced.
Multi-layer boards provide greater interconnection density while decreasing the
number of
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separate printed circuit boards which are required to accommodate powerful and
sophisticated components. Backplanes include printed circuit boards and are
assemblies of connectors and other electronic components which distribute power
and interconnect printed circuit boards, power supplies and other system
elements.
The Group manufactures highly sophisticated double-sided, mass molded
boards of up to eight layers, precision tooled, custom laminated multi-layer
boards of up to 68 layers and sophisticated flex-rigid circuit boards for use in
environmentally demanding conditions. The majority of the Group's sales are
derived from its high-density multi-layer boards. Tyco's backplanes facility
produces fully assembled units utilizing press-fit or soldered connection
technology, custom pin grid array sockets and surface mounted assembly. The
printed circuit boards and backplanes manufactured by Tyco are designed by
customers and are manufactured on a job order basis to the customers'
specifications. In January 1997, Tyco acquired ElectroStar, Inc., a leading U.S.
manufacturer of complex printed circuit boards used in sophisticated electronic
equipment.
ADT
GENERAL
ADT, through its subsidiaries, is engaged in two service businesses,
electronic security services in North America and Europe and vehicle auction and
related services in the United States. In this section, the term "ADT" is used
to refer to the relevant operating subsidiary of ADT Limited engaged in that
part of the business being described where the term appears.
ADT's principal activities in the electronic security services business are
the electronic monitoring and maintenance of its installed base of security
systems and the installation of new, monitored security systems to add to its
installed base. Monitored systems may be sold or, as is most often the case, ADT
may retain ownership of installed systems. ADT receives contractual recurring
fees for monitoring security systems through its electronic customer monitoring
centers and for maintenance of security systems installed at customer premises
and other related services. ADT sells, installs and maintains monitored security
systems, integrated electronic security systems and other electronic security
products for additional fees. Annualized contractually recurring fees for
electronic monitoring and maintenance of security systems installed at customer
premises, and other related services, as of December 31, 1996, represented
approximately 65 per cent of ADT's total electronic security services revenues
in North America and Europe for 1996. The remainder of ADT's security revenues
were derived from the outright sale and installation of security systems, the
installation of security systems in accordance with monitoring service
agreements and the maintenance of security systems on a non-contractual basis.
ADT's vehicle auction business operates a network of large modern auction
centers in the United States which provide an organized wholesale marketplace
for the sale and purchase of used vehicles. Principal sellers, or consignors,
include new and used vehicle dealers, vehicle manufacturers, fleet operators,
leasing companies, financial institutions and government agencies. Principal
purchasers include franchise and non-franchise vehicle dealers and distributors
who acquire vehicles to sell in the retail market.
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The following table presents the proportion of revenues derived by ADT from
electronic security services and vehicle auction services in 1995 and 1996.
<TABLE>
<CAPTION>
PROPORTION OF
TOTAL
ELECTRONIC PROPORTION OF
SECURITY TOTAL
SERVICES REVENUES BUSINESS REVENUES
----------------- -----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
ELECTRONIC SECURITY SERVICES
North America...................................... 71% 75% 54% 62%
United Kingdom and Continental Europe.............. 29% 25% 22% 20%
</TABLE>
<TABLE>
<CAPTION>
PROPORTION OF
TOTAL PROPORTION OF
VEHICLE AUCTION TOTAL
SERVICES REVENUES BUSINESS REVENUES
----------------- -----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
VEHICLE AUCTION SERVICES
United States...................................... 62% 100% 15% 18%
United Kingdom and Continental Europe.............. 38% * 9% *
</TABLE>
- ---------------
* ADT's vehicle auction services businesses in the United Kingdom and
continental Europe were disposed of in the fourth quarter of 1995.
ELECTRONIC SECURITY SERVICES
Business Strategy. ADT(R) is a leading name in electronic security
services, and ADT believes that its name is important in the marketing of its
security services and in competing with other electronic security service
providers. Before 1987, ADT's electronic security services business served
predominantly commercial customers. Since 1987, ADT's goals have been to create
a lower cost, more efficient operation, suitable for long-term growth and
greater profitability, and to take advantage of the economies of scale resulting
from increased utilization of its infrastructure. Since 1987, ADT has (i)
reduced the number of central stations and equipped its customer monitoring
centers with enhanced computer technology to further automate the monitoring
process and thus provide increased monitoring capacity, (ii) modernized and
streamlined its computer-based administration and control systems, (iii)
enhanced customer service programs through improved training programs for sales,
management, installation and service employees and (iv) intensively marketed
electronic monitoring services to residential customers to take greater
advantage of the increased monitoring capacity created by the monitoring center
consolidation and modernization program.
Between 1987 and 1993, ADT significantly reduced the number of its central
stations from 162 to 30 in North America and Europe while increasing monitoring
capacity and maintaining geographical coverage. Since then ADT has continued to
pursue its strategy of central station consolidation, although closures have
taken place at a slower rate. Further opportunities for central station
consolidation now exist following the acquisition of ASH in 1996. In the first
quarter of 1997, ADT announced that it was investing in planned enhancements to
its technological infrastructure to facilitate a further consolidation of its
monitoring center network in order to provide for future anticipated growth
opportunities while lowering costs and increasing monitoring capacity and
operating efficiency.
As a result of ADT's program implemented in 1988 to target the residential
sector in North America, as well as growth in the level of consumer concern over
crime and security generally and the availability of lower priced systems, ADT
has significantly expanded its residential customer base in North America. Since
1988, ADT has enjoyed an annual compound growth rate in residential unit sales
in excess of 36 per cent. ADT believes that because of the success of its sales
and marketing efforts since 1988, it is uniquely positioned to benefit from the
range of technological developments that are expanding and diversifying the
types of services that ADT is able to offer.
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During the past several years, ADT's business has been evolving from that
of primarily an intrusion alarm company into a data information company. ADT
has, in the past few years, been offering energy management products and
services to regulate the temperature and lighting in a customer's premises. This
service has been achieved through the use of a communication protocol which
utilizes the premises' existing alternating-current wiring. Another creative use
of new technologies has permitted the launch of CarCop(R) which combines three
significant infrastructures, cellular communications, the global positioning
satellite system and ADT's 24 hour monitoring services, to provide a
revolutionary new personal protection and vehicle security service.
ADT believes that its broad customer base, its unique national distribution
system and its highly skilled workforce provide it with a strong capacity to
exploit new technologies and, given the rapid pace of technological change, ADT
anticipates that it will explore partnering opportunities with premier companies
in a variety of industries.
ADT's overall goal is to expand its customer base in both the commercial
and residential sectors. The commercial sectors in North America, the United
Kingdom and continental Europe represent well established markets with growth
prospects closely related to the overall economic growth in these markets. ADT's
strategy is to retain a high percentage of its existing commercial and
residential customers by continuing to provide high quality service. As part of
its strategy to maintain and enhance its commercial market position in North
America, ADT has a national accounts sales team in place in the United States to
serve customers that have multiple locations. ADT believes that the North
American residential marketplace continues to represent a relatively
unpenetrated market, and ADT's strategy is to continue to market and install
large numbers of new residential security systems, primarily in this market. ADT
is continuing to implement this strategy through intensive advertising and
marketing in metropolitan areas. ADT believes that incremental monitoring
revenues from new customers should enhance operating margins because additional
customers can be served through ADT's existing monitoring facilities with very
little impact on ADT's total operating costs associated with monitoring security
systems. ADT, however, incurs marketing costs associated with the sale of new
systems and incremental installation costs in respect of each new system sold
which are partly offset by a fee charged to the customer on installation of the
system. In the first quarter of 1997, ADT announced that it was investing in
planned enhancements to its technological infrastructure to facilitate
monitoring center consolidation and provide increased capacity for future
anticipated growth opportunities.
Consistent with its strategy, ADT acquired Alert Centre, Inc. in the fourth
quarter of 1995 and merged with ASH in the third quarter of 1996 adding, in
aggregate, over 375,000 customers to ADT's customer base. The acquisition of
Alert also provided ADT with an established dealer program under which security
systems are installed by third parties with the monitoring contracts being
onsold to ADT for monitoring. Such a program represents a cost effective way for
ADT to further enhance its operating leverage. The acquisition of ASH gave ADT
leadership in the electronic security services sector in the United Kingdom and
will provide ADT with a new marketing opportunity in the UK residential market
place.
The following table presents the approximate number of commercial and
residential customers in North America and Europe contracting with ADT for the
monitoring or maintenance of electronic security systems, together with the
aggregate annualized service revenue under contract, as of December 31, 1996,
and the annual combined discontinuance rate for commercial and residential
contracts in respect of 1996.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF ANNUAL COMBINED
COMMERCIAL CUSTOMERS RESIDENTIAL CUSTOMERS ANNUALIZED SERVICE REVENUE DISCONTINUANCE RATE
- -------------------- --------------------- --------------------------- -------------------
<S> <C> <C> <C>
672,000 1,149,000 $920 million 10.4%
</TABLE>
Annualized service revenue and annual combined discontinuance rate are
defined under "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Electronic Security Services" in
ADT's Annual Report on Form 10-K for the Year ended December 31, 1996.
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<PAGE> 86
Commercial. ADT provides electronic security services and products to
financial institutions, industrial and commercial businesses and complexes,
warehouses, facilities of federal, state and local government departments,
defense installations, and health care and educational facilities. ADT conducts
its commercial operations in the United States, Canada, the United Kingdom,
Spain, France, Belgium, Greece, The Netherlands and the Republic of Ireland. ADT
sells, installs, monitors and maintains electronic security systems and products
located at its customers' premises. These systems and products are tailored to
customers' specific needs and include electronic monitoring services that
provide intrusion and fire detection, as well as card or keypad activated access
control systems and closed circuit television systems. ADT also markets standard
security packages for specific types of commercial customers, such as retailers
and banks. Certain commercial customers require more complex electronic security
systems. To meet this demand, ADT also sells integrated electronic security
systems that combine a variety of electronic security services and products.
These systems are integrated by ADT to provide a single computer controlled
security system. Integrated security systems are typically owned by the customer
and can range in price from a few thousand to several million dollars.
Integrated security systems may be monitored by the customer at its premises or
connected to an ADT monitoring center. In either case, ADT usually provides
support and maintenance for these systems through service contracts.
The systems installed at commercial customers' premises may be owned by ADT
or, as in the case of most integrated systems, by the customer. When the system
is sold, the customer pays ADT the purchase price upon installation, and the
customer also pays an installation fee. When monitoring equipment is owned by
ADT, as is most often the case, only an installation fee is charged. Most
customers also agree to pay an annual service charge for monitoring and
maintenance. Some customers elect to pay for maintenance on a per visit basis.
Service contracts for integrated security systems are negotiated on an
individual basis. For integrated systems, a separate fee is charged for systems
integration and installation. Service contracts are negotiated on an individual
basis depending upon the number of systems monitored, the type of alarm
transmission and the level of response services required.
STAT Resources Inc. ("STAT Resources") estimates that total United States
commercial electronic security systems and services market revenues were
approximately $8.0 billion in 1996. ADT accounted for approximately 7.7 per cent
of this amount.
Commercial customers are motivated to purchase security systems to protect
their property, employees and customers and by their insurance carriers, which
may offer lower premium rates if a security system is installed or require that
a system be installed as a condition to coverage. Of those insurance carriers in
North America which offer lower premiums or will provide coverage only to
customers with centrally monitored alarm systems, most require the monitoring
center to be approved by Underwriters Laboratories, Inc. ("UL"). UL requires
each monitoring center to meet specified design, technical and operational
standards, including back up power capability. UL confirms compliance with its
specifications through periodic on-site inspections. All of ADT's customer
monitoring centers in the United States are UL approved.
As of December 31, 1996, approximately 478,000 commercial customers, some
of which have multiple locations, were under contract in North America,
approximately 153,000 were under contract in the United Kingdom and
approximately 41,000 were under contract in continental Europe. The electronic
security services business in Europe services primarily commercial customers. In
1996, approximately 68 per cent of ADT's total electronic security services
revenues in North America and Europe were derived from commercial customers. The
electronic security services division is not dependent upon any single customer,
as the revenue from any one customer does not exceed one per cent of the
division's total net revenues.
Contracts with commercial customers for monitoring and maintenance services
are usually for an initial five-year term, automatically renewing on a
year-to-year basis thereafter, unless canceled. A substantial number of
contracts are now beyond their initial term and are therefore on an automatic
renewal basis. It has been ADT's experience that monitoring contracts for
security systems are generally
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<PAGE> 87
renewed upon their expiration. Contract discontinuances, however, do occur,
principally as a result of customer relocation or closure.
ADT markets its electronic security services to commercial customers
through a direct sales force in North America and Europe and through direct mail
and print advertising. Customers that have multiple locations in North America
are serviced by a separate national accounts sales force.
Residential. Residential electronic security services are primarily
marketed to customers in North America and consist of the sale, installation,
monitoring and maintenance of electronically monitored security systems to
detect intrusion and fire. Residential customer service and monitoring are
performed from the same facilities as those used for commercial accounts.
STAT Resources estimates that total United States residential electronic
security systems and services market revenues were approximately $5.0 billion in
1996. ADT accounted for approximately 7.5 per cent of this amount.
As part of its business strategy, ADT began to intensively market monitored
security systems to residential customers in North America in 1988, and ADT
believes that it has been able to sell a large number of residential security
systems due to the growing level of consumer concern over crime and security
generally and the availability of lower priced systems. In addition, residential
customers are usually able to obtain more favorable insurance rates if an
electronically monitored security system is installed in their home. ADT targets
two groups of residential customers, those who typically require relatively
inexpensive, standard electronically monitored security systems and a smaller
group of residential customers who require more sophisticated systems.
In 1996, ADT contracted to install and monitor approximately 280,000 new
residential security systems, principally in North America, and as of December
31, 1996, ADT had approximately 1,149,000 residential customers under contract
for monitoring services, of which approximately 90 per cent were located in
North America. In 1996, approximately 32 per cent of ADT's total electronic
security services revenues in North America and Europe were derived from
residential customers. On average, fees charged by ADT for residential
monitoring services are lower than the fees charged for commercial monitoring
services. Contracts for residential services entered into after 1990 have
usually been for an initial three-year term, automatically renewing on a
year-to-year basis thereafter, unless canceled. For contracts entered into after
April 1992, automatic renewal has been for two-year terms, unless canceled. A
substantial number of contracts are now beyond their initial term and are
therefore on an automatic renewal basis. It has been ADT's experience that
residential contracts are generally renewed upon their expiration. Contract
discontinuances, however, do occur, principally as a result of customers
relocating.
In North America, ADT usually retains ownership of standard residential
systems whereas the more sophisticated systems are usually purchased by the
customer. When the system is sold, the customer pays ADT the purchase price upon
installation, and the customer also pays an installation fee. When the system is
owned by ADT, as is most often the case, only an installation fee is charged.
Substantially all residential customers agree to pay an annual service charge
for monitoring and may also subscribe for maintenance services. Uniform package
prices are offered to residential customers who purchase ADT's standard
residential security system which includes a fixed number of detection devices.
Frequently, customers add detection devices to expand the coverage of the system
for which ADT charges an additional installation fee and an additional sales
charge if the system is purchased. Pricing for residential customers who require
more sophisticated systems depends upon the monitoring components installed, the
type of alarm transmission and other services required.
ADT markets its electronic security services to residential customers
through television and radio advertising, print advertising, telemarketing,
direct mail and through a direct residential sales force, as well as through
approximately 120 independent ADT authorized dealers and through third party
affinity marketing arrangements.
Installation, Service and Maintenance. As part of its effort to provide
high quality service to its commercial and residential customers, ADT maintains
a trained installation, service and maintenance force
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in North America and Europe. These employees are trained by ADT to install and
service the various types of commercial and residential security systems which
are marketed by ADT. ADT also uses sub-contracted personnel where appropriate.
Product Sourcing. ADT does not manufacture any of the components used in
its electronic security services business, although it does provide its own
specifications to manufacturers for certain security system components and
undertakes some final assembly work in respect of more sophisticated systems.
Due to the general availability of the components used in its electronic
security services business, ADT believes that it is not consistent with its role
as a services company to be involved in manufacturing. This policy allows ADT to
obtain the components of its systems from a number of different sources and, by
so doing, to supply its customers with the latest technology generally available
in the industry. ADT is not dependent on any single source for its supplies and
components and has not experienced any material shortages of components.
Monitored Electronic Security Systems. ADT's electronically monitored
security systems involve the use on a customer's premises of devices designed to
detect or react to various occurrences or conditions, such as intrusions,
movement, fire, smoke, flooding, environmental conditions (including temperature
or humidity variations), industrial operations (such as water, gas or steam
pressure and process flow controls) and other hazards. In most systems, these
detection devices are connected to a microprocessor based control panel which
communicates through telephone lines to an ADT monitoring center where alarm and
supervisory signals are received and recorded. Systems may also incorporate an
emergency "panic button," which when pushed causes the control panel to transmit
an alarm signal that takes priority over other alarm signals. In most systems,
control panels can identify the nature of the alarm and the areas within a
building where the sensor was activated and transmit the information to an ADT
customer monitoring center. Depending upon the type of service for which the
subscriber has contracted, monitoring center personnel respond to alarms by
relaying appropriate information to the local fire or police departments,
notifying the customer or taking other appropriate action, such as dispatching
employees to the customer's premises.
In most systems, the control panel communicates with an ADT customer
monitoring center through one of four telephone line transmission systems,
direct wire, multiplex, digital communicator or derived channel. Direct wire and
multiplex systems are used mainly for commercial customers who require a higher
level of security, whereas digital communicator or derived channel systems are
used primarily in systems where cost is more important. Direct wire transmission
uses a dedicated leased telephone line and is the most expensive form of
monitoring connection. The multiplex system uses a remote device to receive
signals from multiple customers' premises and concentrate and retransmit them
over a dedicated leased telephone line to an ADT customer monitoring center.
These two transmission methods allow ADT to continuously monitor the customer's
security system to confirm that the connection to the monitoring center is
functioning properly. The multiplex system provides the same level of security
as direct wire but is less costly due to the reduced number of dedicated
telephone lines which are necessary to monitor the same number of customers. ADT
has a continuing selective conversion program to replace direct wire
transmission systems with lower cost multiplex or digital systems. These
conversions typically replace older equipment and result in a reduction in
telephone line costs and in the frequency of customer service calls.
A security system which utilizes a digital communicator responds to an
event by dialing the monitoring center through the customer's regular telephone
line. Unlike multiplex and direct wire systems, these systems are not
continuously monitored, and if a control panel or the telephone line is not
functioning properly the monitoring center may not be alerted. The derived
channel system, which is not available in all markets, ties into the existing
regular telephone line network but allows parallel simultaneous communication on
one line using separate distinct frequencies. Using the derived channel system,
it is possible to continuously monitor a digital communicator connection over
the customer's regular telephone line. In certain markets ADT also offers
systems with backup transmission capability through radio frequency transmission
or the local cellular telephone network.
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Other Security Businesses. ADT entered the mobile security services market
in 1996 with the launch of CarCop(R), a vehicle security system introduced in
the fourth quarter of 1996 in conjunction with Mobile Security Communications,
Inc. which is responsible for the sale and installation of the CarCop product.
CarCop combines ADT's 24 hour monitoring services with cellular communications
technology and the Global Positioning Satellite system to provide constant
security coverage for a vehicle and its occupants whether the vehicle is parked,
unattended or in use. The system can detect a range of emergency situations and,
through utilizing ADT's 24 hour monitoring services and employing satellite
tracking technology, the appropriate assistance can be despatched to the
vehicle's exact location at any time, day or night.
Risk Management. The nature of the services provided by ADT potentially
exposes it to greater risks of liability for employee acts or omissions or
product liability than may be inherent in many other service businesses. To
attempt to reduce this risk, ADT's electronic security service contracts contain
provisions limiting its liability and requiring indemnification by its
customers. ADT also carries insurance of various types, including general
liability and errors and omissions insurance, to protect it from product defects
and negligent acts of its employees. ADT obtains such insurance at rates and
upon terms negotiated periodically with various underwriters. The loss
experience of ADT and, to some extent, other security services companies, may
affect premium rates charged to ADT. As of December 31, 1996 such policies
provided that ADT retain liability for the first $1.0 million per occurrence.
Certain of ADT's insurance policies and the laws of some states may limit or
prohibit insurance coverage for punitive or certain other kinds of damages
arising from employee misconduct. In addition, in some states ADT's limitation
of liability clause may be ineffective in cases of gross negligence and in
certain other situations.
VEHICLE AUCTION SERVICES
The Industry. Vehicle auctions constitute a principal channel of
distribution and redistribution for used vehicles. An auction brings together,
in one location, dealers seeking to restock and diversify their inventory of
used cars with a high volume of various makes and models provided by sellers
seeking to dispose of their vehicles. The vehicle auction industry provides a
reliable marketplace where many dealers participate in the auction's bid process
and thus establish true wholesale prices for used vehicles. Vehicle auctions are
preferred by many dealers, financial institutions and other sellers because an
auction provides an efficient, cost-effective and convenient method of vehicle
resale at the prevailing market price.
The principal sources of vehicles for sale through auctions are
consignments by new and used vehicle dealers, vehicle manufacturers, corporate
owners of vehicles such as fleet operators, daily rental companies, leasing
companies, banks and other financial institutions, manufacturers' credit
subsidiaries and government agencies. The vehicles consigned by dealers include
vehicles of all types and ages and include vehicles that have been traded in
against new car sales. Vehicles consigned by corporate and financial owners
include both repossessed and off-lease vehicles and, as a result, are normally
in the range of one to four years old. The principal purchasers of vehicles at
ADT's auctions are new and used vehicle dealers and distributors.
ADT believes that the consignment of vehicles from dealers is the
foundation of the auction industry. Dealers rely on the sale of used vehicles
for a significant proportion of their profits and are both buyers and sellers at
auction.
A significant number of vehicles sold at auction in recent years has been
attributable to vehicles being disposed of by domestic and import manufacturers
who contract with certain auctions to sell used vehicles on their behalf. In the
late 1980's, vehicle manufacturers found it advantageous to produce more
vehicles than were necessary to satisfy immediate retail demand. These vehicles
were either sold to daily rental car companies with a guarantee by such
manufacturers to repurchase the vehicles or were leased to the daily rental car
companies ("Program Cars"). Upon repurchase, the vehicle manufacturers chose to
remarket these late-model cars to their dealers primarily through the vehicle
auction network. Program Car auctions are restricted to each manufacturer's
franchised dealers with the exception of auctions for some small volume import
manufacturers. According to industry sources, the number of vehicles coming to
auction from this source reached a peak of 1.6 million units in 1991. As the
industry came out of recession in
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1992, volumes reduced and have stabilized at around 1.1 million vehicles per
year. When the number of cars available to daily rental companies through
manufacturers' guaranteed repurchase programs was at its peak, many of the top
rental companies obtained large numbers of their vehicles through such programs.
As manufacturers have reduced their buy back programs, the daily rental
companies have been obliged to purchase more vehicles in their own names and,
consequently, their need to remarket vehicles at the end of their life cycle has
increased.
Vehicles owned by corporations and financial institutions represent another
major source of vehicles for sale at auction and include vehicles owned by daily
rental companies, vehicles from company fleets, end of term or early termination
vehicles from leasing companies, including manufacturers' finance subsidiaries,
vehicles from finance companies, including repossessed vehicles, and vehicles
from the public sector. The dynamics of this segment are changing, particularly
as the trend towards leasing new vehicles by individuals under manufacturers'
lease programs increases.
ADT Auctions. As of December 31, 1996, ADT operated 27 vehicle auction
centers in the United States where it is the second largest provider of vehicle
auction services. In 1996 the aggregate value of vehicles sold through ADT
auction centers was approximately $8.7 billion. Substantially all of the
vehicles sold at ADT auction centers are passenger cars and light trucks with
the balance consisting of heavy trucks and industrial vehicles.
The following table presents the approximate number of vehicles entered and
sold through all of ADT's vehicle auction centers in the United States during
1994, 1995 and 1996.
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Vehicles Entered.............................................. 1,660,000 1,798,000 1,881,000
Vehicles Sold................................................. 967,000 994,000 1,064,000
</TABLE>
Business Strategy. ADT has been a leader in developing the wholesale
vehicle auction business in the United States. ADT aims to provide a wholesale
redistribution system for used vehicles which is efficient, economical and
reliable. ADT's specific strategies are (i) to maintain and further strengthen
its current relationships with vehicle manufacturers, fleet/lease operators,
daily rental companies and other significant vehicle suppliers and dealers that
both supply vehicles for auction and purchase vehicles at auction and (ii) to
increase ADT's share of total used vehicle transactions. ADT is pursuing these
strategies in part by encouraging more vehicle dealers to attend its auctions.
Where possible, ADT categorizes its auction sales in order to facilitate
the matching of appropriate buyers with vehicles being offered for sale.
Auctions may be categorized by the type of vehicle being sold or by age of
vehicle, mileage or source, for example ex-rental vehicles. ADT maintains a
record of dealers that are authorized to bid at its auctions and employs direct
marketing techniques to target dealers who are known buyers for the category of
vehicle being auctioned and who are registered with ADT as approved buyers. ADT
also holds closed sales for manufacturers' vehicles, including Program Cars and
fleet vehicles, restricted to dealers holding a franchise from that particular
manufacturer.
ADT keeps its site location strategy and real estate requirements under
continuous review together with the potential benefits of expanding its network
through the acquisition of vehicle auction businesses and the development of new
auction centers. ADT however believes that the geographic coverage of its
auction network in the United States is substantially complete.
Auction Operations. ADT operates a network of large modern auction centers
and provides a comprehensive range of vehicle redistribution services. These
services include collection and transportation of a seller's vehicles to an
auction center, reconditioning the vehicles to retail standards, matching the
vehicles with the auction market most likely to generate the highest amount of
sale proceeds and delivering the vehicles to the buyer. Separate fees are
charged for each of these services. ADT acts solely as an agent in auction
transactions and does not purchase vehicles for its own account. ADT repurchases
a small number of vehicles under its buyer protection programs which require it
to repurchase vehicles that
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have suffered odometer tampering or that have an undisclosed salvage history.
ADT operates almost exclusively in the wholesale marketplace. In general, the
public is not permitted to attend auctions.
When a vehicle arrives at an ADT auction center, it is checked in and
assigned a computer tracking number. A seller may instruct ADT to perform
various services including vehicle appraisal, appearance reconditioning and
paint or body work to prepare the vehicle for auction. The title is checked
against a computer database held by ADT. If a salvage history appears, the
seller must either disclose the damage or withdraw the vehicle from the auction.
ADT completes all requested services and holds the vehicles in secure parking
areas until the scheduled auction day. The auction centers use computerized
control systems to track vehicles through each step of the auction process. ADT
is responsible for the vehicles while they are under its control.
Generally, ADT's auction centers hold regularly scheduled auctions for
vehicles from specific market sources. Additional auctions are scheduled as
necessary, including auctions for specific types or categories of vehicles, such
as heavy trucks, municipal and agricultural equipment and classic cars. A
typical auction center consists of an auction hall, large paved areas for the
storage of vehicles, facilities for reconditioning and separate areas for
parking vehicles immediately prior to auction, some of which are covered.
Auction halls typically have a number of lanes through which vehicles are
normally driven, and where the auction bidding process takes place. This is a
continuous process that enables a large number of vehicles to be auctioned
quickly and efficiently. The auction hall building also contains the cashiers
and other administrative personnel, as well as cafeteria and other customer
facilities. When a vehicle is sold, the paperwork associated with a sale,
including conveyance instruments, title or title applications and tag
applications, is generally processed within one hour of the sale and immediate
delivery arrangements are made. A particular vehicle may pass through the
auction system more than once prior to being sold to a new owner.
ADT is responsible for payment to sellers upon presentation of title after
a vehicle is sold. If purchases are made other than on a cash basis, ADT
determines in advance the credit-worthiness of the buyer. It is customary for
buyers at ADT's auctions to pay by banker's draft. The auction collects funds on
drafts within an average of ten working days. ADT's bad debt experience on these
transactions is negligible.
Sources of Vehicles. The principal sources of vehicles for sale at ADT's
auctions are consignments by new and used vehicle dealers, vehicle
manufacturers, corporate owners such as fleet operators, daily rental companies,
leasing companies, banks and other financial institutions, manufacturers' credit
subsidiaries and government agencies.
The supply of consignment vehicles from dealers is relatively constant
throughout the year. The number of Program Cars and vehicles consigned to
auction by corporate fleet owners may fluctuate considerably throughout the
year. As a consequence, auction revenues may fluctuate from quarter to quarter
and at certain times during the year ADT may be storing large numbers of
vehicles awaiting auction.
ADT contracts with vehicle manufacturers for the auction of Program Cars.
These contracts, which do not require the manufacturers to sell any minimum
number of vehicles through ADT's auctions, generally have a term of one year and
may be terminated upon 30 days' notice. In 1996, approximately 27 per cent of
the vehicles sold at ADT auctions were Program Cars, compared to approximately
31 per cent in 1995. ADT also auctions vehicles from the manufacturers' own
fleets and from manufacturers' affiliates such as their credit subsidiaries.
During 1996, General Motors Corporation and its credit subsidiaries
accounted for approximately 8 per cent of the vehicle auction division's
revenues. ADT believes that its relationship with General Motors Corporation and
the other vehicle manufacturers with which it does business is good. The loss of
General Motors Corporation's business would, however, have a material adverse
effect on the auction division's operations.
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ELECTION OF DIRECTORS
The Merger Agreement provides that ADT shareholders will be asked at the
ADT Meeting to vote to increase the number of directors on the ADT Board to
eleven, remove all but three of the current members of the ADT Board and elect
the eight current directors of Tyco listed below to the Combined Company Board
effective at the Effective Time of the Merger. The ADT Board presently consists
of eight members. Upon consummation of the Merger, as a result of the removal of
the five ADT directors indicated below and the election to the ADT Board of the
current Tyco directors, the current Tyco directors will constitute eight of the
eleven members of the Combined Company Board. Mr. Ashcroft and two current
independent directors of ADT will constitute the remaining directors of the
Combined Company. While Tyco and ADT expect that the Merger will be consummated
promptly after the Meetings, the current ADT Board will remain in office until
the effectiveness of the Merger.
Unless otherwise specified in the form of proxy, the persons named in the
form of proxy will vote the shares represented by each properly executed form of
proxy for the election as directors of the Combined Company of the persons named
below as nominees. ADT believes that the nominees will stand for election and
will serve if elected as directors. However, in accordance with the Merger
Agreement, if any of the nominees listed below fails to stand for election or
will be unable to accept election, the proxies will be voted for the election of
such other person or persons as are designated by Tyco and are reasonably
acceptable to ADT.
INFORMATION CONCERNING NOMINEES
The following table sets forth the names and ages of the ADT Board's
nominees for election as directors effective as of the Effective Time of the
Merger, each such person's principal occupation or employment during the past
five years, and any directorships held by such person in any company with a
class of securities registered under the Exchange Act (other than Tyco). Each of
the nominees is currently a director of Tyco. None of the nominees currently
holds any ADT Common Shares. For information concerning the Tyco Common Shares
held by each of the nominees, which will be exchanged for Combined Company
Common Shares in the Merger, see "--Security Ownership of Certain Beneficial
Owners of Tyco and Management of Tyco" below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AGE DIRECTORSHIPS
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
L. Dennis Kozlowski........................ 50 Chairman of the Board of Tyco (January
1993--present); Chief Executive Officer of
Tyco (July 1992--present); President of
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.
</TABLE>
86
<PAGE> 93
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AGE DIRECTORSHIPS
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
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 1995--present).
John F. Fort, III.......................... 56 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............................ 55 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 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,
DePuy International (medical products)
(July 1996--present); Director, Physicians
Resource Group (physician practice
management services) (June 1995--present);
Director, Remington Arms Company, Inc.
(firearms and ammunition) (March
1994--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).
</TABLE>
87
<PAGE> 94
REMOVAL OF DIRECTORS
The ADT shareholders are being asked to remove all but three of the persons
currently serving as directors of ADT. The directors of ADT whom ADT
shareholders are being asked to remove are John E. Danneberg, Alan B. Henderson,
Stephen J. Ruzika, William W. Stinson and Raymond S. Troubh. Michael A.
Ashcroft, James S. Pasman, Jr. and W. Peter Slusser, who are currently directors
of ADT, will continue to serve as directors of the Combined Company. The purpose
of the removal is to create vacancies on the ADT Board that will be filled with
the election of the current Tyco directors, as required by the Merger Agreement.
The removal of the ADT directors who will not be serving as directors of the
Combined Company has been consented to by each of these directors.
The removal of the ADT directors who are not continuing as directors of the
Combined Company, the expansion of the ADT Board to eleven members and the
election of the members of the Tyco Board as directors of the Combined Company
are a condition to the parties' obligation to consummate the Merger. See "The
Merger Agreement--Conditions to the Merger--Conditions to Each Party's
Obligations to Effect the Merger." THE ADT BOARD UNANIMOUSLY RECOMMENDS THAT ADT
SHAREHOLDERS VOTE FOR EACH OF THESE PROPOSALS.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the current directors and executive officers of ADT and
three executive officers of subsidiaries of ADT as at December 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH ADT
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Michael A. Ashcroft 50 Chairman of the ADT 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
</TABLE>
Mr. Ashcroft has been Chairman and Chief Executive Officer of ADT since
1984 and is Chairman of the Executive Committee. He was Chairman and Chief
Executive Officer of ADT'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 ADT since December 1991 and was
previously a director of ADT from 1984 to June 1991. He was the President of
Foliage Plant Systems, Inc., an interior landscape contractor, from 1988 to
October 1995 and the Chairman of Sonitrol Corporation, a security company, from
September 1996 to May 1997.
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 ADT since 1992 and is a member of the
Audit Committee (the "Audit Committee") and Remuneration Committee (the
"Remuneration Committee") of the ADT Board. He is Chairman of Ranger Oil (UK)
Limited, an oil exploration and production company, and has
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<PAGE> 95
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 ADT's electronic
security services operations in Canada and Europe. He has held various positions
with ADT since joining in 1987.
Mr. Pasman has been a director of ADT since 1992 and is a member of the
Audit and Remuneration Committees. He was President and Chief Operating Officer
of National Intergroup, Inc., an industrial holding company, from 1989 to 1991
and was Chairman and Chief Executive Officer of Kaiser Aluminum and Chemical
Corp., an aluminum and chemical company, from 1987 to 1989. He is a director of
BEA Income Fund, Inc., BEA Strategic Income Fund, Inc. and BT Insurance Funds
Trust.
Mr. Richardson has been the President and Chief Executive Officer of ADT
Automotive, Inc. ("ADT Automotive"), which supervises the United States vehicle
auction services business, since 1982.
Mr. Ruzika has been a director and Executive Vice President of ADT 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 ADT's United States operations. He is also
a non-executive director of BHI Corporation.
Mr. Slusser has been a director of ADT 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 ADT 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 ADT 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 ADT Bye-Laws, no person other than a director
retiring at a general meeting of ADT 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 ADT has been given, by a
shareholder of ADT (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. The ADT Board is
recommending the current directors of Tyco (or such other persons as provided in
the Merger Agreement) for election to the ADT Board. A director may hold any
other office or position of profit under ADT (other than the office of Auditor)
in conjunction with this office of director for such period and on such terms as
ADT may from time to time determine in general meeting.
Meetings and Committees of the ADT Board. During 1996, there were eleven
meetings of the ADT Board. All directors attended at least 75 per cent of the
meetings of the ADT Board and of the committees of which they were members.
The ADT 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
89
<PAGE> 96
Committee. The function of the Audit Committee is to review the services
performed by ADT's independent accountants and to review and act or report to
the ADT 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.
ADT has no standing nominating committee.
Compensation of Directors. Directors who are not employees of ADT 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. For
a period of one year from the Effective Time Messrs. Danneberg, Henderson,
Stinson and Troubh, who will not be continuing on the ADT Board after the
Effective Time, will continue to receive amounts equal to the directors' fees
they would otherwise have received had they remained on the ADT Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF ADT AND ADT 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 ADT Common Shares by any person known by ADT to beneficially
own more than five per cent of the outstanding ADT Common Shares (i) as at May
15, 1997 by FMR Corp. ("FMR"); (ii) as at March 17, 1996 by WCI and (iii) as at
May 30, 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.
<TABLE>
<CAPTION>
NUMBER OF
ADT COMMON SHARES % OF
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIALLY OWNED(1),(2) CLASS(3)
- --------------------------------------------------------------- ------------------------- --------
<S> <C> <C>
Westar Capital, Inc. (4) 38,287,111 24.8%
818 Kansas Avenue
Topeka, Kansas 66601
FMR Corp.(5) 20,449,014 13.0%
82 Devonshire Street
Boston, Massachusetts 02109
M.A. Ashcroft(6) 11,525,718 7.0%
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(7) 13,198,995 8.0%
</TABLE>
- ---------------
* less than 1%.
(1) Includes ADT Common Shares which may be acquired upon exercise of the
following number of options to purchase ADT Common Shares from ADT
exercisable on or within 60 days of May 30, 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 ADT Common Shares which such person has the
right to acquire on or within 60 days after May 30, 1997. For purposes of
computing the percentage of outstanding ADT Common Shares held by each
person or group of persons named above, any security which such person or
persons has or
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<PAGE> 97
have the right to acquire on or within 60 days after May 30, 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 ADT Common Shares outstanding on May 30, 1997, but excluding
3,182,787 ADT 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 Resources
Inc., in respect of ownership of 38,287,111 ADT Common Shares. ADT has not
attempted to verify independently any of the information contained in the
Schedule 13D.
(5) ADT has received a notification dated May 15, 1997 from FMR in respect of
ownership of 20,449,014 ADT Common Shares by accounts under the
discretionary investment management of its wholly owned subsidiaries
Fidelity Management & Research Company and Fidelity Management Trust
Company. ADT has not attempted to independently verify any of the
information provided by FMR.
(6) The number of ADT Common Shares beneficially owned by Mr. Ashcroft includes
718 ADT Common Shares owned by Mr. Ashcroft's wife. On April 4, 1997, Mr.
Ashcroft transferred 9,000,000 shares, comprised of 8,000,000 options and
1,000,000 ADT Common Shares, beneficially owned by him and included in the
table, representing 5.6% of the ADT Common Shares outstanding as of May 30,
1997, to an irrevocable trust of which Mr. Ashcroft and his family are
beneficiaries.
(7) The address for these officers and directors is the address of ADT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF TYCO AND TYCO MANAGEMENT
The following table sets forth, as of May 30, 1997 (except as otherwise
indicated), the beneficial ownership of Tyco Common Shares by (i) those persons
known by Tyco to own beneficially more than 5% of the outstanding Tyco Common
Shares; (ii) all directors of Tyco and each of the executive officers named
under "Executive Compensation" in Tyco's Proxy Statement for its 1996 Annual
Meeting of Shareholders dated September 20, 1996; and (iii) all directors and
officers of Tyco as a group.
<TABLE>
<CAPTION>
NUMBER OF
TYCO COMMON SHARES
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP BENEFICIALLY OWNED(1) % OF CLASS
- --------------------------------------------------------------- --------------------- ----------
<S> <C> <C>
FMR Corp.(2) 23,292,204 13.8%
82 Devonshire Street
Boston, Massachusetts 02109
L. Dennis Kozlowski(3) 1,010,058 *
Joshua M. Berman 36,000 *
Richard S. Bodman 12,602 *
John F. Fort, III 79,549 *
Stephen W. Foss 28,524 *
Richard A. Gilleland 2,304 *
Philip M. Hampton 25,000 *
Frank E. Walsh, Jr. 51,502 *
Jerry R. Boggess(4) 55,468 *
Robert P. Mead(5) 104,986 *
Richard J. Meelia(6) 82,938 *
Mark H. Swartz(7) 225,226 *
All directors and officers as a group (15 persons) 1,925,780 1.1%
</TABLE>
- ---------------
* less than 1%.
(1) The amounts shown are amounts owned beneficially as of May 30, 1997 (except
for FMR, where the amount is as of December 31, 1996), based on information
furnished by the persons named. For
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<PAGE> 98
purposes hereof, a person is deemed to be the beneficial owner of shares if
such person, either alone or with others, had the power to vote or to
dispose of such shares.
(2) In a Schedule 13G, with information as of December 31, 1996, FMR reported
that such shares were not acquired for the purpose of acquiring or
influencing control of Tyco and that it has sole dispositive power over
23,292,204 shares and sole voting power over 1,267,014 shares.
(3) The amount shown includes 338,000 Tyco Common Shares awarded to Mr.
Kozlowski under Tyco's 1994 Restricted Stock Plan on which restrictions have
not yet lapsed.
(4) Includes 15,000 shares awarded to Mr. Boggess under Tyco's 1983 Restricted
Stock Plan for Key Employees on which restrictions have not yet lapsed.
(5) Includes 20,534 shares awarded to Mr. Mead under the 1994 Restricted Stock
Plan on which restrictions have not yet lapsed.
(6) Includes 50,858 shares awarded to Mr. Meelia under the 1994 Restricted Stock
Plan on which restrictions have not yet lapsed.
(7) Includes 144,000 shares awarded to Mr. Swartz under the 1994 Restricted
Stock Plan on which restrictions have not yet lapsed.
ADT EXECUTIVE COMPENSATION
Summary Compensation Table. Shown below is information concerning the
annual and long-term compensation for services in all capacities to ADT 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 ADT, including three executive
officers of subsidiaries of ADT (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION(1) SHARES
-------------------------------- UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS 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 ADT 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 ADT 1995 -0- -0- -0- -0-
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(5)
Holdings PLC 1994 $ 188,827 $ 135,000 25,000 $ 14,138(5)
Michael J. Richardson(6) 1996 $ 335,000 $ 222,705 40,000 $ 6,461(7)
Chief Executive Officer of ADT 1995 $ 314,000 $ 145,245 50,000 $ 6,461(7)
Automotive, Inc. 1994 $ 300,000 $ 115,000 45,000 $ 6,480(7)
Stephen J. Ruzika(8) 1996 $ 686,306 $1,100,000(9) 208,333 $ 40,323(10)
Chief Financial Officer; 1995 $ 653,625 $ 250,000 500,000 $ 37,432(10)
Executive Vice President; Director 1994 $ 622,500 $ 200,000 250,000 $ 35,639(10)
</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 in "Employment Contracts, Termination of
Employment and Change in Control Arrangements" and above in "Interest of
Certain Persons in the Merger," a change in control of ADT 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
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<PAGE> 99
other compensation to subscribe for options, at the rate of $2.50 per
option, to subscribe for ADT 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 L851,344, 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, a portion of which are
referred to in note (2) above, were the equivalents of L1,217,341 and
L511,126, respectively.
(4) Represents salary since joining ADT Security 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 ADT 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 ADT 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 ADT 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 ADT 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 $1,636 for 1996, 1995 and 1994, respectively, which is the
estimated aggregate incremental cost to ADT of providing Mr. Ruzika with
supplemental term life insurance.
Option Grants in Last Fiscal Year. Shown below are all grants of share
options to the Named Officers during the fiscal year ended December 31, 1996.
The following table shows, along with certain information, hypothetical
realizable values of share options granted for the last fiscal year, at assumed
rates of cumulative share price appreciation over the ten-year life of such
options. These assumed rates of appreciation are set by the rules of the SEC and
are not intended to forecast appreciation of the price of the ADT Common Shares.
These hypothetical values have not been discounted to reflect their present
values.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
OPTIONS OF SHARE PRICE
GRANTED TO MARKET EXERCISE APPRECIATION
EMPLOYEES PRICE OR FOR OPTION TERM(2)
OPTIONS IN FISCAL ON DATE BASE PRICE EXPIRATION -------------------------
NAME GRANTED(1) YEAR OF GRANT ($/SHARE) DATE 5% 10%
- ---------------------------- ---------- ---------- -------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael A. Ashcroft 5,000,000 78.3% $ 14.75 $15.00 Aug 4, 2003 $30,968,000 $74,713,000
Raymond A. Gross 100,000 1.6% $16.375 $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Ronnie G. Lakey 100,000 1.6% $16.375 $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Michael J. Richardson 40,000 0.6% $16.375 $16.50 May 6, 2006 $ 407,000 $ 1,039,000
Stephen J. Ruzika 208,333 3.3% $ 14.75 $15.00 April 29, 2004 $ 1,452,000 $ 3,567,000
</TABLE>
93
<PAGE> 100
- ---------------
(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 ADT Common Shares, respectively. At the same time as
the number of 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. See "The Merger
Agreement--Certain Covenants--Certain Employee Benefits Matters."
(2) Gains are reported net of the option exercise price but before taxes
associated with exercise. Mr. Ashcroft and Mr. Ruzika have paid a
subscription price for these options of $2.50 per option. Accordingly, for
the purpose of calculating the potential realizable value, $2.50 has been
added to the exercise price. The amounts shown represent certain assumed
rates of appreciation only. Actual gains, if any, on option exercises are
dependent on the future price performance of the ADT 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 ADT 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
VALUE IN-THE-MONEY
SHARES ACQUIRED REALIZED ON NUMBER OF UNEXERCISED OPTIONS AT
ON EXERCISE OF EXERCISE OF OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)(2)
OPTIONS IN OPTIONS IN --------------------------- ---------------------------
NAME FISCAL YEAR FISCAL YEAR EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Ashcroft 825,000 $ 6,626,250 9,700,000 1,550,000 $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 ADT 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 which has
been taken into account for the purpose of valuing these options.
Certain Defined Benefit Plans. ADT 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 ADT. 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 ADT's subsidiaries, participate.
Mr. Richardson is a participant in the pension plan maintained by ADT Group
PLC (the "ADT Group Plan"). Mr. Richardson is the only Named Officer who
participates in 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 L146,095. 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.
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ADT, Inc. maintains an 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 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 ADT'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. ADT 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. ADT 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 ADT 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
ADT 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 ADT 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 ADT 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. ADT 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 the ADT Group Plan. Such annual payments
will not be less than $450,000. ADT 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 ADT, 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 ADT which breach
(except for a material breach) is not cured within 30 days, if he is
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removed from his position as Chairman of the ADT 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 ADT.
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 ADT 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 ADT 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. At the Effective Time, Mr. Ashcroft will be
paid $14,500,000 in full and final payment of severance payments to which he is
entitled and also in lieu of compensation to the end of 1997. See "Interests of
Certain Persons in the Merger--ADT Employment Agreements and Other
Arrangements."
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, ADT Operations 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 ADT as well as other compensation and benefit plans of ADT
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. At
the Effective Time, Mr. Ruzika will be paid $4,516,900 in full and final payment
of severance payments to which he is entitled. See "Interests of Certain Persons
in the Merger--ADT Employment Agreements and Other Agreements."
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 services 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 ADT 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 the 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 ADT 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's 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 ADT's voting stock (the
triggering percentage has been reduced from 40 per cent to 35 per cent because
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the Laidlaw Group's beneficial ownership of ADT's voting stock is less than 20
per cent); (2) the Laidlaw Group becomes the beneficial owner of more than 45
per cent of ADT's outstanding voting stock; (3) there is a change of 50 per cent
or more in the composition of ADT'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 ADT (other than by virtue of membership
on the ADT Board or a committee of the ADT Board); (5) ADT 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 ADT or ADT, Inc. approve a
merger, consolidation or a sale or disposition of all, or substantially all, of
the assets of ADT 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
ADT or ADT, Inc.). The Merger Agreement provides that the Merger will be deemed
a change in control for purposes of the ADT SERP, the Supplemental Benefit
Agreement and Mr. Gross's severance agreement (referred to below). See "Interest
of Certain Persons in the Merger--ADT Employment Agreement and Other
Arrangements."
Mr. Richardson entered into an employment agreement with ADT Automotive
Holdings, the corporate parent of ADT Automotive, 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 ADT. 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 ADT Board (the "Remuneration Committee")
has considered the recommendations of ADT'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 ADT and to assure attention to ADT's
performance pending resolution of the Western Offer, on February 27, 1997, on
the recommendation of the Remuneration Committee, the ADT Board unanimously
approved a severance agreement between Mr. Gross and ADT Security 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 ADT'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
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of ADT (other than by virtue of membership on the ADT Board or a committee of
the ADT Board); or (4) the shareholders of ADT approve a merger, consolidation
or a sale or disposition of all, or substantially all, of the assets of ADT in
which ADT is not the surviving entity.
In 1996, the Remuneration Committee 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 ADT 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 ADT. At the time that the
Remuneration Committee approved these changes, the closing price of the ADT
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 ADT Common
Share price exceeds $21.00 for a continuous period of 30 trading days and
$200,000 each time the ADT 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
ADT 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 was terminated in May 1997. The agreement provided that Mr.
Danneberg, as an independent consultant, would serve as Chairman of Sonitrol
Corporation ("Franchisor") and certain franchisees of Franchisor owned or
acquired by affiliates of ADT, Inc. Under the terms of the agreement, ADT, Inc.
paid Mr. Danneberg a monthly fee of $15,000, and Mr. Danneberg was reimbursed
directly for all reasonable out-of-pocket business expenses.
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ADT MERGER PROPOSAL ON RECAPITALIZATION
At the ADT Meeting, ADT shareholders will be asked to approve the
Recapitalization Proposal, as required under the terms of the Merger Agreement.
The Recapitalization Proposal includes:
(a) the consolidation and division of the ADT Common Shares, par value
$0.10 per share, into New ADT Common Shares, par value $0.20 per share,
such that holders of ADT Common Shares outstanding immediately before the
Effective Time will be entitled to 0.48133 (subject to adjustment under
certain circumstances) of a New ADT Common Share for each ADT Common Share
then held, all fractional entitlements being canceled for cash equal to the
value thereof;
(b) an increase in the authorized share capital of ADT to $275,750,000
by the creation of (i) an additional 640,000,000 New ADT Common Shares (or,
if the ADT Capital Increase Proposal is passed, 500,000,000 New ADT Common
Shares) and (ii) a number of New ADT Common Shares equal in aggregate
nominal value to the aggregate nominal value of fractional entitlements
canceled as aforesaid, and approval to issue all such shares (to the extent
not otherwise authorized); and
(c) amendments to the ADT Bye-Laws to reflect the above.
The Reverse Stock Split. The Reverse Stock Split which comprises part (a)
of the Recapitalization Proposal is required by the Merger Agreement in order
that the Exchange Ratio give effect to the share ownership of Tyco shareholders
and ADT shareholders in the Combined Company, as contemplated by the Merger
Agreement.
Fractional shares arising on the Reverse Stock Split will not be issued and
each ADT shareholder's fractional entitlement will be canceled in exchange for a
cash payment equal to the value of that entitlement. The value will be
calculated by reference to the closing price of Combined Company Common Shares
on the NYSE on the Effective Date, rounded to the nearest whole cent. Checks for
this amount will be mailed to ADT shareholders within 30 days of the Merger
becoming effective. Payment will be made in US dollars, except to those ADT
shareholders with registered addresses in the United Kingdom, who will receive
payment in sterling.
The Share Amendment. ADT currently has authorized 220,000,000 ADT Common
Shares, of which 157,289,274 were issued and outstanding as of May 30, 1997, and
125,750,000 preference shares, of which none are issued and outstanding. See
"Description of Combined Company Share Capital."
Based on the number of Tyco Common Shares outstanding as of May 30, 1997,
and the number of stock options and Warrants of Tyco outstanding as of that date
(including stock options that are not currently exercisable), up to 172,734,479
Combined Company Common Shares will be required for issuance in connection with
the Merger. After giving effect to the Reverse Stock Split, and taking into
account 18,381,932 New ADT Common Shares that would be reserved for issuance
under share option and incentive plans of ADT and the LYONs, only 15,910,022
authorized New ADT Common Shares would be available for issuance in connection
with the Merger. Accordingly, up to 156,824,457 additional New ADT Common Shares
(or if the ADT Capital Increase Proposal is passed, 16,824,457 authorized New
ADT Common Shares) are required to be authorized for issuance as Combined
Company Common Shares in connection with the Merger, and the authorization of
such additional New ADT Common Shares is required by the terms of the Merger
Agreement.
In addition, the ADT Board believes that it is desirable to have available
additional authorized New ADT Common Shares for future stock dividends, employee
benefit plans, financings, acquisitions, or other corporate purposes. Part
(b)(i) of the Recapitalization Proposal therefore requests that the ADT
shareholders approve the creation of a total of 640,000,000 New ADT Common
Shares (or, if the ADT Capital Increase Proposal is passed, 500,000,000 New ADT
Common Shares) and the issuance of those shares. Other than as required by, or
as a result of, the Merger Agreement and the acquisitions of INBRAND and
Keystone (see "Current Developments"), ADT has no present plan to issue the New
ADT Common Shares to be authorized. The Combined Company Board would have the
sole discretion to issue the additional Combined Company Common Shares from time
to time for any corporate purpose
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without further action by shareholders, except as may be required by stock
exchange rules, and without first offering such shares to shareholders.
If approved, the Recapitalization Proposal would become effective
immediately prior to the consummation of the Merger. Approval of the
Recapitalization Proposal by ADT shareholders is a condition to the parties'
obligation to consummate the Merger. See "The Merger Agreement--Conditions to
the Merger--Conditions to Each Party's Obligations to Effect the Merger."
THE ADT BOARD UNANIMOUSLY RECOMMENDS THAT ADT SHAREHOLDERS VOTE FOR THE
RECAPITALIZATION PROPOSAL.
OTHER ADT MEETING PROPOSALS
In addition to the ADT Merger Proposals, ADT shareholders are also being
asked at the ADT Meeting to vote upon the Other ADT Meeting Proposals, which are
the ADT Bye-Law Amendment Proposal, the Option and Warrant Proposal and the ADT
Capital Increase Proposal. The ADT Bye-Law Amendment Proposal will only become
effective if the ADT Merger Proposals are approved by the shareholders of ADT.
The Merger is not conditioned on the approval of the Other ADT Meeting
Proposals.
THE OPTION AND WARRANT PROPOSAL
Amendment of Long Term Incentive Plan
In connection with the Merger, the Combined Company intends to amend its
stock incentive plan, the ADT Limited 1993 Long Term Incentive Plan (as revised,
the "Amended Long Term Incentive Plan"). All outstanding ADT or Combined Company
options (other than those granted under ADT's U.K. Executive Share Option Plan)
will be administered under the Amended Long Term Incentive Plan, including
former ADT awards and any former Tyco awards assumed by the Combined Company
pursuant to the Merger Agreement. In addition, it is expected that future grants
of options and other awards will be made to key employees and directors of the
Combined Company under the Amended Long Term Incentive Plan. The shareholders of
ADT are being requested to approve the adoption of the Amended Long Term
Incentive Plan.
Amended Long Term Incentive Plan. The following summary of the Amended
Long Term Incentive Plan is qualified in its entirety by reference to the full
text of the plan, a copy of which is attached as Annex V to this Joint Proxy
Statement/Prospectus.
The Amended Long Term Incentive Plan provides for the grant of options,
stock appreciation rights and other stock-based awards to officers, key
employees or directors of the Combined Company or its subsidiaries. The Amended
Long Term Incentive Plan is a discretionary plan and, accordingly, it is not
possible at present to determine the amount or form of any award which will be
available for grant to any individual during the term of the plan. The maximum
number of Combined Company Common Shares which may be granted in respect of all
awards during the term of the Amended Long Term Incentive Plan is 22 million
shares (after giving effect to the Merger and the Reverse Stock Split),
representing approximately nine percent of the Combined Company Common Shares to
be outstanding upon consummation of the Merger and the Reverse Stock Split.
After providing for existing option commitments, including outstanding ADT
options and Tyco options to be assumed upon consummation of the Merger, awards
with respect to approximately 9.8 million Combined Company Common Shares will be
available for grant under the plan. The maximum number of shares available for
awards under the plan may be adjusted in the event of certain capital changes as
described below. Shares related to prior grants that are forfeited, terminated
or canceled, shall again become eligible for grant under the Amended Long Term
Incentive Plan. No awards may be issued under the Amended Long Term Incentive
Plan after June 30, 2007. The maximum number of Combined Company Common Shares
in respect of which awards may be granted to any individual in a single year
under the plan is 3 million shares (after giving effect to the Merger and the
Reverse Stock Split).
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The Amended Long Term Incentive Plan will be administered by a Remuneration
Committee of the Board of Directors of the Combined Company (the "Combined
Company Remuneration Committee") (or by the Board itself). Each member of the
Combined Company Remuneration Committee will be a "non-employee director,"
within the meaning of Rule 16b-3 promulgated under the Exchange Act, to the
extent necessary to comply with that Rule. Under the terms of the Amended Long
Term Incentive Plan, the Combined Company Remuneration Committee in its sole
discretion may grant awards in such amounts and in such of the forms permitted
by the Amended Long Term Incentive Plan as it deems appropriate. The permissible
forms of awards under the Amended Long Term Incentive Plan are: stock options
(both incentive stock options and other stock options); stock appreciation
rights; performance awards; dividend equivalent rights; and other stock based
grants. The material terms and features of the various forms of awards are set
forth below.
Incentive Stock Options - These are stock options that are granted pursuant
to the restrictions of Section 422 of the Code. Generally, incentive stock
options may not be exercised more than ten years after the date they are granted
and may not have an option price less than 100% of the fair market value of a
Combined Company Common Share on the date they are granted. Payment of the
option price may be made in cash, Combined Company Common Shares, other property
or any combination thereof, as determined by the Combined Company Remuneration
Committee.
Other Stock Options - These are options to purchase Combined Company Common
Shares under terms other than those applicable to incentive stock options. Such
options shall have such terms and conditions as are established by the Combined
Company Remuneration Committee, except that the exercise price for such options
generally may not be less than the fair market value of a Combined Company
Common Share on the date of grant. If the award requires that the option be paid
for by the recipient, or if a discounted exercise price is expressly granted in
lieu of a reasonable amount of salary or bonus, the exercise price may be lower
than the fair market value of a Combined Company Common Share on the date of
grant, but may in no event be less than 85% of such fair market value. Payment
of the option price may be made in cash, Combined Company Common Shares or any
combination thereof, as determined by the Combined Company Remuneration
Committee.
Stock Appreciation Rights - These are rights to receive an amount equal to
the appreciation of Combined Company Common Shares over a grant price
established at the time of award. The grant price generally may not be less than
the fair market value of a Combined Company Common Share on the date of grant,
except that if the award requires that the stock appreciation right be paid for
by the recipient, or if a discounted grant price is expressly granted in lieu of
a reasonable amount of salary or bonus, the grant price may be established at
not less than 85% of the fair market value of a Combined Company Common Share on
the date of grant. Stock appreciation rights shall have such other terms and
conditions as are established by the Combined Company Remuneration Committee,
may be granted in tandem with options or separately and may be terminated by the
Combined Company Remuneration Committee.
Performance Awards - These are rights to receive amounts at a future date
based upon the Combined Company's performance during the period between the date
of grant and such future date. Performance criteria with respect to which awards
may be issued under the Amended Long Term Incentive Plan include stock price,
market share, sales, earnings, earnings per share, earnings before income taxes,
cash flow and return on equity. The amount of a performance award may be
denominated or payable in cash, Combined Company Common Shares or other
securities or property.
Dividend Equivalent Rights - These are rights to receive payments equal to
dividends paid on a number of Combined Company Common Shares determined by the
Combined Company Remuneration Committee. The Combined Company Remuneration
Committee may provide that such payments will be deemed to have been reinvested
in additional Combined Company Common Shares or otherwise reinvested.
Other Stock-Based Grants - These are awards based on, or related to,
Combined Company Common Shares that do not constitute any of the awards
described above. Such awards shall have such terms and conditions as are
established by the Combined Company Remuneration Committee.
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The number and type of shares with respect to which awards may be made
under the Amended Long Term Incentive Plan, the number of Combined Company
Common Shares subject to outstanding options, the exercise price of options, and
the grant price of stock appreciation rights may be adjusted by the Combined
Company Remuneration Committee in the event of certain corporate transactions or
events, including a dividend, recapitalization, subdivision, consolidation or
reduction of capital, reorganization, merger, amalgamation, scheme of
arrangement, split-up, spin-off or combination involving ADT or a repurchase or
exchange of Combined Company Shares or similar event. The Combined Company
Remuneration Committee is also authorized to make certain adjustments (i) to
ensure comparability with the terms of any awards assumed in connection with a
corporate acquisition, (ii) to reflect certain unusual events such as changes in
applicable law or accounting principles, or (iii) in the event of a "change in
control" of the Combined Company, as defined in the Amended Long Term Incentive
Plan (including, in such event, accelerating the time of exercise or payment of
awards under the Amended Long Term Incentive Plan).
The Board may terminate or amend the Amended Long Term Incentive Plan,
except that any such amendment shall require shareholder approval if (i) the
amendment would increase the number of Combined Company Shares available for
awards under the Amended Long Term Incentive Plan, or (ii) such shareholder
approval is necessary to comply with applicable laws or regulatory requirements.
Amendment and Substitution of Awards. After the Merger each Tyco option
will be replaced with a substitute award under the Amended Long Term Incentive
Plan. See "--Tyco Stock Options and Other Rights" below. Each such substitute
award will be issued with respect to the same number of Combined Company Common
Shares as the number of Tyco shares to which the original award related, and
will have the same exercise price and same terms and conditions as such original
award.
In addition, effective as of the Merger the terms of each outstanding
option to purchase shares of common stock of ADT will be amended to reflect the
Merger and the Reverse Stock Split. As amended, each such option will entitle
the recipient to purchase a number of Combined Company Common Shares equal to
the product of .48133 and the number of ADT Common Shares to which the original
award related, and will have an exercise price equal to the exercise price of
such original option divided by .48133. Other than these adjustments, the
outstanding ADT options will be subject to the same terms and conditions as
applied prior to the Merger. Except for those options granted under ADT's U.K.
Executive Share Option Plan, all outstanding options to purchase ADT Common
Shares will, after the date the Amended Long Term Incentive Plan is adopted, be
administered under the Amended Long Term Incentive Plan. It is expected that
ADT's Senior Executive Share Option Plan, US Stock Option Plan 1990 and
International Executive Share Option Plan will be terminated.
Effect of Plan Amendment in the Event the Merger is not Consummated. If
the Merger does not occur, the Amended Long Term Incentive Plan will nonetheless
be effective if approved by ADT shareholders, but will differ from the
description given above as follows. Awards issued under the Amended Long Term
Incentive Plan will in that case continue to be issued with respect to ADT
Common Shares, and the Amended Long Term Incentive Plan will continue to be
administered by the Remuneration Committee of the ADT Board. The maximum number
of ADT Common Shares which may in that case be granted to ADT employees in
respect of all awards during the term of the Amended Long Term Incentive Plan
will remain unaltered. After providing for outstanding ADT options, awards with
respect to 2.6 million ADT Common Shares will be available for grant under the
Amended Long Term Incentive Plan. In addition, no awards will be issued under
the Amended Long Term Incentive Plan in substitution for Tyco options. If the
Merger does not occur, prior outstanding options to purchase ADT Common Shares
will not be modified as described in the previous paragraph, except that all
such options other than those granted under ADT's U.K. Executive Share Option
Plan will henceforth be administered under the Amended Long Term Incentive Plan.
Tax Treatment. The following is a brief summary of the U.S. Federal income
tax rules currently generally applicable to stock options granted under the
Amended Long Term Incentive Plan. In the event
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the Merger is not consummated, the following should be read substituting "ADT"
for "the Combined Company."
The grant of an incentive stock option will have no immediate tax
consequences to the optionee or to the Combined Company. The exercise of an
incentive stock option by the payment of cash to the Combined Company will
generally have no immediate tax consequences to the optionee (except to the
extent it is an adjustment in computing alternative minimum taxable income) or
to the Combined Company. If an optionee holds the shares acquired pursuant to
the exercise of an incentive stock option for the required holding period, the
optionee generally will realize long-term capital gain or long-term capital loss
upon a subsequent sale of the shares in the amount of the difference between the
amount realized upon the sale and the purchase price of the shares (i.e., the
exercise price). In such a case, no deduction will be allowable to the Combined
Company in connection with the grant or exercise of the incentive stock option
or the sale of Combined Company Common Shares acquired pursuant to such
exercise.
If, however, an optionee disposes of the shares prior to the expiration of
the required holding period (a "disqualifying disposition"), the optionee will
recognize ordinary income (and the Combined Company will be entitled to a
deduction) equal to the excess of the fair market value of the shares on the
date of exercise (or the proceeds of the disposition, if less) over the exercise
price. Special rules apply in the event all or a portion of the exercise price
is paid in the form of stock.
The grant of a stock option other than an incentive stock option (a
"non-qualified stock option") will have no immediate tax consequences to the
optionee or to the Combined Company. Upon the exercise of a non-qualified stock
option, the optionee will recognize ordinary income (and the Combined Company
will be entitled to a deduction) in an amount equal to the excess of the fair
market value of the Combined Company Common Shares on the date of the exercise
of the option over the exercise price. The optionee's tax basis in the shares
will be the exercise price plus the amount of ordinary income recognized by the
optionee, and the optionee's holding period will commence on the date the shares
are transferred. Special rules apply in the event all or a portion of the
exercise price is paid in the form of stock. Other special rules may also apply
to a participant who is subject to Section 16 of the Exchange Act.
Upon a subsequent sale of shares acquired pursuant to the exercise of a
non-qualified stock option, any difference between the optionee's tax basis in
the shares and the amount realized on the sale will be treated as long-term or
short-term capital gain or loss, depending on the holding period of the shares.
Certain limitations apply to the Combined Company's deduction of
compensation payable to the person serving as its Chief Executive Officer or to
any of its four other most highly compensated executives in office as of the end
of the year in which such compensation would otherwise be deductible. In
general, the Combined Company may not deduct compensation, other than
"performance-based" compensation, payable to such an executive in excess of $1
million for any year. It is expected that most awards granted under the Amended
Long Term Incentive Plan will qualify as performance-based compensation and
hence will be fully deductible. Nonetheless, the Combined Company will weigh the
benefits of compliance with Section 162(m) against the burdens thereof, and
reserves the right to pay compensation that may not be fully deductible if it is
determined to be in the Combined Company's interest to do so.
Ratification of Outstanding ADT Options
The shareholders of ADT are being requested to ratify all stock options
currently outstanding under ADT's share option and incentive plans, which the
ADT Board believes is in the best interests of ADT.
The following tables summarize the stock options currently outstanding
under ADT's share option and incentive plans, showing the number of options and
the range of exercise prices. Each such option will continue to vest according
to the schedule applicable upon grant. (Most of the options vest in three equal
installments commencing on the first anniversary of the date of grant.) The data
shown for options
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outstanding reflect the number of ADT Common Shares with respect to which
options have been granted, without giving effect to the Merger or the Reverse
Stock Split.
ADT 1993 LONG TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING RANGE OF EXERCISE PRICES
---------- ----------------------------
<S> <C> <C> <C> <C>
Michael A. Ashcroft................................. 10,350,000 $ 8.00 to $15.00
Raymond A. Gross.................................... 100,000 $16.50
Ronnie G. Lakey..................................... 120,000 $12.00 to $16.50
Michael J. Richardson............................... 360,000 $ 8.00 to $16.50
Stephen J. Ruzika................................... 1,033,333 $ 8.00 to $15.00
All Executive Officers.............................. 11,963,333 $ 8.00 to $16.50
All employees other than Executive Officers......... 1,607,500 $ 9.00 to $20.38
Total options outstanding........................... 13,570,833 $ 8.00 to $20.38
</TABLE>
ADT SENIOR EXECUTIVE SHARE OPTION PLAN
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING RANGE OF EXERCISE PRICES
---------- ----------------------------
<S> <C> <C> <C> <C>
Michael A. Ashcroft................................. 900,000 -- $11.69 --
Stephen J. Ruzika................................... 550,000 $ 9.00 to $11.69
All Executive Officers.............................. 1,450,000 $ 9.00 to $11.69
All employees other than Executive Officers......... 300,000 $11.69
Total options outstanding........................... 1,750,000 $ 9.00 to $11.69
</TABLE>
ADT US STOCK OPTION PLAN 1990
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING RANGE OF EXERCISE PRICES
---------- ----------------------------
<S> <C> <C> <C> <C>
Ronnie G. Lakey..................................... 25,000 -- $ 9.00 --
Michael J. Richardson............................... 45,000 $ 9.00 to $13.35
Stephen J. Ruzika................................... 75,000 $13.35
All Executive Officers.............................. 145,000 $ 9.00 to $13.35
All employees other than Executive Officers......... 715,735 $ 9.00 to $29.60
Total options outstanding........................... 860,735 $ 9.00 to $29.60
</TABLE>
ADT INTERNATIONAL EXECUTIVE SHARE OPTION PLAN
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING RANGE OF EXERCISE PRICES
---------- ----------------------------
<S> <C> <C> <C> <C>
All employees other than Executive Officers......... 35,000 L5.15 to L17.40
Total options outstanding........................... 35,000 L5.15 to L17.40
</TABLE>
ADT UK EXECUTIVE OPTION SCHEME (1984)
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING RANGE OF EXERCISE PRICES
---------- ----------------------------
<S> <C> <C> <C> <C>
All employees other than Executive Officers......... 83,000 L5.50 to L18.40
Total options outstanding........................... 83,000 L5.50 to L18.40
</TABLE>
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Tyco Stock Options and Other Rights
Stock Options. The Merger Agreement provides that the Combined Company
will assume each outstanding option granted by Tyco to purchase Tyco Common
Shares. Following consummation of the Merger, each such option will constitute
an option to acquire a number of Combined Company Common Shares equal to the
number of Tyco Common Shares that were issuable upon exercise of the option
immediately prior to the Merger, on the same terms and conditions. See "The
Merger Agreement-- Treatment of Tyco Stock Options." After the Merger, the Tyco
options assumed by the Combined Company will be administered under the Amended
Long Term Incentive Plan. There are currently outstanding options to acquire
3,884,479 Tyco Common Shares issued under the Tyco Option Plan, and options to
acquire 271,188 Tyco Common Shares issued by entities previously acquired by
Tyco whose stock options were assumed by Tyco.
Options under the Tyco Option Plan are issuable to employees of Tyco and
its subsidiaries, other than executive officers subject to reporting under
Section 16(a) of the Exchange Act. The options generally have a term of ten
years from the date of grant, and are exercisable at any exercise price and on a
vesting schedule as determined by the Tyco Board. None of the options issued
under the Tyco Option Plan is currently exercisable. The option exercise prices
for options issued under the Tyco Option Plan range from $26.6875 to $59.50 per
share. All of the stock options assumed by Tyco are currently exercisable, with
exercise prices ranging from $0.00 to $105.64 per share.
Tyco Warrants. The Merger Agreement also provides that the Combined
Company will assume each outstanding Warrant to acquire Tyco Common Shares.
Following consummation of the Merger, each Warrant will constitute a warrant to
acquire a number of Combined Company Common Shares equal to the number of Tyco
Common Shares that were issuable upon exercise of the Warrant immediately prior
to the Merger, on the same terms and conditions. See "The Merger
Agreement--Treatment of Tyco Warrants." The Warrants were issued by Kendall, and
assumed by Tyco following its acquisition of Kendall in October 1994. Each A
Warrant presently entitles its holder to purchase 2.5897 Tyco Common Shares at
an exercise price of $5.97 per share, and each B Warrant presently entitles its
holder to purchase 2.5897 Tyco Common Shares at an exercise price of $7.96 per
share. There are currently outstanding A Warrants to acquire 127,568 Tyco Common
Shares and B Warrants to acquire 82,610 Tyco Common Shares.
Tyco Restricted Stock Plan. Tyco's 1994 Restricted Stock Plan allows the
Compensation Committee of the Tyco Board to grant restricted stock to Tyco's
senior executive officers as well as other key members of Tyco management.
The Merger Agreement provides that the Combined Company will assume the
1994 Restricted Stock Plan upon consummation of the Merger. See "The Merger
Agreement--Tyco Restricted Stock Plan." The Combined Company Common Shares
issuable in exchange for restricted Tyco Common Shares will be subject to the
same vesting schedule and other provisions under the Tyco Restricted Stock Plan
as were applicable to the restricted Tyco Common Shares.
General
Approval of the Option and Warrant Proposal by ADT shareholders is not
required under the Merger Agreement and is not a condition to the Merger. Even
if the Option and Warrant Proposal is not approved, the existing ADT stock
options will remain outstanding in accordance with their terms regardless of
whether the Merger is consummated. In addition, if the Merger is consummated,
the existing Tyco Stock Options and Warrants will be assumed by the Combined
Company regardless of whether the Option and Warrant Proposal is approved.
THE ADT BOARD UNANIMOUSLY RECOMMENDS THAT ADT SHAREHOLDERS VOTE FOR
ADOPTION OF THE AMENDED LONG TERM INCENTIVE PLAN, RATIFICATION OF ALL OPTIONS
CURRENTLY OUTSTANDING UNDER ADT'S SHARE OPTION AND INCENTIVE PLANS AND,
CONTINGENT ON THE CONSUMMATION OF THE MERGER, ASSUMPTION OF THE TYCO STOCK
OPTIONS AND WARRANTS.
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ADT BYE-LAW AMENDMENT PROPOSAL
Bye-Law 45 of the ADT Bye-Laws currently provides that a general meeting of
ADT shareholders may be adjourned with the consent, or on the direction, of
shareholders at the meeting. The ADT Board is proposing the ADT Bye-Law
Amendment Proposal to approve an amendment to the ADT Bye-Laws to vest in the
ADT Board authority to adjourn the meeting without the approval of the
shareholders at the meeting. Allowing the ADT Board in its discretion to adjourn
a general meeting without a poll of shareholders will simplify adjournment
procedures. It also may avoid contention over adjournment, where an adjournment
is warranted because of a change in circumstances occurring since the date for
the general meeting was originally set. Shareholders at a general meeting would
retain the right to direct that the meeting be adjourned, as under the existing
ADT Bye-Laws. The ADT Bye-Law Amendment Proposal will become effective only if
the ADT Merger Proposals are approved by the shareholders of ADT.
It is currently anticipated that the ADT Meeting relating to the Merger
will take place before the Western Proposals Meeting, which has already been set
for July 8, 1997. If the ADT Merger Proposals are approved at the ADT Meeting,
it is possible, although not certain, that the Merger will become effective
before the date of the Western Proposals Meeting. In that event, the Combined
Company Board will consist of the eight present directors of Tyco, Mr. Ashcroft
and two current independent directors of ADT. In addition, the Combined Company
will have issued Combined Company Common Shares in the Merger to the
shareholders of Tyco representing approximately 64% of the then outstanding
share capital of the Combined Company.
In these circumstances, the ADT Board believes that it may be inappropriate
for the Western Proposals to be voted upon at the Western Proposals Meeting to
be held on July 8, 1997. There are also other circumstances in which ADT
believes this may be inappropriate, such as where the outcome of the Merger
remains unclear or the Western Offer has been amended or has been withdrawn.
Under Bermuda law, however, it is not possible for the Western Proposals Meeting
simply to be canceled or rescheduled.
Accordingly, at the ADT Meeting, ADT shareholders will be asked to consider
and vote upon a resolution, which will only become effective upon the approval
of the ADT Merger Proposals by the shareholders of ADT, to approve an amendment
to Bye-Law 45 of the ADT Bye-Laws to grant the power of adjournment to the ADT
Board. The amended Bye-Law will read in full as follows:
"The chairman of the meeting may, with the consent of the meeting, and
shall, if so directed by the meeting or (prior to or at the meeting) by the
Board of Directors (or a duly authorized committee thereof), adjourn the
meeting, from time to time and from place to place as the chairman of the
meeting shall determine (subject to any directions from the Board of
Directors or a duly authorized committee thereof). Whenever a meeting is
adjourned for more than five days, the Directors shall give notice of the
adjourned meeting in such manner as they consider expedient. No business
shall be transacted at any adjourned meeting other than the business which
might have been transacted at the meeting from which the adjournment took
place."
An amendment to the ADT Bye-Laws requires the approval of the shareholders
of ADT in general meeting. Approval of the ADT Bye-Law Amendment Proposal is not
a condition of the Merger.
If the ADT Bye-Law Amendment Proposal becomes effective, it is presently
intended that the Western Proposals Meeting will be adjourned to a date to be
determined by the ADT Board or the Combined Company Board, as the case may be,
unless at that time Western has acquired a majority of the outstanding ADT
Common Shares. The purpose of the adjournment would be to allow the Western
Proposals to be considered at a time when the outcome of the Merger is clear and
all shareholders of ADT (including such persons as may become ADT shareholders
pursuant to the Merger) are able properly to consider and vote upon the Western
Proposals. The ADT Board will continue to consider the question of whether to
adjourn the Western Meeting and will make a decision on such adjournment in the
best interests of ADT in light of circumstances prevailing at the time.
THE ADT BOARD UNANIMOUSLY RECOMMENDS THAT ADT SHAREHOLDERS VOTE FOR THE ADT
BYE-LAW AMENDMENT PROPOSAL.
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ADT CAPITAL INCREASE PROPOSAL
At the ADT Meeting, ADT shareholders will be asked to approve an increase
in the authorized share capital of ADT to $175,750,000 by the creation of an
additional 280,000,000 ADT Common Shares. The ADT Capital Increase Proposal is
not conditioned on the approval of the ADT Merger Proposals, the Option and
Warrant Proposal or the ADT Bye-Law Amendment Proposal. If the ADT Capital
Increase Proposal is duly approved, the number of shares to be created under the
Recapitalization Proposal will be adjusted accordingly, after taking into
account the Reverse Stock Split. See "ADT Merger Proposal on Recapitalization".
The ADT Capital Increase Proposal contemplates the creation of an
additional 280,000,000 ADT Common Shares which the ADT Board believes it is
desirable to have available for future financings, acquisitions and other
corporate purposes if the Merger does not become effective for any reason. The
ADT Board would have the discretion to issue the additional ADT Common Shares
from time to time for any corporate purpose without further action by
shareholders, except as may be required by stock exchange rules.
THE ADT BOARD UNANIMOUSLY RECOMMENDS THAT ADT SHAREHOLDERS VOTE FOR THE ADT
CAPITAL INCREASE PROPOSAL.
PROPOSAL TO ADJOURN THE TYCO MEETING
Tyco shareholders are being asked to authorize a vote in favor of any
proposal to adjourn the Tyco Meeting to a later date which adjournment is
proposed or recommended by the Chairman of the Tyco Meeting and against any
other proposal to adjourn the Tyco Meeting to a later date (the "Tyco
Adjournment Proposal"). There is no present intention to adjourn the Tyco
Meeting. However, without modifying Tyco's obligations under the Merger
Agreement, the Chairman could determine to propose to adjourn the Tyco Meeting
for any reason deemed advisable and in the best interests of Tyco shareholders.
For example, the Chairman could determine to propose to adjourn the Tyco Meeting
to a later date if (i) proxies representing less than the minimum number of
votes necessary to approve the Merger and the Merger Agreement have been
received, and proxies representing a substantial number of Tyco Common Shares
have not been received, at or prior to the Tyco Meeting, or (ii) the effective
date for a reduction of the capital gains tax rate for U.S. federal income tax
purposes was then imminent but likely to occur after the date of the Tyco
Meeting. By seeking the approval of Tyco shareholders for the Tyco Adjournment
Proposal, Tyco does not imply that the Tyco Meeting may not be adjourned or
postponed other than by a vote of Tyco shareholders. The affirmative vote of
holders of a majority of the Tyco Common Shares voting at the Tyco Meeting is
required to approve the Tyco Adjournment Proposal.
THE TYCO BOARD UNANIMOUSLY RECOMMENDS THAT TYCO SHAREHOLDERS VOTE FOR THE
TYCO ADJOURNMENT PROPOSAL.
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COMPARISON OF SHAREHOLDER RIGHTS
GENERAL
The rights of ADT shareholders are governed by Bermuda law and the ADT
Memorandum and the ADT Bye-Laws. The rights of Tyco shareholders are governed by
Massachusetts law and the Tyco Articles and the Tyco Bylaws. Upon consummation
of the Merger, the rights of ADT shareholders and of Tyco shareholders who
become shareholders of the Combined Company in the Merger will be governed by
Bermuda law, the ADT Memorandum (referred to herein as the "Combined Company
Memorandum") and the ADT Bye-Laws (referred to herein as the "Combined Company
Bye-Laws"). The following is a summary of the principal differences between the
current rights of Tyco shareholders and those of Combined Company shareholders
following the Merger.
The following discussions are not intended to be complete and are qualified
by reference to Bermuda law, Massachusetts law and the ADT Memorandum, the ADT
Bye-Laws, the Tyco Articles and the Tyco Bylaws. Copies of the ADT Memorandum,
the ADT Bye-Laws, the Tyco Articles and the Tyco Bylaws will be sent to holders
of ADT Common Shares and Tyco Common Shares upon request. See "Where You Can
Find More Information."
COMPARISON OF CURRENT TYCO SHAREHOLDER RIGHTS AND RIGHTS OF COMBINED COMPANY
SHAREHOLDERS FOLLOWING THE MERGER
Quorum. The Tyco Bylaws provide that holders of a majority of shares
entitled to vote generally in the election of directors constitutes a quorum.
Pursuant to the Combined Company Bye-Laws, the presence, either in person or by
proxy, of two holders of Combined Company Common Shares at any general meeting
constitutes a quorum.
Voting Rights. Massachusetts law provides that shareholders entitled to
vote shall have one vote for each share of stock owned by them and a
proportionate vote for a fractional share. Pursuant to the Tyco Bylaws, when a
quorum is present, any matter brought before a shareholder meeting shall be
decided by the vote of a majority of the votes entitled to be cast and are
present, either in person or by proxy, at such meeting, except where a larger
vote is otherwise required by law or the Tyco Articles. Neither Massachusetts
law nor the Tyco Articles or Bylaws contain a provision that allows shareholder
voting by a show of hands.
Under Bermuda law, questions proposed for consideration at a general
meeting shall be decided on a simple majority of votes or by such majority as
the bye-laws of a company may prescribe except where a larger majority is
required by law. Any question proposed for consideration at a general meeting
may be decided on a show of hands in which each shareholder present in person or
by proxy is entitled to one vote and casts such vote by raising his or her hand
unless, before or on the declaration of the result of a show of hands, a poll is
demanded by (i) the Chairman of the meeting, (ii) at least three shareholders
present in person or represented by proxy, (iii) any shareholder or shareholders
present in person or represented by proxy holding between them 10% of the total
voting rights of all the shareholders entitled to vote at such meeting, or (iv)
a shareholder or shareholders present in person or represented by proxy holding
shares in such company entitled to vote at such meeting and on which an
aggregate sum has been paid up equal to at least 10% of the total sum paid up on
all such shares entitled to vote. Where a poll has been demanded, every
shareholder present in person or by proxy is entitled to one vote for each share
held by him.
The Combined Company Bye-Laws provide that a Combined Company shareholder
is not entitled (except as a proxy for another shareholder) to be present or
vote at any meeting if such shareholder has been served, and failed to comply,
with a notice under the Combined Company Bye-Laws stating that such shareholder
must make an offer in accordance with the City Code (as defined below), as
applied by the Combined Company Bye-Laws (as described below), or, as the case
may be, in accordance with the Combined Company Bye-Laws. A shareholder of the
Combined Company also loses the right to vote for a period of 180 days if such
shareholder acquires three percent or more of the issued share capital of any
class of Combined Company shares, either alone or with others, and fails to
notify the Combined
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Company of such acquisition within two days or, already possessing three percent
or more, the shareholder fails to notify the Combined Company of a change in the
shareholder's interests amounting to one percent or more of the share capital of
any class and such shareholder is so notified by the Combined Company Board of
such loss of right. In addition, the Combined Company Bye-Laws provide that any
person who is known or believed by the Combined Company to be interested in
Combined Company Common Shares and has failed to comply with a notice from the
Combined Company requesting specified information regarding such person's
interests in shares in the Combined Company shall lose the right to vote for the
period during which such person fails to comply with the notice plus an
additional ninety days.
Massachusetts law has no cumulative voting provision, and the Tyco Articles
do not provide for such cumulative voting. Under cumulative voting, each
shareholder casts as many votes for directors as he has shares of stock
multiplied by the number of directors to be elected. Bermuda law allows, but
does not require, cumulative voting for the election of directors. Combined
Company shareholders do not have cumulative voting rights for the election of
directors, either under Bermuda law or under the Combined Company Bye-Laws.
Shareholder Proposals. Under the Tyco Bylaws, shareholder proposals or
nominations of persons for election to the Tyco Board to be submitted at a
shareholders meeting require advance notice. To be timely, such advance notice
must be received in writing by the Secretary of Tyco not less than sixty days
prior to the meeting in question and, if pertaining to the nomination of persons
for election to the Tyco Board, shall contain the name of the proposed nominee,
certain information required by Section 14 of the Exchange Act with respect to
the proposed nominee and a representation that the proposed nominee has
consented to being named in a proxy as a nominee for director and has consented
to serve as a director if elected.
Under Bermuda law, a shareholder wishing to move a resolution at an annual
general meeting of a company must give notice to the company of the resolution
at least six weeks before the meeting. If after notice has been given and an
annual general meeting is called for a date less than six weeks after the giving
of that notice, the notice shall be deemed to have been given in time. Only
shareholders who represent not less than one-twentieth of the total voting
rights of members having a right to vote at the meeting or who are one hundred
or more in number may requisition a resolution at an annual general meeting. The
Combined Company Bye-Laws provide that other than a director retiring at a
general meeting of shareholders or unless recommended by the Combined Company
Board, advance written notice to the Secretary of the Combined Company of
shareholder nominations of persons for election to the Combined Company Board is
required. To be timely, such notice must be received by the Secretary of the
Combined Company not less than six and not more than twenty-eight clear days
before the day appointed for the meeting at which such election is to be held.
Such notice must be given by a shareholder (not being the person to be proposed)
entitled to attend and vote at the meeting for which such notice is given and
must also include notice in writing signed by the person to be proposed of such
person's willingness to be elected.
Special Meeting of Shareholders. Massachusetts law provides that special
meetings of shareholders of a corporation with a class of voting stock
registered under the Exchange Act may be called by a corporation's president or
its board of directors, and, unless otherwise provided in the corporation's
articles of organization or bylaws, must be called by its clerk or other officer
upon written application of the owners of at least 40% of the corporation's
stock entitled to vote at such meeting. The Tyco Bylaws provide that a special
meeting of shareholders may be called by the chief executive officer or by the
Tyco Board on ten days' written notice or as otherwise provided by law. The
Combined Company Bye-Laws provide that the directors of the Combined Company are
authorized to call a special general meeting at any time on not less than five
days' notice. Pursuant to Bermuda law and the Combined Company Bye-Laws, the
Combined Company Board is also required, on the written request of Combined
Company shareholders holding at least 10% of the paid-up capital of the Combined
Company entitled to vote at a general meeting, to convene a special general
meeting of the Combined Company. If the directors do not convene a meeting
within twenty-one days from the date of the request, the requesting
shareholders, or any of them representing more than one-half of the total voting
rights of all of them, may themselves
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convene a meeting, but any meeting so convened may not be held later than three
months from the date of the request.
Inspection Rights. Under Massachusetts law, a corporation's shareholders
have the right for a proper purpose to inspect the corporation's articles of
organization, bylaws, records of all meetings of incorporators and shareholders,
and its stock and transfer records, including the shareholder list. In addition,
shareholders of a Massachusetts business corporation have a qualified common-law
right under certain circumstances to inspect other books and records of the
corporation.
Under Bermuda law, members of the general public have the right to inspect
the public documents (which include the Memorandum of Association (including its
objects and powers) and any amendments thereto and documents relating to any
increase or reduction of authorized capital) of a Bermuda company at the office
of the Registrar of Companies in Bermuda. The shareholders of a Bermuda company
have the additional right to receive a copy of the company's bye-laws and its
audited financial statements and the right to inspect minutes of general
meetings. The register of shareholders of a Bermuda company is also open for
inspection by shareholders without charge, and to members of the general public
for a minimal fee. A Bermuda company must also keep at its registered office a
register of directors and officers which is open for inspection by members of
the public without charge. Bermuda law does not provide a general right for
shareholders to inspect or obtain copies of any other corporate records.
Dividends. Under Massachusetts law, the payment of dividends is generally
permissible if such payment is not made when the corporation is insolvent, does
not render the corporation insolvent and does not otherwise violate the law or
the corporation's articles of organization. Under Bermuda law, a dividend cannot
be declared or paid if there are reasonable grounds for believing that the
company is, or after such payment would be, unable to pay its liabilities as
they became due or if the realizable value of the company's assets would thereby
be less than the aggregate of its liabilities and its issued share capital and
share premium accounts. Under the Combined Company Bye-Laws, dividends may only
be paid out of profits available for that purpose, and a shareholder's right to
receive dividends is suspended during such time as he is disqualified from
voting, as stated above under "--Voting Rights."
Derivative Actions. Under Massachusetts law, a shareholder may institute a
derivative suit in the right of the corporation against the shareholders,
officers or directors of a corporation if he or she was a shareholder at the
time of the act complained of or received his or her shares by operation of law
from one who was a shareholder at such time. Under Bermuda law, subject to
certain limited exceptions, minority shareholders are not permitted to bring
derivative actions for wrongs done to their company.
Board of Directors. Massachusetts law and the Tyco Bylaws provide that the
number of directors shall be not less than three. The Tyco Board currently
consists of eight members. Under the Tyco Bylaws the number of directors may be
increased at any meeting of shareholders or by vote of a majority of the
directors then in office. The Combined Company Bye-Laws provide that the number
of directors shall be such number, not less than two, as the shareholders at a
general meeting may from time to time determine.
Classification of the Board of Directors. Massachusetts law provides that
the directors of a publicly-held corporation shall be classified into three
classes, with the effect that directors are elected and serve for staggered
terms of three years. Massachusetts law permits a corporation to opt out of the
classified board provisions by vote of the directors or by a two-thirds vote of
shareholders. Tyco has, by vote of its directors, opted out of the classified
board provisions of Massachusetts law, and the Tyco Bylaws provide for an annual
election of all directors. However, Massachusetts law provides that a
publicly-held corporation that has opted out of the classified board provisions
by vote of its directors may at any time thereafter by vote of its directors
(and without any action on the part of its shareholders) elect to become subject
to the classified board provisions. Massachusetts law provides that, at any time
that the classified board provisions are in effect, (i) directors may be removed
only for cause (as defined), (ii) the number of directors shall be fixed only by
vote of the directors, and (iii) vacancies and newly created directorships shall
be filled solely by vote of a majority of the remaining directors then in
office. The Combined Company Board is not classified, and the Combined Company
Bye-Laws do not contemplate a classified
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board. Under Bermuda law, the election of directors of a company may be
regulated by its bye-laws or otherwise determined by the company in general
meeting. The Combined Company Bye-laws do not prescribe any particular term of
office for a director, except one appointed to fill a casual vacancy.
Removal of Directors; Vacancies on the Board of Directors. Pursuant to
Massachusetts law and the Tyco Bylaws and subject to the provisions of the
immediately preceding paragraph, a director may be removed from office with or
without cause by the holders of a majority of votes entitled to vote generally
in the election of directors, and with cause by a vote of the majority of
directors then in office. Any removal of a director for cause requires adherence
to certain due process requirements. Under Massachusetts law and the Tyco
Bylaws, vacancies on the board of directors and newly created directorships
resulting from any increase in the authorized number of directors are filled by
the remaining directors.
Bermuda law provides that, subject to its bye-laws, the shareholders of a
company may at a special general meeting called for that purpose remove a
director, subject to statutory due process requirements. The Combined Company
Bye-Laws provide that any director may at any time be removed from office as a
director either by resolution of the Combined Company shareholders to that
effect or upon a written resolution signed by all the other directors of the
Combined Company. The remaining Combined Company directors have the power to
appoint any qualified person to fill a casual vacancy in the Combined Company
Board who shall hold office until the next following annual general meeting, and
the existing directors may act notwithstanding any vacancy in the board of
directors.
Exculpation of Directors. Massachusetts law permits a company to eliminate
or limit the personal liability of a director to the company and its
shareholders for monetary damages for breaches of fiduciary duty, except where
such exculpation is expressly prohibited. The circumstances under which such
exculpation is prohibited include breaches of a director's duty of loyalty,
actions undertaken not in good faith or involving intentional misconduct or
knowing violations of law, certain actions relating to unauthorized
distributions and loans to insiders and transactions from which the director
derived an improper personal benefit. The Tyco Articles provide for exculpation
for directors.
Bermuda law permits a company to exempt a director from liability with
respect to any negligence, default, breach of duty or breach of trust of which a
director may be guilty in relation to the company or any of its subsidiaries
except from any liability resulting from fraud or dishonesty. The Combined
Company Bye-Laws provide for such exculpation for directors except in relation
to the director's own willful negligence, willful default, fraud or dishonesty.
Indemnification of Directors, Officers and Others. Massachusetts law
permits indemnification of directors and officers for expenses incurred by them
by reason of their position with the corporation, if the director or officer has
acted in good faith and with the reasonable belief that his conduct was in the
best interest of the corporation. The Tyco Articles provide for the
indemnification of each director of Tyco and any other person who serves in any
other office filled by election or appointment by Tyco shareholders or the Tyco
Board of Directors against all expenses, including any judgments, amounts
reasonably paid in settlement and reasonably incurred professional fees and
other disbursements incurred in connection with each suit or proceeding in which
such person is involved as a result of serving or having served in such office
or at Tyco's request as a director, officer, employee or other agent of any
other organization. No indemnification is available with respect to any matter
as to which there shall have been an adjudication that the person seeking
indemnification did not act in good faith in the reasonable belief that such
person's action was in the best interest of Tyco. Neither Massachusetts law nor
the Tyco Articles prohibit or limit the rights to indemnification for judgments
in derivative actions, but it is not clear that a Massachusetts court would
permit indemnification in such circumstances.
Bermuda law permits a company to indemnify its officers and employees with
respect to any loss arising or liability attaching to such persons by virtue of
any rule of law concerning any negligence, default, breach of duty or breach of
trust of which the officer or employee may be guilty in relation to the company
or any subsidiary thereof; provided, however, that the company shall not
indemnify an officer or employee against any liability arising out of any fraud
or dishonesty of which such person may be guilty.
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The Combined Company Bye-Laws provide that every director, secretary and other
officer of the Combined Company shall be indemnified by the Combined Company
against all costs, losses and expenses which any such director or officer may be
liable for by reason of any contract entered into, or any act or thing done by
such director or officer in the discharge of such director's or officer's
duties, provided that the indemnity contained in the Combined Company Bye-Laws
shall not extend to any matter which would render such indemnification void
under applicable Bermuda law.
Interested Director Transactions. Massachusetts does not have a general
statutory provision governing interested director transactions. Under
Massachusetts law, interested director transactions may be challenged on the
grounds that the transaction is unfair to the corporation or that it was not
entered into in good faith. The Tyco Articles provide that, unless entered into
in bad faith, no contract or transaction by Tyco shall be void or voidable by
reason of the fact that it is with an officer, director, shareholder, employee
or other interested person, and such person shall not be liable to Tyco or any
other person because of such interest. These provisions apply notwithstanding
that the presence of such interested person was necessary to constitute a quorum
at the meeting at which such contract or transaction was authorized or that the
vote of such person was necessary for authorization of such contract or
transaction.
Under the Combined Company Bye-Laws, no director is disqualified from
contracting with the Combined Company and no contract will be avoided by reason
of such director holding that office or of the fiduciary relationship thereby
established if the requisite disclosure by the interested director is made. A
director who to his knowledge is in any way, whether directly or indirectly,
interested in a contract or arrangement with the Combined Company shall declare
the nature of his interest at the meeting of the directors at which the question
of entering into the contract or arrangement is first taken into consideration,
if he knows his interest then exists, or in any other case at the first meeting
of the directors after he knows that he is or has become so interested. Subject
to certain exceptions, an interested director shall not be counted towards a
quorum, nor vote, with respect to the board of directors authorization of such
contract. Failure to make a declaration of interest constitutes a breach of duty
of a director under Bermuda law.
Amendments to Constitutional Documents. Under Massachusetts law,
amendments to a corporation's articles of organization relating to certain
changes in capital or in the corporate name require the vote of at least a
majority of each class of stock outstanding and entitled to vote thereon.
Amendments relating to other matters require a vote of at least two-thirds of
each class outstanding and entitled to vote thereon or, if the articles of
organization so provide, a greater or lesser proportion but not less than a
majority of the outstanding shares of each class. The Tyco Articles contain no
such provision. Under Massachusetts law, the articles of organization or by-laws
may provide that all outstanding classes of stock shall vote as a single class,
but the separate vote of any class of stock, the rights of which would be
adversely affected (as defined under Massachusetts law), by any amendment to the
Tyco Articles would also be required.
Bermuda law provides that a company may, with the consent of the Minister
of Finance, by resolution passed at a general meeting of members of which due
notice has been given, alter the provisions of its memorandum of association.
Holders of at least 20% of any class of the company's share capital may apply to
the Bermuda Supreme Court to annul an alteration and, if such application is
made, the alteration shall not have effect except insofar as it is confirmed by
the Court. In addition, under Bermuda law a company may alter the conditions of
its memorandum of association, if so authorized by a general meeting and by its
bye-laws, so as to increase its share capital, divide its shares into several
classes, consolidate and divide its share capital into shares of a larger par
value, sub-divide its shares into shares of a smaller par value, change the
currency denomination of its share capital and cancel any shares which have not
been taken or agreed to be taken by any person and diminish the amount of its
share capital by the amount so canceled. The Combined Company Bye-Laws include
such authority (except as to changing the currency denomination of its share
capital).
Bermuda law also permits a company or any of its subsidiaries to purchase
shares in the company. In the case of a purchase by the company itself,
purchases may only be made if the company is so authorized
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by its memorandum of association or bye-laws and if its issued share capital is
not thereby reduced below the minimum capital specified in its memorandum. The
Combined Company Bye-Laws contain such authority in respect of such amount of
share capital as is authorized by the shareholders in general meeting from time
to time. The Combined Company Bye-Laws provide that the rights attached to any
class of shares (unless otherwise provided by the terms of such class) may be
varied either by the consent in writing of the holders of three-fourths of the
issued shares of the class or by a resolution passed at a separate meeting of
the holders of such class of shares by the holders of three-fourths of the
shares of such class voting at such separate meeting. The rules of a Combined
Company general shareholder meeting shall apply, mutatis mutandis, to such
separate meeting, except that (i) the quorum required at such separate meeting
shall be three or more persons holding or representing by proxy not less than
one-third of the issued shares of the class, except that at any adjourned
meeting, two holders of the shares of the class present in person or by proxy
(whatever the number of shares held by them) shall constitute a quorum; (ii)
every holder of shares of the class shall be entitled on a poll to one vote for
every share of such class held; and (iii) any holder of shares of the class
present in person or by proxy may demand a poll. Pursuant to Bermuda law,
holders of at least 10% of the class of shares may apply to the Bermuda Supreme
Court to cancel a variation otherwise approved by the requisite vote. Upon such
application, the variation shall not have effect unless and until it is
confirmed by the Court.
Under Massachusetts law, the power to make, amend or repeal bylaws lies in
the shareholders; provided that, if authorized by the articles of organization,
the bylaws may provide that the directors may also make, amend or repeal the
bylaws, except with respect to any provision which by law, the articles of
organization or the bylaws requires action by the shareholders. The Tyco
Articles also provide that the Tyco Board, as well as the shareholders, may
amend the Tyco Bylaws to the extent permitted by law. The Tyco Bylaws provide
that any amendment or bylaw adopted by the Tyco Board may be amended or repealed
by the shareholders. The Tyco Bylaws further provide that the provisions of the
Tyco Bylaws relating to Business Combinations with Related Persons may only be
amended or repealed by the vote of the holders of not less than 80% of the
Voting Stock (as defined in the Tyco Bylaws), unless such amendment is approved
by the majority of Continuing Directors (as defined in the Tyco Bylaws), in
which case such amendment shall only require the affirmative vote of the
shareholders otherwise required by law, the Tyco Bylaws or the Tyco Articles.
See "Provisions Concerning Significant Shareholders" below. Pursuant to Bermuda
law and the Combined Company Bye-Laws, the Combined Company Board may amend the
Combined Company Bye-Laws, provided that no such amendment will be operative
unless and until it is confirmed by the Combined Company shareholders at a
general meeting of the Combined Company shareholders.
Sale, Lease or Exchange of Assets and Mergers. Massachusetts law provides
that a vote of two-thirds of the shares of each class of stock outstanding and
entitled to vote thereon is required to authorize the sale, lease or exchange of
all or substantially all of a corporation's property and assets or a merger or
consolidation of the corporation into any other corporation, except that the
articles of organization may provide that the vote of a greater or lesser
proportion, but not less than a majority of the outstanding shares of each
class, is required. Under Massachusetts law, a merger or consolidation also
requires the separate vote of any class of stock, the rights of which would be
adversely affected by the transaction.
Under Bermuda law, there is no requirement for a company's shareholders to
approve a sale, lease or exchange of any of its property and assets. Under
Bermuda law, a company may enter into a compromise or arrangement in connection
with a scheme for the reconstruction of the company on terms which include,
among other things, the transfer of all or part of the undertaking or assets of
the company to another company. Any such compromise or arrangement requires the
approval of a majority in number representing three-fourths in value of each
class of shareholders of the company and the sanction of the Bermuda Supreme
Court.
Pursuant to Bermuda law, unless the company's bye-laws provide otherwise,
an amalgamation requires the approval of the holders of at least three-fourths
of those voting at a meeting of shareholders at which a requisite quorum is
present. For purposes of approval of an amalgamation, all shares, whether or not
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otherwise entitled to vote, carry the right to vote. A separate vote of a class
of shares is required if the rights of such class would be altered by virtue of
the amalgamation.
Provisions Concerning Significant Shareholders. Article I, Section 6 of
the Tyco Bylaws provides that any person (a "Related Person") who together with
its Affiliates and Associates (each as defined in the Tyco Bylaws) owns 5% or
more of the outstanding shares of Voting Stock (defined in the Tyco Bylaws to
include all outstanding shares of capital stock of Tyco entitled to vote in the
election of directors other than shares only entitled to vote upon the
occurrence of a specified event or condition) of Tyco, and any Affiliate or
Associate of such person (other than Tyco and its Subsidiaries (as defined in
the Tyco Bylaws)), must comply with certain minimum price and procedural
requirements or, in the alternative, obtain the advance approval of a majority
of Tyco's Continuing Directors (as defined in the Tyco Bylaws) or holders of not
less than 80% of Tyco's Voting Stock in order to effect a merger or other
Business Combination involving Tyco. The various transactions in the definition
of "Business Combination" include: any merger or consolidation of Tyco or of any
of its Subsidiaries with or into a Related Person; any sale, lease, exchange,
transfer or other disposition, in one transaction or a series of transactions,
(i) to a Related Person or an Affiliate or Associate of a Related Person of any
Substantial Part (as defined in the Tyco Bylaws) of the assets of Tyco or a
Subsidiary or (ii) from a Related Person or an Affiliate or Associate of a
Related Person, in an amount that would constitute, immediately prior to such
transaction, a Substantial Part of the assets of Tyco; any issuance or sale by
Tyco or a Subsidiary of any of its securities to a Related Person or an
Affiliate or Associate of a Related Person other than pursuant to an employee
plan approved by a majority of the Continuing Directors and the shareholders of
Tyco; any acquisition by Tyco or a Subsidiary of any securities of a Related
Person or Affiliate or Associate of a Related Person; any adoption of any plan
for the liquidation or dissolution of Tyco proposed by or on behalf of a Related
Person or any Affiliate or Associate of a Related Person; and any
reclassification of securities, recapitalization of Tyco or any other
transaction that has the effect, directly or indirectly, of increasing the
proportion of the outstanding shares of any class of Tyco's or any Subsidiary's
equity securities owned by a Related Person or any Affiliate or Associate of a
Related Person. The Tyco Bylaws confer upon a majority of the Continuing
Directors the authority to determine, among other things, whether a person is a
Related Person and whether any proposed Business Combination complies with the
minimum price and procedural requirements. This section of the Tyco Bylaws
cannot be repealed or amended, nor may an inconsistent provision be adopted,
without the affirmative vote of a majority of the Continuing Directors or
holders of not less than 80% of the outstanding shares of the Voting Stock of
Tyco.
Pursuant to Combined Company Bye-Law 104(1)(A), if any person, whether as a
result of one transaction or a series of transactions, would be obligated to
make an offer to the Combined Company security holders pursuant to the Rules of
the City Code on Take-overs and Mergers of the United Kingdom of Great Britain
and Northern Ireland (the "City Code"), the Combined Company Board may require
such person to make such an offer as if the City Code applied to the Combined
Company. The City Code provides that when any person (and persons acting in
concert with such person) acquires shares which carry 30% or more of the voting
rights of a company, such person must make an offer for all shares of any class
of equity share capital (whether voting or non-voting) and also any voting
non-equity share capital in which any such person or persons hold shares. The
offer must be for cash or offer a cash alternative, in each case at not less
than the highest price paid (in cash or otherwise) for shares of the same class
by the offeror, or anyone acting in concert with the offeror, during the offer
period and within the 12 months prior to commencement of the offer.
Bye-Law 104(3) further provides that where any person is interested,
whether as a result of a series of transactions over a period of time or not, in
30% or more of the outstanding shares, the Combined Company Board may serve a
notice requiring that person to make an offer for all of the outstanding
securities of the Combined Company if the Combined Company Board determines that
an offer pursuant to Bye-Law 104(1)(A) of the Combined Company Bye-Laws is not
expedient or if a person required to make such an offer fails to do so. Such
offer must be made within 30 days of the demand on terms that payment in full
therefor will be made within 21 days of such offer becoming unconditional in all
respects. If the Combined Company Board serves a notice under this provision,
the Combined Company Board may
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also require that the offeror offer to purchase securities of the Combined
Company convertible into voting or non-voting shares of the Combined Company on
terms considered "fair and reasonable" by the Combined Company Board in its sole
discretion. Unless the Combined Company Board otherwise agrees, such an offer
must be for cash or must offer a cash alternative at not less than the highest
price paid by the offeror or any person acting in concert with it for shares of
such class within the preceding 12 months or, if unavailable or inappropriate,
at a price fixed by the directors. Any such offer must remain open for at least
14 days after the date on which it becomes unconditional as to acceptances.
Bye-Law 104(1)(B) provides that when any person has acquired, is in the
process of acquiring, or appears to the Combined Company Board likely to acquire
an interest in the capital stock of the Combined Company in circumstances in
which such person would be subject to the Rules Governing Substantial
Acquisitions of Shares ("SARs"), the Combined Company Board may give notice
requiring such person to comply with the SARs, and if such person fails to
comply, give further notice requiring such person to dispose or to procure the
disposal by any person with whom such person has acted in concert of any
interest in shares acquired within 28 days of the date of such notice. The SARs
provide that a person may not, in any period of seven days, acquire shares
representing 10% or more of the voting rights in a company if such shares,
aggregated with shares already held by the purchaser, would carry 15% or more
but less than 30% of the voting rights of such company. The SARs do not apply to
an acquisition from a single shareholder if such acquisition is the only
acquisition within a seven-day period. The SARs also do not apply to a person
who acquires 30% or more of the voting rights in a company.
Under the Combined Company Bye-Laws, any person who acquires an interest in
three per cent or more of the issued share capital of any class of the Combined
Company is required to notify the company of that interest and, on any change in
that person's interest amounting to one per cent, or more of the issued capital
of any class, of such change. Any such notification must be made within two days
(Saturdays and Sundays excluded) after the relevant event. In determining the
percentage interest of any person for these purposes, interests of persons
acting in concert for the purposes of Bye-law 104 may be aggregated. Neither
Massachusetts law nor the Tyco Bylaws include any corresponding requirement.
Take-Over Bid Statute. Under Massachusetts law, the take-over bid statute
imposes procedural requirements in connection with certain take-over bids. A
take-over bid ("Take-Over Bid") is the acquisition or offer to acquire stock
which would result in the acquiror possessing more than 10% of the voting power
of any class of an issuer's stock. A Take-Over Bid does not include, among other
things, any offer which the board of directors of the issuer has consented to
and approved and has recommended its shareholders accept, if the terms of such
bid, including any inducements to officers or directors which are not made
available to all shareholders, have been furnished to the shareholders. Bermuda
does not have a similar statute.
Business Combination Statute. Massachusetts' "business combination"
statute provides that, if a person (with certain exceptions) acquires 5% or more
of the stock of a Massachusetts corporation without the approval of the board of
directors of that corporation (an "interested shareholder"), he may not engage
in certain transactions with the corporation for a period of three years. The
Massachusetts statute includes certain exceptions to this prohibition; for
example, if the board of directors approves the acquisition of stock or the
transaction prior to the time that the person became an interested shareholder,
or if the interested shareholder acquires 90% of the voting stock of the
corporation (excluding voting stock owned by directors who are also officers and
certain employee stock plans) in one transaction, or if the transaction is
approved by the board of directors and by the affirmative vote of two-thirds of
the outstanding voting stock which is not owned by the interested shareholder.
The business combination statute permits a corporation to elect not to be
governed by these provisions by including such an election in its articles of
organization or bylaws. Tyco has not made such an election and is subject to the
Massachusetts business combination statute. Bermuda does not have a similar
statute.
Control Share Acquisition Statute. Under the Massachusetts control share
acquisition statute, a person (hereinafter, the "acquirer") who makes a bona
fide offer to acquire, or acquires, shares of stock of a public corporation
that, when combined with shares already owned, would increase the acquirer's
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ownership to at least 20%, 33 1/3% or a majority of the voting stock of the
corporation, the acquirer must obtain the approval of a majority of shares held
by all shareholders except the acquirer and the officers and inside directors of
the corporation in order to vote the shares acquired. The statute does not
require the acquirer to consummate the purchase before the shareholder vote is
taken. The control share acquisition statute permits a Massachusetts corporation
to elect not to be governed by these provisions by including such an election in
its articles of organization or by-laws. The Tyco Articles and the Tyco Bylaws
have no such provision. Bermuda does not have a similar statute.
Required Purchase and Sale of Shares. Pursuant to Bermuda law, where the
transfer of shares or any class of shares in a company (the "transferor
company") to another company (the "transferee company") has, within four months
after the making of the offer, been approved by the holders of not less than 90%
in value of the shares or class of shares for which the offer was made, subject
to the satisfaction of certain conditions, the transferee company may, within
two months after the expiration of the four month period, give notice to any
dissenting shareholder that it desires to acquire his or her shares, and then
such transferee company shall be entitled and bound to acquire such shares on
the terms on which shareholders that approved such scheme or contract
transferred their shares, unless the Bermuda Supreme Court orders otherwise upon
application by the dissenting shareholder. "Dissenting shareholder" includes a
shareholder that has not assented to a scheme or contract and any shareholder
that has failed or refused to transfer shares to the transferee company.
Within one month of the transfer of 90% in value of the transferor
company's shares or class of shares to the transferee company, or to its nominee
or subsidiary, the transferee company shall notify the holders of the remaining
shares of such transfer. Within three months of the giving of notice, any such
remaining holder of shares may require the transferee company to acquire his
shares, and the transferee company shall be required to acquire such shares on
the same terms as provided for in the scheme or contract or upon such terms as
may be agreed or upon such terms as the Bermuda Supreme Court may determine upon
application of the transferee company or the shareholder. Neither Massachusetts
law nor the Tyco Articles or the Tyco Bylaws contain similar provisions.
Under Bermuda law, a holder or holders of not less than 95% of the shares
or any class in a Bermuda company may give notice to the remaining shareholders
or class of shareholders of the intention to acquire their shares on the terms
set out in the notice. Bermuda law provides that when such notice is given, the
acquiring holder or holders shall be entitled and bound to acquire the shares of
the remaining shareholders on the terms set out in the notice unless a remaining
shareholder exercises statutory appraisal rights.
Short Form Merger. Under Massachusetts law, where 90% of the outstanding
shares of each class of stock of a corporation is owned by another corporation,
the parent corporation may merge such other corporation into itself by vote of
the parent corporation's directors only. In the event that all of the stock of a
subsidiary Massachusetts corporation which is party to a short-form merger under
this provision of Massachusetts law is not owned by the parent corporation, the
minority shareholders of such subsidiary corporation have appraisal rights under
Massachusetts law.
Bermuda law provides for short form amalgamations between companies and
their wholly-owned subsidiaries.
Appraisal Rights. Under Massachusetts law, a properly dissenting
shareholder is entitled to receive the appraised value of his shares when the
corporation votes (i) to sell, lease or exchange all or substantially all of its
property and assets, (ii) to adopt an amendment to its articles of organization
that adversely affects the rights of the shareholder, or (iii) to merge or
consolidate with another corporation, unless the corporation survives the
transaction and a vote of the shareholders was not required by statute to
approve such merger or consolidation.
Under Bermuda law, a properly dissenting shareholder who did not vote in
favor of an amalgamation and who is not satisfied that he has been offered fair
value for his shares is entitled to receive the appraised value of his shares.
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Shareholder Rights Plan. Although Massachusetts law provides specific
statutory authorization for the adoption of a shareholder rights plan, Tyco does
not have a shareholder rights plan. In 1996, ADT adopted the ADT Shareholders
Rights Plan. The ADT Shareholders Rights Plan provides that unless certain
actions are taken by the ADT Board (as appropriate, ADT also refers to the
Combined Company after the Effective Time), upon the Distribution Date (as
defined) each Right, other than those Rights owned by an Acquiring Person (as
defined) will become exercisable. Each Right entitles its holder, among other
things, to purchase ADT Common Shares from ADT at a 50% discount from the market
price of ADT Common Shares on the Distribution Date. It is a condition to the
Merger that ADT take such action as shall be required to either (i) amend the
ADT Shareholders Rights Plan to provide that no Distribution Date shall occur
and no person shall become an Acquiring Person by reason of the consummation of
the Merger or the transactions contemplated by the Merger Agreement or (ii)
redeem or otherwise terminate all outstanding Rights. See "The Merger
Agreement--Certain Covenants-- Conditions to the Merger."
Consideration of Societal Factors. Massachusetts law expressly provides
that, in determining what a director reasonably believes to be in the best
interests of the corporation, he or she may consider the interests of the
corporation's employees, suppliers, creditors and customers; the economy of the
state, region and nation; community and societal considerations; and the
long-term as well as short-term interests of the corporation and its
shareholders, including the possibility that these interests may be best served
by the continued independence of the corporation. Thus, these interests could be
considered even in connection with a decision to sell the company. The Tyco
Articles and the Tyco Bylaws do not discuss the consideration of societal
factors. Neither Bermuda law nor the Combined Company Memorandum or the Combined
Company Bye-Laws contain provisions regarding consideration of societal factors.
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DESCRIPTION OF COMBINED COMPANY SHARE CAPITAL
The summary of the terms of the share capital of the Combined Company set
forth below does not purport to be complete and is qualified by reference to the
Combined Company Memorandum and the Combined Company Bye-Laws. Copies of the
Combined Company Memorandum and the Combined Company Bye-Laws are incorporated
by reference in this Joint Proxy Statement/Prospectus and will be sent to
holders of ADT Common Shares and Tyco Common Shares upon request. See "Where You
Can Find More Information."
AUTHORIZED SHARE CAPITAL
Upon the Merger becoming effective, the Combined Company's authorized share
capital will consist of 750,000,000 Combined Company Common Shares, par value
$0.20 per share, 125,725,000 convertible cumulative redeemable preference
shares, par value $1 per share, divided into three classes (the "Convertible
Preference Shares") (including a class of first preference shares (the "First
Preference Shares")), and 25,000 exchangeable cumulative redeemable preference
shares, par value $1 per share (the "Exchangeable Preference Shares") (the
Convertible Preference Shares and the Exchangeable Preference Shares,
collectively, the "Preference Shares").
COMBINED COMPANY COMMON SHARES
Dividends. The directors of the Combined Company may declare dividends out
of profits of the Combined Company available for that purpose as long as there
are no reasonable grounds for believing that the Combined Company is, or after
such dividend would be, unable to pay its liabilities as they became due or if
the realizable value of the Combined Company's assets would thereby be less than
the aggregate of its liabilities and its issued share capital and share premium
accounts. Subject to such special rights as may be attached to any other shares
in the Combined Company, all dividends are payable according to the amounts paid
or credited as paid on the Combined Company Common Shares. Dividends are
normally payable in U.S. dollars, but holders with a registered address in the
United Kingdom and other countries outside the United States may receive payment
in another currency. Any dividend which is unclaimed may be invested or
otherwise made use of by the directors of the Combined Company and after a
period of 12 years is forfeited and reverts to the Combined Company.
Voting Rights. At any general meeting of the Combined Company, votes may
be given in person or by proxy and each holder of Combined Company Common Shares
is entitled, on a show of hands, to one vote and, on a poll, to one vote for
each Combined Company Common Share held by him. Any proxy must be a shareholder
of the Combined Company.
Liquidation. On a liquidation of the Combined Company, holders of Combined
Company Common Shares are entitled to receive any assets remaining after the
payment of the Combined Company's debts and the expenses of the liquidation,
subject to such special rights as may be attached to any other class of shares.
Suspension of Rights. In certain circumstances, the rights of a
shareholder to vote and to receive any payment or income or capital in respect
of a Combined Company Common Share may be suspended. Those circumstances include
failure to provide information about ownership of and other interests in
Combined Company Common Shares, if so required in accordance with the Combined
Company Bye-Laws. See "Comparison of Shareholder Rights--Comparison of Current
Tyco Shareholder Rights and Rights of Combined Company Shareholders Following
the Merger--Voting Rights."
Variation of Rights. If at any time the share capital of the Combined
Company is divided into different classes of shares, the rights attached to any
class (unless otherwise provided by the terms of the issue of the shares of that
class) may be varied with the consent in writing of the holders of three-fourths
of the issued shares of that class or with the sanction of a resolution passed
at a separate general meeting of the holders of the shares of that class by a
majority of three-fourths of such holders voting in person or by proxy.
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Transfers. A Combined Company Common Share may be transferred in any
manner the Combined Company Board may approve. The board may require the
transfer to be by an instrument signed by the transferor and, in the case of a
partly paid share, also by the transferee. The instrument must be in writing in
the usual common form or in any other form which the board may approve and must
be lodged at the office of the registrar of the Combined Company for
registration. The Combined Company Board may decline to register any transfer of
shares on which the Combined Company has a lien, any transfer of shares not
fully paid up to a transferee of whom they do not approve and any transfer of
shares by a transferor or to a transferee on whom the Combined Company has duly
served a notice under the provisions of the Combined Company Bye-Laws described
under "--Suspension of Rights" above, during a period of suspension of voting
rights.
General. The outstanding ADT Common Shares are, and those Combined Company
Common shares to be issued pursuant to the Merger will be, duly authorized,
validly issued, fully paid and non-assessable. All such shares are, or will be,
in registered form. AS&K Services Limited will be the Combined Company's
Registrar and ChaseMellon Shareholder Services, L.L.C. will be the transfer
agent for the Combined Company Common Shares.
COMBINED COMPANY PREFERENCE SHARES
As of the date hereof, no Preference Shares were issued or outstanding.
Under the Combined Company Bye-Laws, the Combined Company Board, in its sole
discretion, may designate, allot and issue one or more series of First
Preference Shares from the authorized and unissued First Preference Shares.
Subject to limitations imposed by law, the Combined Company Memorandum or the
Combined Company Bye-Laws, the board is empowered to determine the designation
of, and the number of shares constituting, each series of First Preference
Shares, the dividend rate for each series, the terms and conditions of any
voting and conversion rights for each series, the amounts payable on each series
on redemption or return of capital and the preference and relative rights among
each series of First Preference Shares. At present, 2,500,000 First Preference
Shares have been designated as Series A First Preference Shares and are reserved
for issue upon exercise of the Rights.
ADT currently has in place the ADT Shareholders Rights Plan. Pursuant to
the Merger Agreement, it is a condition to the Merger that, at Tyco's election
(to be communicated to ADT not less than fifteen business days before the ADT
Meeting), either ADT shall have amended the ADT Shareholder Rights Plan to
affirmatively provide that the Rights shall not be exercisable as a result of
the Merger or ADT shall have redeemed or otherwise terminated all outstanding
Rights.
STOCK EXCHANGE LISTING; DELISTING OF TYCO COMMON SHARES
It is a condition to the Merger that the Combined Company Common Shares
issuable in the Merger be approved for listing on the NYSE at or prior to the
Effective Time, subject to official notice of issuance. If the Merger is
consummated, Tyco Common Shares will cease to be listed on the NYSE. Application
will also be made to list the Combined Company Common Shares issuable in the
Merger on the London Stock Exchange and the Bermuda Stock Exchange.
LEGAL MATTERS
The validity of the Combined Company Common Shares to be issued to Tyco
shareholders pursuant to the Merger will be passed upon by Appleby, Spurling &
Kempe, Hamilton, Bermuda, special counsel to ADT. Certain other legal matters in
connection with the Merger will be passed upon for Tyco by Kramer, Levin,
Naftalis & Frankel, New York, New York. Joshua M. Berman, a director and
secretary of Tyco, is counsel to Kramer, Levin, Naftalis & Frankel and owns
36,000 Tyco Common Shares. Certain legal matters in connection with the Merger
will be passed upon for ADT by Davis Polk & Wardwell, New York, New York, Allen
& Overy, London, United Kingdom and Appleby, Spurling & Kempe, Hamilton,
Bermuda.
119
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EXPERTS
The consolidated financial statements of Tyco incorporated in this Joint
Proxy Statement/Prospectus by reference to the Annual Report on Form 10-K of
Tyco as of June 30, 1996 and 1995 and for the three years in the period ended
June 30, 1996 have been incorporated herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The consolidated financial statements and consolidated financial statement
schedules of ADT and its subsidiaries as at December 31, 1996 and 1995, and for
the years ended December 31, 1996, 1995 and 1994, have been incorporated by
reference in this Joint Proxy Statement/Prospectus in reliance upon the report
of Coopers & Lybrand, independent accountants, incorporated by reference herein,
and given upon the authority of that firm as experts in accounting and auditing.
FUTURE SHAREHOLDER PROPOSALS
Shareholder proposals intended to be considered for action at the 1997
Annual General Meeting of ADT 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.
WHERE YOU CAN FIND MORE INFORMATION
Tyco and ADT file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information filed by Tyco and ADT at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC filings of Tyco and ADT are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at "http://www.sec.gov."
ADT filed a Registration Statement on Form S-4 to register with the SEC the
Combined Company Common Shares to be issued to Tyco shareholders in the Merger.
This Joint Proxy Statement/Prospectus is a part of that Registration Statement
and constitutes a prospectus of ADT in addition to being a proxy statement of
ADT and Tyco for the Meetings. As allowed by SEC rules, this Joint Proxy
Statement/ Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The SEC allows Tyco and ADT to "incorporate by reference" information into
this Joint Proxy Statement/Prospectus, which means that they can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information in this Joint Proxy Statement/Prospectus. This Joint
Proxy Statement/Prospectus incorporates by
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reference the documents set forth below that Tyco and ADT have previously filed
with the SEC. These documents contain important information about Tyco and ADT
and their finances.
<TABLE>
<CAPTION>
TYCO SEC FILINGS (FILE NO. 1-5482) PERIOD
------------------------------------ ------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended June 30, 1996
Quarterly Reports on Form 10-Q Quarters ended September 30, 1996,
December 31, 1996 and March 31, 1997
Current Reports on Form 8-K Filed on October 29, 1996, March 4,
1997, March 25, 1997 and March 28,
1997
</TABLE>
<TABLE>
<CAPTION>
ADT SEC FILINGS (FILE NO. 0-16979) PERIOD
------------------------------------ ------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Report on Form 10-Q Quarter ended March 31, 1997
Current Report on Form 8-K Filed on March 25, 1997
The description of ADT Common Shares Filed August 8, 1991
set forth in the Registration
Statement on Form 8-A
</TABLE>
Tyco and ADT are also incorporating by reference all the documents that
they file with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act between the date of this Joint Proxy Statement/Prospectus and the date of
the Meetings.
Tyco has supplied all information contained or incorporated by reference in
this Joint Proxy Statement/Prospectus relating to Tyco, and ADT has supplied all
such information relating to ADT.
If you are a shareholder, Tyco and ADT may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Tyco, ADT or the SEC. Documents incorporated by reference are available from
Tyco and ADT without charge. Exhibits to the documents will not be sent,
however, unless those exhibits have specifically been incorporated by reference
as exhibits in this Joint Proxy Statement/Prospectus. Shareholders may obtain
documents incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following address:
<TABLE>
<S> <C>
Tyco International Ltd. ADT Limited
One Tyco Park Cedar House
Exeter, New Hampshire 03833 41 Cedar Avenue
USA Hamilton HM12, Bermuda
(603) 778-9700 (441) 295-2244
</TABLE>
If you would like to request documents from Tyco or ADT, please do so by
June 20, 1997 to receive them before the Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE TYCO MERGER
PROPOSAL, THE ADT MERGER PROPOSALS AND THE OTHER ADT MEETING PROPOSALS. TYCO AND
ADT HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED JUNE __, 1997. YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN THE JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY
STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF COMBINED COMPANY COMMON
SHARES IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ----------------------------------- --------
<S> <C>
10-Day Reference Price............. 66
1933 Act........................... 33
1994 Restricted Stock Plan......... 59
A Warrant.......................... 59
acquirer........................... 115
Acquisition Proposal............... 60
Act................................ 21
Adjusted Case...................... 47
ADT................................ 13
ADT Automotive..................... 89
ADT's Base Case.................... 50
ADT Board.......................... 14
ADT Bye-Law Amendment Proposal..... 15
ADT Bye-Laws....................... 15
ADT Capital Increase Proposal...... 15
ADT Common Shares.................. 14
ADT Group Plan..................... 94
ADT Investments.................... 19
ADT Investments II................. 20
ADT Management Case................ 47
ADT Meeting........................ 13
ADT Memorandum..................... 59
ADT Merger Proposals............... 15
ADT Name Change.................... 15
ADT Operations..................... 22
ADT Public Comparables............. 52
ADT SERP........................... 57
ADT Security....................... 57
ADT's Sensitivity Case............. 50
ADT Shareholders Rights Plan....... 17
ADT's Base Case.................... 50
ADT's Closing Price................ 50
ADT's Sensitivity Case............. 50
Alternative Transaction............ 66
Annual Meeting..................... 17
Antitrust Division................. 30
APB Opinion No. 16................. 28
ASH................................ 9
Audit Committee.................... 88
Bermuda Court...................... 21
B Warrant.......................... 59
beneficial ownership............... 90
Business Combination............... 114
Carlisle........................... 73
CCP................................ 22
Change in Control.................. 96
Change of Control Proposal......... 61
Chase.............................. 23
City Code.......................... 114
<CAPTION>
DEFINED TERM PAGE NO.
- ----------------------------------- --------
<S> <C>
Code............................... 30
Combined Company................... 13
Combined Company Board............. 27
Combined Company Bye-Laws.......... 108
Combined Company Common Shares..... 13
Combined Company Memorandum........ 108
Combined Company Remuneration
Committee........................ 101
Conservative Case.................. 47
Continuing Director................ 18
Convertible Preference Shares...... 118
Court.............................. 20
Credit Suisse First Boston......... 16
Credit Suisse First Boston
Opinion.......................... 45
Daily Per Share Price.............. 66
DCF Implied Exchange Ratio......... 53
Dissenting shareholder............. 116
disqualifying disposition.......... 103
Earth Tech......................... 73
EBIT............................... 50
EBITA.............................. 51
EBITA Terminal Value Methodology... 51
EBITDA............................. 47
EBITDA Terminal Value
Methodology...................... 51
EC Commission...................... 30
Effective Time..................... 15
EPS................................ 48
Exchange Act....................... 20
Exchange Agent..................... 59
Exchange Ratio..................... 13
Exchangeable Preference Shares..... 118
Expected Synergies................. 49
Expenses........................... 66
February 1997 Offering............. 49
Fee................................ 66
Final 10-Day Reference Price....... 65
First Call......................... 50
First Preference Shares............ 118
FMR................................ 90
Franchisor......................... 98
FTC................................ 30
Grinnell........................... 72
High Synergy Case.................. 53
HSR Act............................ 18
I/B/E/S............................ 50
Implied Price...................... 50
INBRAND............................ 34
interested shareholder............. 115
KCP&L.............................. 18
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- ----------------------------------- --------
<S> <C>
Kansas Court....................... 19
Kendall............................ 8
Keystone........................... 34
Laidlaw Group...................... 96
Low Synergy Case................... 53
LTM................................ 52
LYONs.............................. 17
March 17 Engagement Letter......... 55
March 3rd Press Release............ 18
Market Capitalization.............. 51
Market Value....................... 51
Meetings........................... 13
Merger............................. 13
Merger Agreement................... 13
Merger Subsidiary.................. 13
Merrill Lynch...................... 17
Merrill Lynch Opinion.............. 48
Missouri Court..................... 20
Named Officers..................... 92
New ADT Common Shares.............. 15
New Directors Election............. 15
non-qualified stock option......... 103
NYSE............................... 13
Notes.............................. 26
Offer Value........................ 52
Option and Warrant Proposal........ 15
Other ADT Meeting Proposals........ 15
P/E Growth Multiple................ 50
P/E Ratio.......................... 51
pension plans...................... 94
Plan Amendment..................... 17
Preference Shares.................. 118
ProMed............................. 74
Program Cars....................... 83
Recapitalization Proposal.......... 15
Record Date........................ 19
Reference Price.................... 50
Related Person..................... 114
Remuneration Committee............. 97
Republic........................... 17
Republic Merger.................... 17
Republic Warrant................... 17
Reverse Stock Split................ 15
Reverse Stock Split Proposal....... 15
Reverse Stock Split Ratio.......... 13
Rights............................. 18
Rights Plan Amendment.............. 18
Rule 145........................... 33
S&P 500............................ 46
DEFINED TERM PAGE NO.
- ----------------------------------- --------
SARs............................... 115
SEC................................ 8
Security Services.................. 46
Selected Acquisitions.............. 52
Senior Notes....................... 26
Senior Subordinated Notes.......... 26
Severance Change in Control........ 97
Share Amendment.................... 15
Simplex............................ 76
SFAS 121........................... 9
SSI................................ 34
STAT Resources..................... 80
Supplemental Benefit Agreement..... 57
Surviving Corporation.............. 13
Take-Over Bid...................... 115
Third Party........................ 66
Thorn.............................. 72
TIN................................ 30
Transaction Value.................. 52
transferee company................. 116
transferor company................. 116
Tyco............................... 13
Tyco Adjournment Proposal.......... 107
Tyco Acquisition Companies......... 49
Tyco Articles...................... 60
Tyco Board......................... 15
Tyco Bylaws........................ 60
Tyco Common Shares................. 13
Tyco Meeting....................... 13
Tyco Merger Proposal............... 68
Tyco Option Plan................... 58
Tyco Plans......................... 58
Tyco Public Comparables............ 52
Tyco Stock Option.................. 58
Tyco's Base Case................... 50
Tyco's Closing Price............... 50
Tyco's Sensitivity Case............ 50
U.S. GAAP.......................... 36
UL................................. 80
Warrants........................... 59
WCI................................ 20
Western............................ 15
Western/KCP&L Merger Agreement..... 18
Western Offer...................... 15
Western Proposals.................. 17
Western Proposals Meeting.......... 18
Western S-4........................ 18
Western Schedule 13D............... 17
Wormald............................ 72
</TABLE>
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ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADT LIMITED,
LIMITED APACHE, INC.
and
TYCO INTERNATIONAL LTD.
Dated as of March 17, 1997
<PAGE> 131
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<S> <C>
SECTION 1.01. The Merger.............................................................. I-1
SECTION 1.02. Effective Time.......................................................... I-1
SECTION 1.03. Effect of the Merger.................................................... I-2
SECTION 1.04. Articles of Organization; By-Laws....................................... I-2
SECTION 1.05. Directors and Officers.................................................. I-2
SECTION 1.06. Effect on Capital Stock................................................. I-2
SECTION 1.07. Exchange of Certificates................................................ I-4
SECTION 1.08. Stock Transfer Books.................................................... I-5
SECTION 1.09. No Further Ownership Rights in Company Common Stock..................... I-5
SECTION 1.10. Lost, Stolen or Destroyed Certificates.................................. I-5
SECTION 1.11. Dissenting Shares....................................................... I-5
SECTION 1.12. Accounting Consequences................................................. I-6
SECTION 1.13. Taking of Necessary Action; Further Action.............................. I-6
SECTION 1.14. Material Adverse Effect................................................. I-6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 2.01. Organization and Qualification; Subsidiaries............................ I-6
SECTION 2.02. Certificate of Incorporation and By-Laws................................ I-7
SECTION 2.03. Capitalization.......................................................... I-7
SECTION 2.04. Authority Relative to this Agreement; Takeover Laws..................... I-8
SECTION 2.05. No Conflict; Required Filings and Consents.............................. I-8
SECTION 2.06. Compliance; Permits..................................................... I-9
SECTION 2.07. SEC Filings; Financial Statements....................................... I-10
SECTION 2.08. Absence of Certain Changes or Events.................................... I-10
SECTION 2.09. No Undisclosed Liabilities.............................................. I-10
SECTION 2.10. Absence of Litigation................................................... I-10
SECTION 2.11. Employee Benefit Plans; Employment Agreements........................... I-11
SECTION 2.12. Labor Matters........................................................... I-13
SECTION 2.13. Registration Statement; Joint Proxy Statement/Prospectus................ I-13
SECTION 2.14. Restrictions on Business Activities..................................... I-13
SECTION 2.15. Title to Property....................................................... I-14
SECTION 2.16. Real Property........................................................... I-14
SECTION 2.17. Taxes................................................................... I-14
SECTION 2.18. Environmental Matters................................................... I-15
SECTION 2.19. Intellectual Property................................................... I-15
SECTION 2.20. Interested Party Transactions........................................... I-16
SECTION 2.21. Insurance............................................................... I-16
SECTION 2.22. Product Liability and Recalls........................................... I-16
SECTION 2.23. Opinion of Financial Advisor............................................ I-17
</TABLE>
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<TABLE>
<S> <C>
SECTION 2.24. Pooling Matters......................................................... I-17
SECTION 2.25. Ownership of Merger Sub; No Prior Activities............................ I-17
SECTION 2.26. Brokers................................................................. I-17
SECTION 2.27. Full Disclosure......................................................... I-17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries............................ I-17
SECTION 3.02. Articles of Organization and By-Laws.................................... I-18
SECTION 3.03. Capitalization.......................................................... I-18
SECTION 3.04. Authority Relative to this Agreement; Takeover Laws..................... I-19
SECTION 3.05. No Conflict; Required Filings and Consents.............................. I-19
SECTION 3.06. Compliance; Permits..................................................... I-20
SECTION 3.07. SEC Filings; Financial Statements....................................... I-20
SECTION 3.08. Absence of Certain Changes or Events.................................... I-21
SECTION 3.09. No Undisclosed Liabilities.............................................. I-21
SECTION 3.10. Absence of Litigation................................................... I-21
SECTION 3.11. Employee Benefit Plans; Employment Agreements........................... I-21
SECTION 3.12. Labor Matters........................................................... I-23
SECTION 3.13. Registration Statement; Joint Proxy Statement/Prospectus................ I-23
SECTION 3.14. Restrictions on Business Activities..................................... I-23
SECTION 3.15. Title to Property....................................................... I-24
SECTION 3.16. Real Property........................................................... I-24
SECTION 3.17. Taxes................................................................... I-24
SECTION 3.18. Environmental Matters................................................... I-25
SECTION 3.19. Intellectual Property................................................... I-25
SECTION 3.20. Interested Party Transactions........................................... I-26
SECTION 3.21. Insurance............................................................... I-26
SECTION 3.22. Product Liability and Recalls........................................... I-26
SECTION 3.23. Opinion of Financial Advisor............................................ I-26
SECTION 3.24. Pooling Matters......................................................... I-26
SECTION 3.25. Brokers................................................................. I-26
SECTION 3.26. Full Disclosure......................................................... I-26
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by Parent Pending the Merger........................ I-27
SECTION 4.02. No Solicitation by Parent............................................... I-28
SECTION 4.03. Conduct of Business by the Company Pending the Merger................... I-30
SECTION 4.04. No Solicitation by the Company.......................................... I-30
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Joint Proxy Statement/Prospectus; Registration Statement................ I-31
SECTION 5.02. Company Shareholders Meeting............................................ I-31
SECTION 5.03. Parent Shareholders Meeting............................................. I-32
SECTION 5.04. Access to Information; Confidentiality.................................. I-32
</TABLE>
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<TABLE>
<S> <C>
SECTION 5.05. Consents; Approvals..................................................... I-33
SECTION 5.06. Agreements with Respect to Affiliates................................... I-33
SECTION 5.07. Indemnification and Insurance........................................... I-33
SECTION 5.08. Notification of Certain Matters......................................... I-35
SECTION 5.09. Further Action.......................................................... I-35
SECTION 5.10. Public Announcements.................................................... I-35
SECTION 5.11. Listing of Shares of Parent Common Stock................................ I-35
SECTION 5.12. Conveyance Taxes........................................................ I-36
SECTION 5.13. Accountant's Letters.................................................... I-36
SECTION 5.14. Pooling Accounting Treatment............................................ I-36
SECTION 5.15. Company Stock Options................................................... I-36
SECTION 5.16. Parent Stock Options and Severance Arrangements......................... I-36
SECTION 5.17. Rights.................................................................. I-36
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Obligation of Each Party to Effect the Merger............. I-37
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger Sub........... I-38
SECTION 6.03. Additional Conditions to Obligation of the Company...................... I-38
ARTICLE VII
TERMINATION
SECTION 7.01. Termination............................................................. I-39
SECTION 7.02. Effect of Termination................................................... I-41
SECTION 7.03. Fees and Expenses....................................................... I-41
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements; Knowledge,
Etc................................................................................. I-42
SECTION 8.02. Notices................................................................. I-43
SECTION 8.03. Certain Definitions..................................................... I-43
SECTION 8.04. Amendment............................................................... I-44
SECTION 8.05. Waiver.................................................................. I-44
SECTION 8.06. Headings................................................................ I-44
SECTION 8.07. Severability............................................................ I-44
SECTION 8.08. Entire Agreement........................................................ I-45
SECTION 8.09. Assignment; Merger Sub.................................................. I-45
SECTION 8.10. Parties in Interest..................................................... I-45
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative................... I-45
SECTION 8.12. Governing Law; Jurisdiction............................................. I-45
SECTION 8.13. Counterparts............................................................ I-45
SECTION 8.14. WAIVER OF JURY TRIAL.................................................... I-45
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 17, 1997 (this
"Agreement"), among ADT LIMITED, a Bermuda company limited by shares ("Parent"),
LIMITED APACHE, INC., a Massachusetts corporation and a direct, wholly-owned
subsidiary of Parent ("Merger Sub"), and TYCO INTERNATIONAL LTD., a
Massachusetts corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to cause Merger Sub to merge with and into
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Massachusetts Business Corporation Law (the "MBCL"), and upon
the terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend that the Merger be
accounted for as a pooling-of-interests for financial reporting purposes;
WHEREAS, pursuant to the Merger, each outstanding share of the Company's
Common Stock, $.50 par value per share (the "Company Common Stock"), shall be
converted into the right to receive and exchanged for the Merger Consideration
(as defined in Section 1.07(b)), upon the terms and subject to the conditions
set forth herein;
WHEREAS, effective upon consummation of the Merger, the name of Parent
shall be changed to Tyco International Ltd. and the Board of Directors of Parent
shall be as set forth on or designated in accordance with Annex A to this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. (a) Effective Time. At the Effective Time (as
defined in Section 1.02 hereof), and subject to and upon the terms and
conditions of this Agreement and the MBCL, Merger Sub shall be merged with and
into the Company, the separate corporate existence of Merger Sub shall cease,
and the Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated pursuant to
Section 7.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the consummation of the Merger will take place as promptly
as practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Kramer,
Levin, Naftalis & Frankel, 919 Third Avenue, New York, NY 10022, unless another
date, time or place is agreed to in writing by the parties hereto.
SECTION 1.02. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing articles of merger as
contemplated by the MBCL (the "Articles of Merger"), together with any required
related certificates, with the Secretary of State of The Commonwealth of
Massachusetts, in such form as required by, and executed in accordance with the
relevant provisions of, the MBCL (the time of such filing being the "Effective
Time").
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SECTION 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger and
the applicable provisions of the MBCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all of the estate,
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall be transferred to and vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04. Articles of Organization; By-Laws. (a) Articles of
Organization. Unless otherwise determined by the Company prior to the Effective
Time, at the Effective Time the Restated Articles of Organization of the
Company, as in effect immediately prior to the Effective Time, shall be the
Articles of Organization of the Surviving Corporation until thereafter amended
as provided by the MBCL and such Articles of Organization; provided, however,
that Articles 3 and 4 shall be amended and restated in their entirety to provide
that the capital stock of the Surviving Corporation shall consist of 1,000
shares of Common Stock, par value $.01 per share.
(b) By-Laws. The By-Laws of the Company, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by the MBCL, the Articles of Organization of the
Surviving Corporation and such By-Laws.
SECTION 1.05. Directors and Officers. The directors of the Company
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Organization and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.06. Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (excluding
any shares to be canceled pursuant to Section 1.06(b) and other than
Dissenting Shares (as defined in Section 1.11)) shall be converted, subject
to the prior effectiveness of the Reverse Stock Split (as defined in
Section 5.03) and to Section 1.06(f) and Section 7.01(n), into the right to
receive and shall be exchanged for one share (the "Exchange Ratio") of
validly issued, fully paid and nonassessable Parent Common Stock (as
defined below). For purposes of this Agreement, Parent Common Stock means
(i) prior to the effectiveness of the Reserve Stock Split, the common
shares, par value $.10 per share, of Parent and (ii) from and after the
effectiveness of the Reverse Stock Split, the common shares of Parent as
adjusted by the Reserve Stock Split.
(b) Cancellation. Each share of Company Common Stock held in the
treasury of the Company and each share of Company Common Stock owned by
Parent, Merger Sub or any direct or indirect wholly owned subsidiary of the
Company or Parent immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Assumption of Outstanding Stock Options. (i) Each option
outstanding at the Effective Time to purchase shares of Company Common
Stock (a "Stock Option") granted under (i) the Tyco International Ltd. 1995
Stock Option Plan (the "Company Stock Option Plan"), or (ii) any other
stock plan or agreement of the Company, whether vested or unvested, shall
be deemed assumed by Parent and deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Stock Option
prior to the Effective Time, the number of shares of Parent Common Stock as
the holder of such Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time, at a price per share equal to (x)
the aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Stock Option divided by (y) the number of shares of Parent
Common
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Stock deemed purchasable pursuant to such Stock Option; provided, however,
that the number of shares of Parent Common Stock that may be purchased upon
exercise of any such Stock Option shall not include any fractional share
and, upon exercise of the Stock Option, a cash payment shall be made for
any fractional share based upon the Closing Price (as hereinafter defined)
of a share of Parent Common Stock on the trading day immediately preceding
the date of exercise. "Closing Price" shall mean, on any day, the last
reported sale price of one share of Parent Common Stock on the New York
Stock Exchange (the "NYSE").
As soon as practicable after the Effective Time, Parent shall deliver
to each holder of an outstanding Stock Option an appropriate notice setting
forth such holder's rights pursuant thereto, and such Stock Option shall
continue in effect on the same terms and conditions, except as otherwise
provided herein.
(ii) At the Effective Time, each Warrant expiring July 7, 1999 to
purchase 2.5897 shares of Company Common Stock at a price of $15.46,
subject to adjustment (an "A Warrant"), and each Warrant expiring July 7,
1999 to purchase 2.5897 shares of Company Common Stock at a price of
$20.62, subject to adjustment (a "B Warrant" and, together with the A
Warrants, the "Warrants"), shall be assumed by Parent and deemed to
constitute a warrant to acquire, on the same terms and conditions as were
applicable under such Warrant prior to the Effective Time, the number
(rounded to the nearest whole number) of shares of Parent Common Stock as
the holder of such Warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such Warrant in full immediately prior
to the Effective Time, at a price per share equal to (x) the aggregate
exercise price for Company Common Stock otherwise purchasable pursuant to
such Warrant divided by (y) the number of shares of Parent Common Stock
deemed purchasable pursuant to such Warrant. This Agreement shall
constitute notice by Parent to the Company of its election to be governed
by section 5.1(b) (the "Section 5.1(b) Election") of each of the Warrant
Agreement, dated as of July 7, 1992, between the Company, as successor
under such agreement to Kendall International, Inc. and ChaseMellon
Shareholder Services L.L.C., as successor to Norwest Bank Minnesota, N.A.,
as Warrant Agent, with respect to the A Warrants and the Warrant Agreement,
dated as of July 7, 1992, between the Company, as successor under such
agreement to Kendall International, Inc. and ChaseMellon Shareholder
Services L.L.C., and Norwest Bank Minnesota, N.A., as Warrant Agent, with
respect to the B Warrants (the "Warrant Agreements"). Prior to the date of
the Effective Time, Parent shall deliver to each holder of Warrants written
notice of the Section 5.1(b) Election and shall deliver to the Warrant
Agent under each of the Warrant Agreements an assumption of the obligations
of the Company and opinion of counsel, as required by Section 5.2 of the
Warrant Agreements. In no event shall Parent be required to make any
payment pursuant to Section 5.1(a)(2) of the Warrant Agreements.
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of Stock Options and Warrants in accordance with this Section
1.06(c). As soon as practicable after the Effective Time, Parent shall
cause the Parent Common Stock subject to Stock Options and those Warrants
originally issued under the Kendall International, Inc. Management
Incentive Plan (the "Management Warrants") to be registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
registration statement or registration statements on Form S-8 (or any
successor or other appropriate forms), and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as the Stock Options and
Management Warrants, as the case may be, remain outstanding.
(iv) Parent shall assume the Company's 1994 Restricted Stock Plan and
shall reserve for issuance thereunder such number of shares of Parent
Common Stock equal to the number of shares of Company Common Stock reserved
for issuance thereunder immediately prior to the Effective Time multiplied
by the Exchange Ratio.
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(d) Capital Stock of Merger Sub. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, $0.01 par
value, of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any subdivision, consolidation,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock occurring after the
date hereof and prior to the Effective Time, except that no adjustment
shall be made to reflect the Reverse Stock Split or the Share Amendment.
(f) Fractional Shares. No certificates or scrip representing less
than one share of Parent Common Stock shall be issued upon the surrender
for exchange of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Company Common Stock
(the "Certificates"). In lieu of any such fractional share, each holder of
shares of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Parent Common Stock upon surrender of Certificates
for exchange shall be paid upon such surrender cash (without interest) in
an amount equal to such fraction multiplied by the closing price per share
of Parent Common Stock on the NYSE on the date of the Effective Time.
SECTION 1.07. Exchange of Certificates. (a) Exchange Agent. Parent shall
supply, or shall cause to be supplied, to or for the account of such bank or
trust company as shall be mutually designated by the Company and Parent (the
"Exchange Agent"), in trust for the benefit of the holders of Company Common
Stock, for exchange in accordance with this Section 1.07, through the Exchange
Agent, certificates evidencing the shares of Parent Common Stock, and cash in
lieu of fractional shares, issuable or payable pursuant to Section 1.06 in
exchange for the outstanding shares of Company Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates evidencing
that number of whole shares of Parent Common Stock which such holder has the
right to receive in accordance with the Exchange Ratio in respect of the shares
of Company Common Stock formerly evidenced by such Certificate, (B) any
dividends or other distributions to which such holder is entitled pursuant to
Section 1.07(c), and (C) cash in respect of fractional shares as provided in
Section 1.06(f ) (the shares of Parent Common Stock and cash being,
collectively, the "Merger Consideration"), and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Company Common Stock which is not registered in the transfer records of the
Company as of the Effective Time, shares of Parent Common Stock, dividends,
distributions, and cash in respect of fractional shares, may be issued and paid
in accordance with this Article I to a transferee if the Certificate evidencing
such shares of Parent Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer
pursuant to this Section 1.07(b) and by evidence that any applicable stock
transfer taxes have been paid. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends or other distributions as provided
in Section 1.07(c) and subject to Section 1.06(f ), to evidence the ownership of
the number of full shares of Parent Common Stock, and cash in respect of
fractional shares, into which such shares of the Company Common Stock shall have
been so converted.
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(c) Distributions With Respect to Unexchanged Shares of Parent Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to shares of Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock they are entitled to receive until
the holder of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be paid
to the record holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Parent Common Stock.
(d) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
of which such deduction and withholding was made by Parent or the Exchange
Agent.
SECTION 1.08. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
SECTION 1.09. No Further Ownership Rights in Company Common Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.10. Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock as may be required pursuant to Section 1.06; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
SECTION 1.11. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding shares of Company Common
Stock held by a shareholder who objects to the
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Merger (a "Dissenting Shareholder") and complies with the provisions of the MBCL
concerning rights of holders of shares of Company Common Stock to dissent from
the Merger and require appraisal of such shares ("Dissenting Shares") shall not
be converted as described in Section 1.06 but shall become the right to receive
such consideration as may be determined to be due to such Dissenting Shareholder
pursuant to the MBCL. If, after the Effective Time, such Dissenting Shareholder
withdraws its demand for appraisal or fails to perfect or otherwise loses its
right of appraisal, in any such case pursuant to the MBCL, or if Parent
otherwise consents thereto, each of such shareholder's Dissenting Shares shall
be deemed converted as of the Effective Time into the right to receive the
Merger Consideration in accordance with Section 1.06.
SECTION 1.12. Accounting Consequences. It is intended by the parties
hereto that the Merger shall, subject to applicable accounting standards,
qualify for accounting treatment as a pooling of interests.
SECTION 1.13. Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
SECTION 1.14. Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as the
case may be, the term "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), financial condition or results of operations of the Company
and its subsidiaries or Parent and its subsidiaries, as the case may be, in each
case taken as a whole.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, hereby represent and warrant
to the Company that, except as set forth in the written disclosure schedule
previously delivered by Parent to the Company (the "Parent Disclosure
Schedule"):
SECTION 2.01. Organization and Qualification; Subsidiaries. Each of
Parent and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders ("Approvals") necessary
to own, lease and operate the properties it purports to own, operate or lease
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and Approvals would not reasonably be expected to have a Material
Adverse Effect. Each of Parent and its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not reasonably be expected to have a
Material Adverse Effect. A true and complete list of all of Parent's
subsidiaries, together with the jurisdiction of incorporation of each subsidiary
and the percentage of each subsidiary's outstanding capital stock owned by
Parent or another subsidiary, is set forth in Section 2.01 of Parent Disclosure
Schedule (which Section may be provided to the Company no later than five (5)
business days after the date hereof). Except as set forth in Section 2.01 of
Parent Disclosure Schedule or the Parent SEC Reports (as defined below), Parent
does not directly or indirectly
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own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity,
with respect to which interest Parent has invested or is required to invest
$3,000,000 or more, excluding securities in any publicly traded company held for
investment by Parent and comprising less than five percent of the outstanding
stock of such company.
SECTION 2.02. Certificate of Incorporation and By-Laws. Parent has
heretofore furnished to the Company a complete and correct copy of its
Memorandum of Association, as altered, and Bye-Laws as most recently altered or
amended to date and has furnished, made available or will promptly make
available to the Company the certificate of incorporation and by-laws (or
equivalent organizational documents) of each of its subsidiaries listed on Annex
B hereto (such subsidiaries, collectively, the "Principal Parent Subsidiaries",
and their respective organizational documents, the "Principal Parent Subsidiary
Documents") and each of its other subsidiaries (such other subsidiaries,
collectively, the "Other Parent Subsidiaries", and their respective
organizational documents, the "Other Parent Subsidiary Documents"). Such
Memorandum of Association, as altered, Bye-Laws, Principal Parent Subsidiary
Documents and Other Parent Subsidiary Documents are in full force and effect.
Neither Parent nor any of its Principal Parent Subsidiaries is in violation of
any of the provisions of its Memorandum of Association, as altered, or Bye-Laws
or Principal Parent Subsidiary Documents (other than immaterial violations, in
the case of non-U.S. Principal Parent Subsidiaries), and none of the Other
Parent Subsidiaries are in violation of any of the provisions of its Other
Parent Subsidiary Documents, except for such violations of the Other Parent
Subsidiary Documents which would not reasonably be expected to have a Material
Adverse Effect.
SECTION 2.03. Capitalization. (a) The authorized capital stock of Parent
consists of 220,000,000 shares of Parent Common Stock, 125,725,000 convertible
cumulative redeemable preference shares, $1.00 par value per share, divided
three classes (the "Parent Convertible Preference Stock"), and 25,000
exchangeable cumulative redeemable preference shares, $1.00 par value per share
(the "Parent Exchangeable Preference Stock"). As of March 14, 1997, (i)
141,693,947 shares of Parent Common Stock were issued and outstanding, of which
3,182,787 are held by a subsidiary of Parent, (ii) 53,840,036 shares of Parent
Common Stock were reserved for issuance upon the exercise or conversion of
outstanding options, warrants or convertible securities granted or issued by
Parent, (iii) no shares of Parent Convertible Preference Stock were issued and
outstanding, and 2,500,000 of such shares were classified as Series A First
Preference Shares and reserved for issuance upon exercise of the share purchase
rights (the "Rights") issued pursuant to Parent's Shareholders Rights Plan,
dated November 6, 1996, as amended, and (iv) no shares of Parent Exchangeable
Preference Stock were issued and outstanding. No material change in such
capitalization has occurred between March 14, 1997 and the date hereof. Except
as set forth in Section 2.01, this Section 2.03 or Section 2.11 or in Section
2.03 or Section 2.11 of the Parent Disclosure Schedule or the Parent SEC
Reports, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Parent or any of its subsidiaries or obligating Parent or any
of its subsidiaries to issue or sell any shares of capital stock of, or other
equity interests in, Parent or any of its subsidiaries. All shares of Parent
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. Except
as disclosed in Section 2.03 of Parent Disclosure Schedule or the Parent SEC
Reports, there are no obligations, contingent or otherwise, of Parent or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of Parent
Common Stock or the capital stock of any subsidiary or to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any subsidiary that is not a wholly owned subsidiary of Parent or any other
entity other than guarantees of bank obligations of subsidiaries entered into in
the ordinary course of business. Except as set forth in Sections 2.01 and 2.03
of Parent Disclosure Schedule, all of the outstanding shares of capital stock
(other than directors' qualifying shares) of each of the Parent's subsidiaries
is duly authorized, validly issued, fully paid and nonassessable, and all such
shares (other than directors' qualifying shares) are owned by Parent or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Parent's voting rights, charges or other encumbrances
of any nature whatsoever.
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(b) The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and nonassessable and
listed, upon official notice of issuance, for trading on the NYSE.
SECTION 2.04. Authority Relative to this Agreement; Takeover Laws. (a)
Each of Parent and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of Parent and Merger Sub are necessary to authorize this Agreement
or to consummate the transactions so contemplated, subject to authorization of
this Agreement and the transactions contemplated hereby, including the approval
of the issuance of shares of Parent Common Stock in the Merger by a majority of
the votes cast, provided that the total votes cast represent over 50% in
interest of all securities entitled to vote on the proposals, and the approval
of the Reverse Stock Split, the Share Amendment, the Parent Name Change and the
New Parent Director Election (all as defined in Section 5.03) by a majority of
the holders of Parent Common Stock (hereafter in this Agreement referred to as
shareholders) voting at a quorate meeting. Under the Bermuda Companies Act of
1981, as amended, and Parent's Memorandum of Association, as altered, and Bye-
Laws, the quorum required to approve each of the Reverse Stock Split, the Share
Amendment, the issuance of Parent Common Stock in the Merger, the Parent Name
Change and the New Parent Director Election is two or more holders of Parent
Common Stock. None of the Reverse Stock Split, the Share Amendment, the issuance
of Parent Common Stock in the Merger, the Parent Name Change or the New Parent
Director Election require the approval of any holder of capital stock of Parent
other than the holders of Parent Common Stock. The Board of Directors of Parent
has determined that it is advisable and in the best interest of Parent's
shareholders for Parent to enter into this Agreement and to consummate the
Merger upon the terms and subject to the conditions of this Agreement. This
Agreement has been duly and validly executed and delivered by Parent and Merger
Sub and, assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of Parent and Merger Sub.
(b) Prior to the date hereof, the Board of Directors of Parent has taken
all action necessary to exempt under or make not subject to any "fair price,"
"moratorium," "control share acquisition" or similar anti-takeover statute or
regulation enacted under any Bermuda law or any other law, or any provision of
Parent's Memorandum of Association, as altered, or Bye-Laws, that purports to
limit or restrict business combinations or the ability to acquire or vote shares
that would otherwise be applicable to this Agreement and the transactions
contemplated hereby, including the consummation of the Merger and the issuance
of Parent Common Stock pursuant thereto.
SECTION 2.05. No Conflict; Required Filings and Consents. (a) Section
2.05(a) of the Parent Disclosure Schedule includes a list of (i) all loan
agreements, indentures, mortgages, pledges, conditional sale or title retention
agreements, security agreements, capital leases, guaranties, standby letters of
credit, or lease purchase agreements, to which Parent or any of its subsidiaries
is a party or by which any of them is bound, each in an amount equal to or
exceeding $10,000,000, but excluding any such agreement between Parent and its
wholly-owned subsidiaries or between two or more wholly-owned subsidiaries of
the Parent; (ii) all contracts, agreements, commitments or other understandings
or arrangements to which Parent or any of its subsidiaries is a party or by
which any of them or any of their respective properties or assets are bound or
affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments by Parent or any of its subsidiaries of
less than $5,000,000 per annum; and (iii) all agreements which, as of the date
hereof, would be required to be filed as "material contracts" with the
Securities and Exchange Commission ("SEC") pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, and the SEC's rules thereunder (the
"Exchange Act"), other than those agreements actually filed heretofore by Parent
with the SEC. Except as set forth on Section 2.05(a) of the Parent Disclosure
Schedule, no single customer or affiliated group of customers (excluding U.S.
governmental agencies or
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authorities), accounted for more than 3% of Parent's electronic security
services business net sales during the year ended December 31, 1996 or is
currently expected by Parent to account for more than 3% of Parent's net sales
for the year ended December 31, 1997 (without regards to any effects of the
Merger).
(b) Except as set forth in Section 2.05(b) of the Parent Disclosure
Schedule, the execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate the Memorandum of Association, as altered (or
Articles of Organization) or Bye-Laws (or By-laws) of Parent and Merger Sub,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default), or impair Parent's or any of its subsidiaries'
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Parent or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except in any such case for any such
conflicts, violations, breaches, defaults or other occurrences that would not
reasonably be expected to have a Material Adverse Effect.
(c) The execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, and any applicable state securities laws ("Blue Sky Laws"), (ii)
the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act") and filings and consents under any applicable non-United States
laws intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade ("Competition Laws"), (iii)
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement, (iv) the filing and recordation of appropriate merger or other
documents as required by the MBCL, (v) the approval of the issuance of the
Parent Common Stock in the Merger by the Bermuda Monetary Authority, and (vi)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent or delay Parent from performing
its obligations under this Agreement, or would not otherwise reasonably be
expected to have a Material Adverse Effect.
SECTION 2.06. Compliance; Permits. (a) Except as disclosed in Section
2.06(a) of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties is bound or affected,
except for any such conflicts, defaults or violations which would not reasonably
be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 2.06(b) of the Parent Disclosure
Schedule, Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals from
governmental authorities which are material to the operation of the business of
Parent and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "Parent Permits"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure to so
comply would not reasonably be expected to have a Material Adverse Effect.
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SECTION 2.07. SEC Filings; Financial Statements. (a) Parent has filed all
forms, reports and documents required to be filed with the SEC since December
31, 1993, including (i) its Annual Reports on Form 10-K for the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995, (ii) its
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1996,
June 30, 1996 and September 30, 1996, (iii) all proxy statements relating to
Parent's meetings of shareholders (whether annual or special) held since
December 31, 1993, (iv) all other reports or registration statements (other than
Reports on Form 10-Q not referred to in clause (ii) above) filed by Parent with
the SEC since December 31, 1993, and (v) all amendments and supplements to all
such reports and registration statements filed by Parent with the SEC
(collectively, the "Parent SEC Reports"). Except as disclosed in Section 2.07 of
the Parent Disclosure Schedule, the Parent SEC Reports (i) were prepared in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports, Parent's 1995
Annual Report to Shareholders and in the March 6, 1997 draft of Parent's Annual
Report on Form 10-K for the year ended December 31, 1996, except as necessary to
give effect to the accounting for Parent's vehicle auction business and this
Agreement (the "1996 Financial Statements"), was prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly in all material respects presents the consolidated
financial position of Parent and its subsidiaries as at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
SECTION 2.08. Absence of Certain Changes or Events. Except as set forth
in Section 2.08 of the Parent Disclosure Schedule or the Parent SEC Reports,
since September 30, 1996, Parent has conducted its business in the ordinary
course and there has not occurred: (i) any Material Adverse Effect; (ii) any
amendments or changes in the Memorandum of Association, as altered, or Bye-laws
of Parent; (iii) any damage to, destruction or loss of any asset of Parent
(whether or not covered by insurance) that could reasonably be expected to have
a Material Adverse Effect; (iv) any material change by Parent in its accounting
methods, principles or practices; (v) any material revaluation by Parent of any
of its assets, including, without limitation, writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business; (vi) any sale of a material amount of property of Parent,
except in the ordinary course of business; or (vii) any other action or event
that would have required the consent of the Company pursuant to Section 4.01 had
such action or event occurred after the date of this Agreement.
SECTION 2.09. No Undisclosed Liabilities. Except as set forth in Section
2.09 of the Parent Disclosure Schedule or the Parent SEC Reports, neither Parent
nor any of its subsidiaries has any liabilities (absolute, accrued, contingent
or otherwise), except liabilities (a) in the aggregate adequately provided for
in Parent's audited balance sheet (including any related notes thereto) for the
fiscal year ended December 31, 1995 included in Parent's 1995 Annual Report to
Shareholders (the "1995 Balance Sheet"), (b) incurred in the ordinary course of
business and not required under GAAP to be reflected on the 1995 Balance Sheet,
(c) incurred since December 31, 1995 in the ordinary course of business
consistent with past practice, (d) incurred in connection with this Agreement,
or (e) which would not reasonably be expected to have a Material Adverse Effect.
SECTION 2.10. Absence of Litigation. Except as set forth in Section 2.10
of the Parent Disclosure Schedule or the Parent SEC Reports, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of Parent, overtly threatened against Parent or any of its
subsidiaries, or any
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properties or rights of Parent or any of its subsidiaries, before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign, that would reasonably be expected to have a Material
Adverse Effect.
SECTION 2.11. Employee Benefit Plans; Employment Agreements. (a) Section
2.11(a) of the Parent Disclosure Schedule lists all employee pension plans (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), all employee welfare plans (as defined in Section 3(1) of
ERISA), and all other bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, written or otherwise, as
amended, modified or supplemented, for the benefit of, or relating to, any
current employee, officer or consultant (or any of their beneficiaries) of
Parent or any other entity (whether or not incorporated) which is a member of a
controlled group including Parent or which is under common control with Parent
(an "ERISA Affiliate") within the meaning of Section 414 of the Code or Section
4001 of ERISA, or any subsidiary of Parent, as well as each plan with respect to
which Parent or an ERISA Affiliate could incur liability under Section 4069 (if
such plan has been or were terminated) or Section 4212(c) of ERISA or Section
412 of the Code (together, the "Employee Plans"). There have been made available
or will be made available as promptly as practicable, but in any event no later
than 20 business days after the date hereof to the Company copies of (i) each
such written Employee Plan and all related trust agreements, insurance and other
contracts (including policies), the most recent summary plan descriptions,
summaries of material modifications and communications distributed to plan
participants since the date of the most recent summary plan descriptions, (ii)
the three most recent annual reports on Form 5500 series, with accompanying
schedules and attachments, filed with respect to each Employee Plan required to
make such a filing, (iii) the most recent actuarial valuation for each Employee
Plan subject to Title IV of ERISA, (iv) the latest reports which have been filed
with the Department of Labor with respect to each Employee Plan required to make
such filing and (v) favorable determination letters issued for each Employee
Plan and related trust that are intended to satisfy the qualification
requirements of Section 401(a) and Section 501(a) of the Code (or, if pending, a
copy of the application for such determination). For purposes of this Section
2.11, the term "material," when used with respect to (i) any Employee Plan,
shall mean that Parent or an ERISA Affiliate has incurred or may incur
obligations in an amount exceeding $5,000,000 with respect to such Employee
Plan, and (ii) any liability, obligation, breach or non-compliance, shall mean
that the Parent or an ERISA Affiliate has incurred or may incur obligations in
an amount exceeding $1,000,000, with respect to any one such or series of
related liabilities, obligations, breaches, defaults, violations or instances of
non-compliance.
(b) Except as set forth in Section 2.11(b) of the Parent Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person, and none of the Employee Plans is
a "multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii)
no party in interest or disqualified person (as defined in Section 3(14) of
ERISA and Section 4975 of the Code) has at any time engaged in a transaction
with respect to any Employee Plan which could subject Parent or any ERISA
Affiliate, directly or indirectly, to a tax, penalty or other material liability
for prohibited transactions under ERISA or Section 4975 of the Code; (iii) no
fiduciary of any Employee Plan has breached any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA, which breach could
result in any material liability to Parent or any ERISA Affiliate; (iv) all
Employee Plans have been established and maintained substantially in accordance
with their terms and have operated in compliance in all material respects with
the requirements prescribed by any and all statutes (including ERISA and the
Code), orders, or governmental rules and regulations currently in effect with
respect thereto (including all applicable requirements for notification to
participants or the Department of Labor, Internal Revenue Service (the "IRS") or
Secretary of the Treasury), and may by their terms be amended and/or terminated
at any time subject to applicable law, and Parent and each of its subsidiaries
have performed all material obligations required to be performed by them under,
are not in any material respect in default under or violation of, and have no
knowledge of any default or violation by any other party to, any of the Employee
Plans; (v) each Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred which may
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reasonably be expected to impair such determination; (vi) all contributions
required to be made with respect to any Employee Plan pursuant to Section 412 of
the Code, or the terms of the Employee Plan or any collective bargaining
agreement, have been made on or before their due dates; (vii) with respect to
each Employee Plan, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the 30 day notice requirement has been
waived under the regulations to Section 4043 of ERISA) has occurred for which
there is any material outstanding liability to the Company nor any ERISA
Affiliate; and (viii) neither Parent nor any ERISA Affiliate has incurred or
reasonably expects to incur any liability under Title IV of ERISA (other than
liability for premium payments to the Pension Benefit Guaranty Corporation (the
PBGC") arising in the ordinary course).
(c) Section 2.11(c) of the Parent Disclosure Schedule sets forth a true and
complete list of options or other rights, direct or indirect to purchase Parent
Common Stock held by any current or former employee, officer or director of
Parent or any of its subsidiaries as of the date hereof, together with the
number of shares of Parent Common Stock subject to such options, and the
exercise price of such options or rights (to the extent determined as of the
date hereof), and no such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), provided
that no later than 20 business days after the date hereof, Parent will provide
the Company with a list of current or former employees, officers and directors
of Parent or any of its subsidiaries who hold any options or rights listed on
Section 2.11(c) of the Parent Disclosure Schedule and the expiration dates of
such options.
(d) Section 2.11(d) of the Parent Disclosure Schedule sets forth a true and
complete list of (i) all employment agreements with executive officers of Parent
or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating Parent or any of its subsidiaries to make annual cash
payments in an amount exceeding $500,000; (iii) all current executive officers
of Parent or any of its subsidiaries who have executed a non-competition
agreement with Parent or any of its subsidiaries; (iv) all severance agreements,
programs and policies of Parent or any of its subsidiaries with or relating to
its employees, in each case with outstanding commitments with respect to any one
individual exceeding $250,000 per year or providing for payments over a period
in excess of two years, excluding programs and policies required to be
maintained by law; and (v) all Employee Plans which contain change in control
provisions. Other than as disclosed in Parent's Statement on Schedule 14D-9
filed prior to the date hereof with the SEC in respect of an exchange offer of
Western Resources, Inc. (the "Schedule 14D-9"), there have been no material
changes to the compensation of Parent's executive officers since September 30,
1996. All related payroll expenses and any accelerated pension benefits of
Parent and any of its subsidiaries under severance agreements with former
employees, directors and officers of Parent or any of its subsidiaries have been
fully accrued in the 1996 Financial Statements.
(e) Except as set forth in Section 2.11(e) of the Parent Disclosure
Schedule, no employee of Parent or any of its subsidiaries has participated in
any employee pension benefit plans (as defined in Section 3(2) of ERISA)
maintained by or on behalf of Parent. The PBGC has not instituted proceedings to
terminate any defined benefit plan listed in Section 2.11(e) of the Parent
Disclosure Schedule (each, a "Defined Benefit Plan"). The Defined Benefit Plans
have no accumulated or waived funding deficiencies within the meaning of Section
412 of the Code nor have any extensions of any amortization period within the
meaning of Section 412 of the Code or 302 of ERISA been applied for with respect
thereto. The present value of the benefit liabilities (within the meaning of
Section 4041 of ERISA) of the Defined Benefit Plans, determined on a termination
basis using actuarial assumptions that would be used by the PBGC does not exceed
by more than $1,000,000 the value of the Plans' assets. No facts exist with
respect to the Defined Benefit Plans which would give rise to a lien on the
assets of Parent under Section 4068 of ERISA. All the assets of the Defined
Benefit Plans are cash, readily marketable securities or insurance contracts.
(f) Parent has fiduciary liability insurance in effect covering the
fiduciaries of the Employee Plans (including Parent) with respect to whom Parent
may have liability, and within 20 business days of the date hereof, Parent will
provide the Company with a statement of the amount of such insurance.
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SECTION 2.12. Labor Matters. Except as set forth in Section 2.12 of the
Parent Disclosure Schedule (which with respect to clause (ii) shall be furnished
by Parent to the Company no later than 20 business days of the date hereof) or
the Parent SEC Reports, (i) there are no controversies pending or, to the
knowledge of Parent or any of its subsidiaries, threatened, between Parent or
any of its subsidiaries and any of their respective employees, which
controversies have had, or would reasonably be expected to have, a Material
Adverse Effect; (ii) neither Parent nor any of its subsidiaries is a party to
any material collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its subsidiaries; (iii) neither
Parent nor any of its subsidiaries knows of any activities or proceedings of any
labor union to organize 50 or more employees of Parent or any of its
subsidiaries in any office; and (iv) neither Parent nor any of its subsidiaries
has any knowledge of any strikes, slowdowns, work stoppages, lockouts, or
threats thereof, by or with respect to any employees of Parent or any of its
subsidiaries which would reasonably be expected to have a Material Adverse
Effect. Schedule 2.12 shall set forth, with respect to any collective bargaining
agreement or labor union contract identified in accordance with clause (ii) of
this Section 2.12, the name of the union that is a party to such agreement or
contract, the expiration date thereof, and the number of the employees of Parent
and its subsidiaries who are party thereto.
SECTION 2.13. Registration Statement; Joint Proxy
Statement/Prospectus. Subject to the accuracy of the representations of the
Company in Section 3.13, the registration statement (the "Registration
Statement") pursuant to which Parent Common Stock to be issued in the Merger
will be registered with the SEC shall not at the time the Registration Statement
is declared effective by the SEC contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The information supplied by Parent for
inclusion in the joint proxy statement/prospectus to be sent to the shareholders
of Parent in connection with the general meeting of the shareholders of Parent
to consider the Reverse Stock Split, the Share Amendment, the issuance of Parent
Common Stock in the Merger, the Parent Name Change and the New Parent Director
Election (the "Parent Shareholders Meeting"), and to the shareholders of the
Company in connection with the meeting of the shareholders of the Company to
consider the Merger (the "Company Shareholders Meeting" and, together with the
Parent Shareholders Meeting, the "Shareholders Meetings") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Joint Proxy Statement/Prospectus") will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to shareholders, at the time of the Shareholders Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Shareholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to Parent or any of its respective affiliates,
officers or directors should be discovered by Parent which should be set forth
in an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Parent shall promptly inform the Company. The Joint Proxy
Statement/Prospectus shall comply in all material respects with the requirements
of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company which is
contained or incorporated by reference in, or furnished in connection with the
preparation of, the Registration Statement or the Joint Proxy
Statement/Prospectus.
SECTION 2.14. Restrictions on Business Activities. Except for this
Agreement, or as set forth in Section 2.14 of the Parent Disclosure Schedule or
the Parent SEC Reports, to the best of Parent's knowledge, there is no
agreement, judgment, injunction, order or decree binding upon Parent or any of
its subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any business practice of Parent or any of its
subsidiaries, acquisition of property by Parent or any of its subsidiaries or
the conduct of business by Parent or any of its subsidiaries as currently
conducted or as
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proposed to be conducted by Parent, except for any prohibition or impairment as
would not reasonably be expected to have a Material Adverse Effect.
SECTION 2.15. Title to Property. Except as set forth in Section 2.15 of
the Parent Disclosure Schedule, Parent and each of its subsidiaries have good
and defensible title to all of their properties and assets, free and clear of
all liens, charges and encumbrances, except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which would not reasonably be expected to have a
Material Adverse Effect; and, to the knowledge of Parent, all leases pursuant to
which Parent or any of its subsidiaries lease from others material amounts of
real or personal property, are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
Parent, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default), except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
reasonably be expected to have a Material Adverse Effect.
SECTION 2.16. Real Property. (a) Except as set forth in Section 2.16(a)
of the Parent Disclosure Schedule, each of the buildings, improvements and
structures located upon any real property and land owned by Parent or any of its
subsidiaries (collectively, the "Owned Property"), and each of the buildings,
structures and premises leased by the Company or any of its subsidiaries (the
"Leased Premises"), is in reasonably good repair and operating condition, and
Parent has not received any notice of or writing referring to any requirements
by any insurance company that has issued a policy covering any part of any Owned
Property or Leased Premises or by any board of fire underwriters or other body
exercising similar functions, requiring any repairs or work to be done on any
part of any Owned Property or Leased Premises, except as would not reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth in Section 2.16(b) of the Parent Disclosure
Schedule, all structural or material mechanical systems in the buildings upon
the Owned Property and Leased Properties are in good working order and working
condition, and adequate for the operation of the business of Parent and its
subsidiaries as heretofore conducted, except as would not reasonably be expected
to have a Material Adverse Effect.
SECTION 2.17. Taxes. (a) For purposes of this Agreement, "Tax" or "Taxes"
shall mean taxes, fees, levies, duties, tariffs, imposts, and governmental
impositions or charges of any kind in the nature of (or similar to) taxes,
payable to any federal, state, local or foreign taxing authority, including
(without limitation) (i) income, franchise, profits, gross receipts, ad valorem,
net worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security, workers' compensation, unemployment compensation, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and (ii) interest, penalties, additional taxes and additions to tax
imposed with respect thereto; and "Tax Returns" shall mean returns, reports, and
information statements with respect to Taxes required to be filed with the IRS
or any other taxing authority, domestic or foreign, including, without
limitation, consolidated, combined and unitary tax returns (including returns
required in connection with any Employee Plan).
(b) Other than as disclosed in Section 2.17(b) of the Parent Disclosure
Schedule or the Parent SEC Reports: Parent and its subsidiaries have timely
filed all United States federal, state and local income Tax Returns and all
foreign Tax Returns required to be filed by them, and Parent and its
subsidiaries have timely paid and discharged all Taxes due in connection with or
with respect to the periods or transactions covered by such Tax Returns and have
paid all other Taxes as are due, except such as are being contested in good
faith by appropriate proceedings (to the extent that any such proceedings are
required), and there are no other taxes that would be due if asserted by a
taxing authority, except with respect to which Parent is maintaining reserves to
the extent currently required unless the failure to do so would not reasonably
be expected to have a Material Adverse Effect. Except as does not involve or
would not result in liability to Parent or any of its subsidiaries that would
reasonably be expected to have a Material Adverse Effect, (i) there are no tax
liens on any assets of Parent or any subsidiary thereof; and (ii) neither Parent
nor any
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of its subsidiaries has granted any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment of, any Tax. The
accruals and reserves (including deferred taxes) reflected in the 1995 Balance
Sheet are in all material respects adequate to cover all Taxes accruable through
the date thereof (including interest and penalties, if any, thereon and Taxes
being contested) in accordance with GAAP.
(c) Parent on behalf of itself and all its subsidiaries hereby represents
that, other than as disclosed in Section 2.17(c) of the Parent Disclosure
Schedule or the Parent SEC Reports, and other than with respect to items the
inaccuracy of which would not reasonably be expected to have a Material Adverse
Effect: (i) neither Parent nor any of its subsidiaries is obligated under any
agreement with respect to industrial development bonds or other obligations with
respect to which the excludability from gross income of the holder for federal
or state income tax purposes could be affected by the transactions contemplated
hereunder and (ii) neither Parent nor any of its subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. To the best knowledge of Parent, neither Parent nor any of its
subsidiaries owns any property of a character, the indirect transfer of which,
pursuant to this Agreement, would give rise to any material documentary, stamp
or other transfer tax.
(d) Parent will make available as reasonably as is practicable to the
Company all tax rulings, agreements, or arrangements issued to, or entered into
by, any of its Principal Parent Subsidiaries by or with the tax authorities of
any jurisdiction.
SECTION 2.18. Environmental Matters. Except as set forth in Section 2.18
of the Parent Disclosure Schedule or the Parent SEC Reports, and except in all
cases as, in the aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect, to the best of Parent's knowledge, Parent and
each of its subsidiaries (i) have obtained all applicable permits, licenses and
other authorization which are required to be obtained under all applicable
federal, state or local laws or any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") by Parent or its subsidiaries (or
their respective agents); (ii) are in compliance with all terms and conditions
of such required permits, licenses and authorization, and also are in compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in applicable
Environmental Laws; (iii) as of the date hereof, are not aware of nor have
received notice of any past or present violations of Environmental Laws or any
event, condition, circumstance, activity, practice, incident, action or plan
which is reasonably likely to interfere with or prevent continued compliance
with or which would give rise to any common law or statutory liability, or
otherwise form the basis of any claim, action, suit or proceeding, against
Parent or any of its subsidiaries based on or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge or release into the environment, of any
pollutant, contaminant or hazardous or toxic material or waste; and (iv) have
taken all actions necessary under applicable Environmental Laws to register any
products or materials required to be registered by Parent or its subsidiaries
(or any of their respective agents) thereunder.
SECTION 2.19. Intellectual Property. (a) Parent and/or each of its
subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, trademarks, trade names, service marks, copyrights,
and any applications therefor, technology, know-how, computer software programs
or applications, and tangible or intangible proprietary information or material
that are used in the business of Parent and its subsidiaries as currently
conducted, except as would not reasonably be expected to have a Material Adverse
Effect.
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(b) Except as disclosed in Section 2.19(b) of the Parent Disclosure
Schedule or the Parent SEC Reports or as would not reasonably be expected to
have a Material Adverse Effect (i) Parent is not, nor will it be as a result of
the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses and other
agreements as to which Parent is a party and pursuant to which Parent is
authorized to use any third-party patents, trademarks, service marks and
copyrights ("Third-Party Intellectual Property Rights"); (ii) no claims with
respect to the patents, registered and material unregistered trademarks and
service marks, registered copyrights, trade names and any applications therefor
owned by Parent or any of its subsidiaries (the "Parent Intellectual Property
Rights"), any trade secret material to Parent, or Third Party Intellectual
Property Rights to the extent arising out of any use, reproduction or
distribution of such Third Party Intellectual Property Rights by or through
Parent or any of its subsidiaries, are currently pending or, to the knowledge of
Parent, are overtly threatened by any person; and (iii) Parent does not know of
any valid grounds for any bona fide claims (A) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or licensed
or proposed for use, sale or license by Parent or any of its subsidiaries,
infringes on any copyright, patent, trademark, service mark or trade secret; (B)
against the use by Parent or any of its subsidiaries, of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or computer
software programs and applications used in the business of Parent or any of its
subsidiaries as currently conducted or as proposed to be conducted; (C)
challenging the ownership, validity or effectiveness of any of the Parent
Intellectual Property Rights or other trade secret material to Parent; or (D)
challenging the license or legally enforceable right to use of the Third Party
Intellectual Rights by Parent or any of its subsidiaries.
(c) To Parent's knowledge, all material patents, registered trademarks,
service marks and copyrights held by Parent are valid and subsisting. Except as
set forth in Section 2.19(c) of the Parent Disclosure Schedule or the Parent SEC
Reports, to Parent's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of the Parent Intellectual Property by
any third party, including any employee or former employee of Parent or any of
its subsidiaries.
SECTION 2.20. Interested Party Transactions. Except as set forth in
Section 2.20 of the Parent Disclosure Schedule or the Parent SEC Reports or for
events as to which the amounts involved do not, in the aggregate, exceed
$100,000, since the date of Parent's proxy statement dated March 12, 1996 (the
"1996 Parent Proxy Statement"), no event has occurred that would be required to
be reported as a Certain Relationship or Related Transaction, pursuant to Item
404 of Regulation S-K promulgated by the SEC.
SECTION 2.21. Insurance. Except as set forth in Section 2.21 of the
Parent Disclosure Schedule, all material fire and casualty, general liability,
business interruption, product liability and sprinkler and water damage
insurance policies maintained by Parent or any of its subsidiaries are with
reputable insurance carriers, provide adequate coverage for all normal risks
incident to the business of Parent and its subsidiaries and their respective
properties and assets and are in character and amount at least equivalent to
that carried by persons engaged in similar businesses and subject to the same or
similar perils or hazards, except as would not reasonably be expected to have a
Material Adverse Effect.
SECTION 2.22. Product Liability and Recalls. (a) Except as disclosed in
Section 2.22(a) of the Parent Disclosure Schedule or the Parent SEC Reports,
Parent is not aware of any claim, or the basis of any claim, against Parent or
any of its subsidiaries for injury to person or property of employees or any
third parties suffered as a result of the sale of any product or performance of
any service by Parent or any of its subsidiaries, including claims arising out
of the defective or unsafe nature of its products or services, which would
reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 2.22(b) of the Parent Disclosure
Schedule or the Parent SEC Reports, there is no pending or, to the knowledge of
the Company, threatened recall or investigation of any product sold by Parent,
which recall or investigation would reasonably be expected to have a Material
Adverse Effect.
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SECTION 2.23. Opinion of Financial Advisor. Parent has been advised by
its financial advisor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, to
the effect that, in its opinion dated March 17, 1997, as of such date the
Exchange Ratio was fair from a financial point of view to Parent's shareholders.
SECTION 2.24. Pooling Matters. (a) Parent has provided to the Company and
its independent accountants all information concerning actions taken or agreed
to be taken by Parent or any of its affiliates on or before the date of this
Agreement that would reasonably be expected to adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests. The failure of this representation to be true and correct
shall, if the Merger is not able to be accounted for as a pooling of interests,
constitute a breach of this Agreement by Parent for the purposes of Section
7.01(i).
(b) Western Resources, Inc. is not an affiliate of Parent for purposes of
Accounting Standards Release 135 or Staff Accounting Bulletin 65 regarding
pooling of interests accounting treatment of merger transactions.
SECTION 2.25. Ownership of Merger Sub; No Prior Activities. (a) Merger
Sub is a direct, wholly-owned subsidiary of Parent and was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 2.26. Brokers. No broker, finder or investment banker (other than
Merrill Lynch, Pierce, Fenner & Smith Incorporated, the fees and expenses of
whom will be paid by Parent) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub. Parent has
heretofore furnished to the Company a complete and correct copy of all
agreements between the Company and Merrill Lynch, Pierce, Fenner & Smith
Incorporated pursuant to which such firms would be entitled to any payment
relating to the transactions contemplated hereunder.
SECTION 2.27. Full Disclosure. No statement contained in any certificate
or schedule furnished or to be furnished by Parent or Merger Sub or its
subsidiaries to the Company in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make statements herein or
therein not misleading, except where the material fact so misstated or omitted
to be stated would not reasonably be expected to have a Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent that, except as set
forth in the written disclosure schedule previously delivered by the Company to
Parent (the "Company Disclosure Schedule"):
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and Approvals would not reasonably be expected to
have a Material Adverse Effect. Each of the Company and its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its
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properties owned, leased or operated by it or the nature of its activities makes
such qualification or licensing necessary, except for such failures to be so
duly qualified or licensed and in good standing that would not reasonably be
expected to have a Material Adverse Effect. A true and complete list of all of
the Company's subsidiaries, together with the jurisdiction of incorporation of
each subsidiary and the percentage of each subsidiary's outstanding capital
stock owned by the Company or another subsidiary, is set forth in Section 3.01
of the Company Disclosure Schedule. Except as set forth in Section 3.01 of the
Company Disclosure Schedule or the Company SEC Reports (as defined below), the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity, with respect to which the Company has invested
or is required to invest $5,000,000 or more, excluding securities in any
publicly traded company held for investment by the Company and comprising less
than five percent of the outstanding capital stock of such company.
SECTION 3.02. Articles of Organization and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Restated
Articles of Organization and By-Laws, as amended to date and has furnished or
made available to Parent the certificate of incorporation and by-laws (or
equivalent organizational documents) of each of its subsidiaries listed on Annex
C hereto (such subsidiaries, collectively, the "Principal Company Subsidiaries",
and their respective organizational documents, the "Principal Company Subsidiary
Documents") and each of its other subsidiaries (such other subsidiaries,
collectively, the "Other Company Subsidiaries", and their respective
organizational documents, the "Other Company Subsidiary Documents"). Such
Restated Articles of Organization and By-Laws, Principal Company Subsidiary
Documents and Other Company Subsidiary Documents are in full force and effect.
Neither the Company nor any of its Principal Company Subsidiaries is in
violation of any of the provisions of its Restated Articles of Organization or
By-Laws or Principal Company Subsidiary Documents, and none of the Other Company
Subsidiaries are in violation of any of the provisions of its Other Company
Subsidiary Documents, except for such violation of the Other Company Subsidiary
Documents which would not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 500,000,000 shares of Company Common Stock and 2,000,000 shares of
Preferred Stock, $1 par value ("Company Preferred Stock"). As of March 15, 1997,
(i) 166,817,355 shares of Parent Common Stock were issued and outstanding, all
of which are validly issued, fully paid and non-assessable, and 13,007,202
shares were held in treasury, (ii) no shares of Company Preferred Stock were
outstanding or held in treasury, (iii) no shares of Company Common Stock or
Company Preferred Stock were held by subsidiaries of the Company, (iv) 1,606,065
shares of Company Common Stock were reserved for future issuance under the
Company's 1994 Restricted Stock Ownership Plan, (v) 210,849 shares of Company
Common Stock were reserved for issuance upon exercise of the Warrants, (vi)
7,992,724 shares of Company Common Stock were reserved for issuance upon
exercise of stock options issued under the ABC Company 1995 Stock Option Plan,
and (vii) 26,084 shares of Company Common Stock were reserved for issuance upon
exercise of stock options issued under the stock incentive plans maintained by
Kendall International, Inc. No material change in such capitalization has
occurred between March 15, 1997 and the date hereof. Except as set forth in
Section 3.03 of the Company Disclosure Schedule or the Company SEC Reports,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any of its subsidiaries. Except as set forth in
Section 3.03 of the Company Disclosure Schedule or the Company SEC Reports,
there are no obligations, contingent or otherwise, of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock of any subsidiary or to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any such subsidiary other than guarantees of bank obligations of subsidiaries
entered into in the ordinary course of business. Except as set forth in Section
3.01 or 3.03 of the Company Disclosure Schedule, all of the outstanding shares
of capital stock (other than directors' qualifying shares) of each of the
Company's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares) are
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owned by the Company or another subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in the Company's
voting rights, charges or other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to this Agreement; Takeover Laws. (a)
The Company has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions contemplated thereby, other than the approval
of this Agreement and the Merger by the holders of at least two-thirds of the
outstanding shares of Company Common Stock entitled to vote in accordance with
the MBCL and the Company's Restated Articles of Organization and By-Laws. The
Board of Directors of the Company has determined that it is advisable and in the
best interest of the Company's shareholders for the Company to enter into this
Agreement and to consummate the Merger upon the terms and subject to the
conditions of this Agreement. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Merger Sub, constitutes a legal, valid and binding
obligation of the Company.
(b) Prior to the date hereof, the Board of Directors of the Company has
taken all action necessary to exempt under or make not subject to any "fair
price," "moratorium," "control share acquisition" or similar anti-takeover
statute or regulation enacted under any Massachusetts law or any other law, or
any provision of the Company's Restated Articles of Organization or By-Laws,
that purports to limit or restrict business combinations or the ability to
acquire or vote shares that would otherwise be applicable to this Agreement and
the transactions contemplated hereby, including the consummation of the Merger
and the issuance of Parent Common Stock pursuant thereto.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) Section
3.05(a) of the Company Disclosure Schedule includes a list of (i) all loan
agreements, indentures, mortgages, pledges, conditional sale or title retention
agreements, security agreements, capital leases, guaranties, standby letters of
credit, equipment leases or lease purchase agreements to which the Company or
any of its subsidiaries is a party or by which any of them is bound, each in an
amount equal to or exceeding $25,000,000, but excluding any such agreement
between the Company and its wholly-owned subsidiaries or between two or more
wholly-owned subsidiaries of the Company; (ii) all contracts, agreements,
commitments or other understandings or arrangements to which the Company or any
of its subsidiaries is a party or by which any of them or any of their
respective property or assets are bound or affected, but excluding contracts,
agreements, commitments or other understandings or arrangements entered into in
the ordinary course of business and involving, in each case, payments or
receipts by the Company or any of its subsidiaries of less than $10,000,000 in
any single instance; and (iii) all agreements which, as of the date hereof,
would be required to be filed with the SEC pursuant to the requirements of the
Exchange Act as "material contracts", other than those agreements which have
been filed heretofore by the Company with the SEC .
(b) Except as set forth in Section 3.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, (i) conflict with
or violate the Restated Articles of Organization or By-Laws of the Company, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which its or their
respective properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or impair the Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company or any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or
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any of their respective properties are bound or affected, except in any such
case for any such conflicts, violations, breaches, defaults or other occurrences
that would not reasonably be expected to have a Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act, the Exchange Act and
any applicable Blue Sky Laws, (ii) the pre-merger notification requirements of
the HSR Act and filings and consents under any applicable Competition Laws,
(iii) filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement, (iv) the filing and recordation of appropriate merger or other
documents as required by the MBCL, and (v) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent the Company from performing its obligations under this
Agreement, and would not otherwise be reasonably expected to have a Material
Adverse Effect.
SECTION 3.06. Compliance; Permits. (a) Except as disclosed in Section
3.06(a) of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which would not
reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.06(b) of the Company Disclosure
Schedule, the Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "Company Permits"). The Company and its
subsidiaries are in compliance with the terms of Company Permits, except where
the failure to so comply would not reasonably be expected to have a Material
Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed with the SEC since
June 30, 1994, including (i) its Annual Reports on Form 10-K for the fiscal
years ended June 30, 1994, 1995 and 1996, (ii) its Quarterly Reports on Form
10-Q for the quarterly periods ending September 30, 1996 and December 31, 1996,
(iii) all proxy statements relating to the Company's meetings of shareholders
(whether annual or special) held since June 30, 1994, (iv) all other reports or
registration statements (other than Reports on Form 10-Q not referred to in
clause (ii) above) filed by Parent with the SEC since June 30, 1992, and (v) all
amendments and supplements to all such reports and registration statements filed
by the Company with the SEC (collectively, the "Company SEC Reports"). The
Company SEC Reports (i) were prepared in all material respects in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and (ii) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the Company's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports has been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and each
fairly presents the consolidated financial position of the Company and its
subsidiaries as at the
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respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
SECTION 3.08. Absence of Certain Changes or Events. Except as set forth
in Section 3.08 of the Company Disclosure Schedule or the Company SEC Reports,
since June 30, 1996, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any Material Adverse Effect; (ii) any
amendments or changes in the Articles of Organization or By-Laws of the Company;
(iii) any damage to, destruction or loss of any assets of the Company (whether
or not covered by insurance) that would reasonably be expected to have a
Material Adverse Effect; (iv) any material change the Company in its accounting
methods; (v) any material revaluation by Parent of any of its assets, including
without limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; (vi) any sale
of a material amount of assets of the Company, except in the ordinary course of
business; or (vii) any other action or event that would have required the
consent of Parent pursuant to Section 4.03 had such action or event occurred
after the date of this Agreement.
SECTION 3.09. No Undisclosed Liabilities. Except as is disclosed in
Section 3.09 of the Company Disclosure Schedule and the Company SEC Reports,
neither the Company nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise), except liabilities (a) adequately provided
for in the Company's balance sheet (including any related notes thereto) as of
June 30, 1996 included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 (the "June 1996 Balance Sheet"), (b) incurred in
the ordinary course of business and not required under GAAP to be reflected on
the June 1996 Balance Sheet, (c) incurred since June 30, 1996 in the ordinary
course of business and consistent with past practice, (d) incurred in connection
with this Agreement, or (e) which would not reasonably be expected to have a
Material Adverse Effect.
SECTION 3.10. Absence of Litigation. Except as set forth in Section 3.10
of the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign, that would reasonably be expected to have a Material Adverse Effect.
SECTION 3.11. Employee Benefit Plans; Employment Agreements. (a) Section
3.11(a) of the Company Disclosure Schedule lists all employee pension plans (as
defined in Section 3(2) of ERISA), all employee welfare plans (as defined in
Section 3(1) of ERISA) and all other bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar fringe or employee benefit plans, programs or arrangements, written or
otherwise, as amended, modified or supplemented, for the benefit of, or relating
to, current employee, officer or consultant (or any of their beneficiaries) of
the Company or any other entity (whether or not incorporated) which is a member
of a controlled group including the Company or which is under common control
with the Company (an "ERISA Affiliate") within the meaning of Section 414 of the
Code or Section 4001 of ERISA, or any subsidiary of the Company, as well as each
plan with respect to which the Company or an ERISA Affiliate could incur
liability under Section 4069 (if such plan has been or were terminated) or
Section 4212(c) of ERISA or Section 412 of the Code (together, the "Employee
Plans"). There have been made available or will be made available no later than
20 business days after the date hereof to Parent copies of (i) each such written
Employee Plan and all related trust agreements, insurance and other contracts
(including policies), the most recent summary plan descriptions, and summaries
of material modifications and communications distributed to plan participants,
since the most recent summary plan descriptions, (ii) the most recent three
annual reports on Form 5500 series, with accompanying schedules and attachments,
filed with respect to each Employee Plan required to make such a filing, and
(iii) the most recent actuarial valuation for each Employee Plan subject to
Title IV of ERISA. For purposes of this Section 3.11, the term "material," when
used with respect to (i) any Employee Plan, shall mean that the Company or an
ERISA Affiliate has incurred or may incur obligations in an amount exceeding
$5,000,000 with respect to such Employee Plan, and (ii) any liability,
obligation, breach or non-compliance, shall
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mean that the Company or an ERISA Affiliate has incurred or may incur
obligations in an amount exceeding $1,000,000 with respect to any one such or
series of related liabilities, obligations, breaches, defaults, violations or
instances of non-compliance.
(b) (i) Except as set forth in Section 3.11(b) of the Company Disclosure
Schedule, none of the Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person, and none of the Employee Plans is
a "multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii)
no party in interest or disqualified person (as defined in Section 3(14) of
ERISA and Section 4975 of the Code) has at any time engaged in a transaction
with respect to any Employee Plan which could subject the Company or any ERISA
Affiliate, directly or indirectly, to a tax, penalty or other material liability
for prohibited transactions under ERISA or Section 4975 of the Code; (iii) no
fiduciary of any Employee Plan has breached any of the responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA, which breach could
result in any material liability to the Company or any ERISA Affiliate; (iv) all
Employee Plans have been established and maintained substantially in accordance
with their terms and have operated in compliance in all material respects with
the requirements prescribed by any and all statutes (including ERISA and the
Code), orders, or governmental rules and regulations currently in effect with
respect thereto (including all applicable requirements for notification to
participants or the Department of Labor, IRS or Secretary of the Treasury), and
the Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any default or violation
by any other party to, any of the Employee Plans; (iv) each Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; (v) all contributions required to be
made with respect to any Employee Plan pursuant to Section 412 of the Code, or
the terms of the Employee Plan or any collective bargaining agreement, have been
made on or before their due dates; (vi) with respect to each Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the 30 day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 of ERISA has occurred; and (vii) neither the Company nor any ERISA
Affiliate has incurred, nor reasonably expects to incur, any liability under
Title IV of ERISA (other than liability for premium payments to the PBGC arising
in the ordinary course).
(c) Section 3.11(c) of the Company Disclosure Schedule sets forth a true
and complete list of each current employee, officer or director of Company or
any of its subsidiaries who holds (i) options to purchase Company Common Stock
as of the date hereof, together with the number of shares of Company Common
Stock subject to such option, the option price of such option (to the extent
determined as of the date hereof), whether such option is intended to qualify as
an incentive stock option within the meaning of Section 422(b) of the Code (an
"ISO"), and the expiration date of such option; and (ii) other rights, directly
or indirectly, to acquire Company Common Stock, together with the number of
shares of Company Common Stock subject to such right. Section 3.11(c) of the
Company Disclosure Schedule also sets forth the total number of such ISOs, such
nonqualified options and such other rights.
(d) Section 3.11(d) of the Company Disclosure Schedule sets forth a true
and complete list of (i) all employment agreements with officers of the Company
or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating the Company or any of its subsidiaries to make annual
cash payments in an amount exceeding $500,000; (iii) all officers of Parent or
any of its subsidiaries who have executed a non-competition agreement with the
Company; (iv) all severance agreements, programs and policies of the Company or
any of its subsidiaries with or relating to its employees in each case with
outstanding commitments exceeding $1,000,000, except programs and policies
required to be maintained by law; and (v) all plans, programs, agreements and
other arrangements of the Company or any of its subsidiaries with or relating to
its employees which contain change in control provisions.
(e) Except as set forth in Section 3.11(e) of the Company Disclosure
Schedule, no employee of the Company or any of its subsidiaries has participated
in any employee pension benefit plans (as defined in
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Section 3(2) of ERISA) maintained by or on behalf of the Company. The PBGC has
not instituted proceedings to terminate any defined benefit plan listed in
Section 3.11(e) of the Company Disclosure Schedule (each, a "Defined Benefit
Plan"). The Defined Benefit Plans have no accumulated or waived funding
deficiencies within the meaning of Section 412 of the Code nor have any
extensions of any amortization period within the meaning of Section 412 of the
Code or 302 of ERISA been applied for with respect thereto. The present value of
the benefit liabilities (within the meaning of Section 4041 of ERISA) of the
Defined Benefit Plans, determined on a termination basis using actuarial
assumptions that would be used by the PBGC does not exceed by more than
$1,000,000 the value of the Plans' assets. All applicable premiums required to
be paid to the PBGC with respect to the Defined Benefit Plans have been paid. No
facts or circumstances exist with respect to the Defined Benefit Plans which
would give rise to a lien on the assets of the Company under Section 4068 of
ERISA. All the assets of the Defined Benefit Plans are readily marketable
securities or insurance contracts.
(f) The Company has fiduciary liability insurance of at least $15,000,000
in effect covering the fiduciaries of the Employee Plans (including the Company)
with respect to whom the Company may have liability.
SECTION 3.12. Labor Matters. Except as set forth in Section 3.12 of the
Company Disclosure Schedule or the Company SEC Reports, (i) there are no
controversies pending or, to the knowledge of the Company or any of its
subsidiaries, threatened, between the Company or any of its subsidiaries and any
of their respective employees, which controversies have or would reasonably be
expected to have a Material Adverse Effect; (ii) neither the Company nor any of
its subsidiaries is a party to any material collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
subsidiaries, nor does the Company or any of its subsidiaries know of any
activities or proceedings of any labor union to organize 50 or more employees in
any office; and (iii) neither the Company nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries which would reasonably be expected to have a Material Adverse
Effect.
SECTION 3.13. Registration Statement; Joint Proxy
Statement/Prospectus. Subject to the accuracy of the representations of Parent
in Section 2.13, the information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements included therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion in the Joint Proxy
Statement/Prospectus will not, on the date the Joint Proxy Statement/Prospectus
is first mailed to shareholders, at the time of the Shareholders Meetings and at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or will omit to state any material fact necessary
in order to make the statements therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Shareholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its affiliates,
officers or directors should be discovered by the Company which should be set
forth in an amendment to the Registration Statement or a supplement to the Joint
Proxy Statement/Prospectus, the Company will promptly inform Parent. The Joint
Proxy Statement/Prospectus shall comply in all material respects with the
requirements of the Securities Act, the Exchange Act and the rules and
regulations thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained or incorporated by reference in, or furnished in
connection with the preparation of, the Joint Proxy Statement/Prospectus.
SECTION 3.14. Restrictions on Business Activities. Except for this
Agreement, to the best of the Company's knowledge, there is no agreement,
judgment, injunction, order or decree binding upon the Company or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company or any
of its subsidiaries, any
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acquisition of property by the Company or any of its subsidiaries or the conduct
of business by the Company or any of its subsidiaries as currently conducted or
as proposed to be conducted by the Company, except for any prohibition or
impairment as would not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.15. Title to Property. The Company and each of its subsidiaries
have good and defensible title to all of their properties and assets, free and
clear of all liens, charges and encumbrances, except liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which would not reasonably be expected to have a
Material Adverse Effect; and, to the Company's knowledge, all leases pursuant to
which the Company or any of its subsidiaries lease from other material amounts
of real or personal property are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
the Company, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default) except where the lack of such good standing, validity and
effectiveness, or the existence of such default or event of default would not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.16. Real Property. (a) Except as set forth in Section 3.16(a) of
the Company Disclosure Schedule, each of the buildings, improvements and
structures located upon any real property and land owned by Parent or any of its
subsidiaries (collectively, the "Owned Property"), and each of the buildings,
structures and premises leased by the Company or any of its subsidiaries (the
"Leased Premises"), is in reasonably good repair and operating condition, and
the Company has not received any notice of or writing referring to any
requirements by any insurance company that has issued a policy covering any part
of any Owned Property or Leased Premises or by any board of fire underwriters or
other body exercising similar functions, requiring any repairs or work to be
done on any part of any Owned Property or Leased Premises, except as would not
reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in Section 3.16(b) of the Company Disclosure
Schedule, all structural or material mechanical systems in the buildings upon
the Owned Property and Leased Properties are in good working order and working
condition, and adequate for the operation of the business of the Company and its
subsidiaries as heretofore conducted, except as would not reasonably be expected
to have a Material Adverse Effect.
SECTION 3.17. Taxes. (a) The Company on behalf of itself and all its
subsidiaries hereby represents that, other than as disclosed in Section 3.17(a)
of the Company Disclosure Schedule or the Company SEC Reports: the Company and
its subsidiaries have timely filed all United States federal, state and local
income Tax Returns and all foreign Tax Returns required to be filed by them, and
the Company and its subsidiaries have timely paid and discharged all Taxes due
in connection with or with respect to the periods or transactions covered by
such Tax Returns and have paid all other Taxes as are due, except such as are
being contested in good faith by appropriate proceedings (to the extent that any
such proceedings are required) and there are no other taxes that would be due if
asserted by a taxing authority, except with respect to which the Company is
maintaining reserves to the extent currently required unless the failure to do
so would not reasonably be expected to have a Material Adverse Effect. Except as
does not involve or would not result in liability to the Company that would
reasonably be expected to have a Material Adverse Effect, (i) there are no tax
liens on any assets of the Company or any subsidiary thereof; and (ii) neither
the Company nor any of its subsidiaries has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax. The accruals and reserves (including deferred taxes) reflected in the
June 1996 Balance Sheet are in all material respects adequate to cover all Taxes
accruable through the date thereof (including interest and penalties, if any,
thereon and Taxes being contested) in accordance with GAAP.
(b) The Company on behalf of itself and all its subsidiaries hereby
represents that, other than as disclosed on Section 3.17(b) of the Company
Disclosure Schedule or the Company SEC Reports, and
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other than with respect to items the inaccuracy of which would not reasonably be
expected to have a Material Adverse Effect: Neither the Company nor any of its
subsidiaries is obligated under any agreement with respect to industrial
development bonds or other obligations with respect to which the excludability
from gross income of the holder for federal or state income tax purposes could
be affected by the transactions contemplated hereunder. Neither the Company nor
any of its subsidiaries is, or has been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. To the best knowledge
of the Company, neither the Company nor any of its subsidiaries owns any
property of a character, the indirect transfer of which, pursuant to this
Agreement, would give rise to any material documentary, stamp or other transfer
tax.
SECTION 3.18. Environmental Matters. Except as set forth in Section 3.18
of the Company Disclosure Schedule, and except in all cases as, in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect, the Company and each of its subsidiaries to the best of the
Company's knowledge (i) have obtained all applicable permits, licenses and other
authorization which are required to be obtained under all applicable
Environmental Laws by the Company or its subsidiaries (or their respective
agents); (ii) are in compliance with all terms and conditions of such required
permits, licenses and authorization, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws; (iii) as of the date hereof, are not aware of nor have received notice of
any past or present violations of Environmental Laws, or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, against the Company or any of its
subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its subsidiaries (or
any of their respective agents) thereunder.
SECTION 3.19. Intellectual Property. (a) the Company and/or each of its
subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, trademarks, trade names, service marks, copyrights,
and any applications therefor, technology, know-how, computer software programs
or applications, and tangible or intangible proprietary information or material
that are used in the business of the Company and its subsidiaries as currently
conducted, except as would not reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed in Section 3.19(b) of the Company Disclosure
Schedule or the Company SEC Reports or as would not reasonably be expected to
have a Material Adverse Effect: (i) the Company is not, nor will it be as a
result of the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third-party patents, trademarks, service marks and
copyrights ("Third-Party Intellectual Property Rights"); (ii) no claims with
respect to the patents, registered and material unregistered trademarks and
service marks, registered copyrights, trade names and any applications therefor
owned by the Company or any of its subsidiaries (the "Company Intellectual
Property Rights"), any trade secret material to the Company, or Third Party
Intellectual Property Rights to the extent arising out of any use, reproduction
or distribution of such Third Party Intellectual Property Rights by or through
the Company or any of its subsidiaries, are currently pending or, to the
knowledge of the Company, are overtly threatened by any person; and (iii) the
Company does not know of any valid grounds for any bona fide claims (A) to the
effect that the manufacture, sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by the Company or any of
its subsidiaries infringes on any copyright, patent, trademark, service mark or
trade secret; (B) against the use by the Company or any of its subsidiaries of
any trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and
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applications used in the business of the Company or any of its subsidiaries as
currently conducted or as proposed to be conducted; (C) challenging the
ownership, validity or effectiveness of any part of the Company Intellectual
Property Rights or other trade secret material to the Company; or (D)
challenging the license or legally enforceable right to use of the Third Party
Intellectual Rights by the Company or any of its subsidiaries.
(c) To the Company's knowledge, all patents, registered trademarks and
copyrights held by the Company are valid and subsisting. Except as set forth in
Section 3.19(c) of the Company Disclosure Schedule or the Company SEC Reports,
to the Company's knowledge, there is no material unauthorized use, infringement
or misappropriation of any of the Company Intellectual Property by any third
party, including any employee or former employee of the Company or any of its
subsidiaries.
SECTION 3.20. Interested Party Transactions. Except as set forth in
Section 3.20 of the Company Disclosure Schedule or the Company SEC Reports,
since the date of the Company's proxy statement dated September 20, 1996, no
event has occurred that would be required to be reported as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
SECTION 3.21. Insurance. Except as disclosed in Section 3.21 of the
Company Disclosure Schedule, all material fire and casualty, general liability,
business interruption, product liability and sprinkler and water damage
insurance policies maintained by the Company or any of its subsidiaries are with
reputable insurance carriers, provide adequate coverage for all normal risks
incident to the business of the Company and its subsidiaries and their
respective properties and assets and are in character and amount at least
equivalent to that carried by entities engaged in similar businesses and subject
to the same or similar perils or hazards, except as would not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.22. Product Liability and Recalls. (a) Except as disclosed in
Section 3.22(a) of the Company Disclosure Schedule or the Company SEC Reports,
the Company is not aware of any claim, or the basis of any claim, against the
Company or any of its subsidiaries for injury to person or property of employees
or any third parties suffered as a result of the sale of any product or
performance of any service by the Company or any of its subsidiaries, including
claims arising out of the defective or unsafe nature of its products or
services, which would reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.22(b) of the Company Disclosure
Schedule or the Company SEC Reports, there is no pending or, to the knowledge of
the Company, threatened, recall or investigation of any product sold by the
Company, which recall or investigation would reasonably be expected to have a
Material Adverse Effect.
SECTION 3.23. Opinion of Financial Advisor. The Company has received an
opinion dated March 16, 1997 of its financial advisor, Credit Suisse First
Boston Corporation, that, as of such date, the Exchange Ratio was fair from a
financial point of view to the shareholders of the Company.
SECTION 3.24. Pooling Matters. The Company has provided to Parent and its
independent accountants all information concerning actions taken or agreed to be
taken by the Company or any of its affiliates on or before the date of this
Agreement that would reasonably be expected to adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests. The failure of this representation to be true and correct
shall, if the Merger is not able to be accounted for as a pooling of interests,
constitute a breach of this Agreement by the Company for the purposes of Section
7.01(i).
SECTION 3.25. Brokers. No broker, finder or investment banker (other than
Credit Suisse First Boston Corporation, the fees and expenses of which will be
paid by the Company) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 3.26. Full Disclosure. No statement contained in any certificate
or schedule furnished or to be furnished by the Company to Parent in, or
pursuant to the provisions of, this Agreement contains or will contain any
untrue statement of a material fact or omits or shall omit to state any material
fact
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necessary, in the light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading, except where the
material fact so misstated or omitted to be stated would not reasonably be
expected to have a Material Adverse Effect.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by Parent Pending the Merger. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, Parent covenants and
agrees that, unless the Company shall otherwise agree in writing, and except as
set forth in Section 4.01 of the Parent Disclosure Schedule, Parent shall
conduct its business and shall cause the businesses of its subsidiaries to be
conducted only in, and Parent and its subsidiaries shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice; and Parent shall use reasonable commercial efforts to preserve
substantially intact the business organization of Parent and its subsidiaries,
to keep available the services of the present officers, employees and
consultants of Parent and its subsidiaries and to preserve the present
relationships of Parent and its subsidiaries with customers, suppliers and other
persons with which Parent or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement, neither Parent nor any of its subsidiaries shall, during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, and except as set forth in
Section 4.01 of the Parent Disclosure Schedule, directly or indirectly do, or
propose to do, any of the following without the prior written consent of the
Company:
(a) amend or otherwise change Parent's Memorandum of Association, as
altered, or Bye-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) in Parent, any of its subsidiaries or affiliates (except
for the issuance of shares of Parent Common Stock issuable pursuant to
stock options outstanding on the date hereof and except for the issuance of
options ("New Parent Options"), in the ordinary course of business and
consistent with past practice, to purchase up to 1,000,000 shares in the
aggregate of Parent Common Stock (other than to the Chief Executive Officer
or the Chief Financial Officer of Parent); provided that such New Parent
Options shall be issued to employees of Parent and its subsidiaries, shall
have an exercise price that is not less than the market price of Parent
Common Stock on the date of grant, shall terminate on the employee's
termination of employment with Parent and shall vest in accordance with
Parent's customary vesting schedule for employee options; and provided
further that the issuance of such options would not reasonably be expected
to adversely affect the ability of Parent to account for the business
combination to be effected by the Merger as a pooling of interests;
(c) sell, pledge, dispose of or encumber any assets of Parent or any
of its subsidiaries (except for (i) sales of assets in the ordinary course
of business and in a manner consistent with past practice, (ii)
dispositions of obsolete or worthless assets, (iii) sales of immaterial
assets not in excess of $5,000,000 and (iv) sales pursuant to
sale-leasebacks not in excess of $10,000,000 in any individual case or
$35,000,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of Parent may declare and pay a dividend to its parent, (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, or (iii) amend the
terms or change the period of exercisability of, purchase, repurchase,
redeem or otherwise acquire, or permit any subsidiary to purchase,
repurchase, redeem or otherwise acquire, any of its securities or any
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securities of its subsidiaries, including, without limitation, shares of Parent
Common Stock or any option, warrant or right, directly or indirectly, to acquire
shares of Parent Common Stock, or propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof other than those listed on Section 4.01(e) of the Parent
Disclosure Schedule and other than any acquisitions in which the
consideration payable by Parent does not exceed $10,000,000 for any
individual acquisition or $35,000,000 in the aggregate for all such
acquisitions; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee (other than guarantees of bank debt of
the Parent's subsidiaries entered into in the ordinary course of business)
or endorse or otherwise as an accommodation become responsible for the
obligations of any person, or make any loans or advances, except in the
ordinary course of business consistent with past practice; (iii) authorize
any capital expenditures other than (x) as described on Section 4.01 of the
Parent Disclosure Schedule, (y) any capital expenditures not in excess of
$5,000,000 in any individual case, or $70,000,000 for all such capital
expenditures in the aggregate, and (z) any capital expenditures incurred in
connection with the installation of subscriber systems in the ordinary
course of business; or (iv) enter into or amend any contract, agreement,
commitment or arrangement to effect any of the matters prohibited by this
Section 4.01(e);
(f) increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or
enter into any employment or severance agreement with any director, officer
or other employee of Parent or any of its subsidiaries, or establish,
adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of any current or former directors, officers or employees, except for (w)
increases in salary or wages of employees of Parent or its subsidiaries in
accordance with past practices; (x) entering into any employment agreement
with any officers or employees of Parent or any of its subsidiaries in
accordance with past practices providing for annual compensation of not
more than $200,000, (y) entering into any severance or termination
agreements or the grant of any severance or termination payment to any
employee or officer in accordance with past practices in an amount not in
excess of $200,000, or (z) as may be required by law;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable), except as required by GAAP;
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax
liability, except to the extent the amount of any such settlement has been
reserved for in the financial statements contained in the Parent SEC
Reports filed prior to the date of this Agreement;
(i) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the financial statements
contained in the Parent SEC Reports filed prior to the date of this
Agreement or incurred in the ordinary course of business and consistent
with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (i) above, or any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent or Merger Sub from
performing or cause Parent or Merger Sub not to perform its covenants
hereunder.
SECTION 4.02. No Solicitation by Parent. (a) Parent shall not, directly
or indirectly, through any officer, director, employee, representative or agent
of Parent or any of its subsidiaries, solicit or encourage
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the initiation of any inquiries or proposals regarding any merger, or any
acquisition of any capital stock or any material portion of the assets of Parent
(including without limitation by way of a tender offer) or similar transactions
involving Parent or any subsidiaries of Parent (any of the foregoing inquiries
or proposals being referred to herein as an "Acquisition Proposal"). Nothing
contained in this Section 4.02(a) shall prevent the Board of Directors of Parent
from (i) considering, negotiating, approving and recommending to the
shareholders of Parent a bona fide Acquisition Proposal not solicited in
violation of this Agreement, (ii) taking and disclosing to its shareholders a
position contemplated by Exchange Act Rule 14e-2 or (iii) making any disclosure
to its shareholders; provided that, as to each of clauses (i), (ii) and (iii),
the Board of Directors of Parent determines in good faith (upon advice of
independent counsel) such action is necessary for it to act in a manner
consistent with its fiduciary duties under applicable law.
(b) Parent shall promptly notify the Company after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to Parent or any of
its subsidiaries in connection with an Acquisition Proposal or for access to the
properties, books or records of Parent or any subsidiary by any person or entity
that informs the Board of Directors of Parent or such subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such notice to the
Company shall be made orally and in writing, and shall indicate the identity of
the person making the Acquisition Proposal or intending to make an Acquisition
Proposal or requesting non-public information or access to the books and records
of Parent, the terms of any such Acquisition Proposal or modification or
amendment to an Acquisition Proposal, and whether Parent is providing or intends
to provide the person making the Acquisition Proposal with access to information
concerning Parent as provided in Section 4.02(c).
(c) If the Board of Directors of Parent receives a request for material
non-public information by a person who makes a bona fide Acquisition Proposal,
and the Board of Directors determines in good faith and upon the advice of
independent counsel that it is required to cause Parent to act as provided in
this Section 4.02(c) in order for the Board of Directors to act in a manner
consistent with its fiduciary duties, then, provided the person making the
Acquisition Proposal has executed a confidentiality agreement substantially
similar to the one then in effect between the Company and Parent, Parent may
provide such person with access to information regarding Parent.
(d) Anything to the contrary in this Section or elsewhere in this Agreement
notwithstanding, the Board of Directors of Parent shall not (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to the Company,
the approval or recommendation by such Board of Directors of the matters set
forth in Section 5.03(b), (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal or (iii) cause Parent to enter into any
agreement with respect to any Acquisition Proposal, except (x) upon the advice
of independent counsel that it is required to cause Parent to act as provided in
this Section 4.02(d) in order for the Board of Directors to act in a manner
consistent with its fiduciary duties and (y) with respect to the approval or
recommendation of any Acquisition Proposal or entering into any agreement with
respect to any Acquisition Proposal, after the third business day following the
Company's receipt of written notice of the information with respect to such
Acquisition Proposal, and, if applicable, the second business day after the
Company's receipt of written notice of the information with respect to all
material amendments or modifications thereto, in each case as contemplated by
Section 4.02(b) above.
(e) Parent shall immediately cease and cause to be terminated any existing
discussions or negotiations with any persons (other than the Company) conducted
heretofore with respect to any of the foregoing. Parent shall not release any
third party from the confidentiality provisions of any confidentiality agreement
to which Parent is a party in respect of any information delivered by Parent in
connection with any Acquisition Proposal.
(f) Parent shall ensure that the officers, directors and employees of the
Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 4.02.
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SECTION 4.03. Conduct of Business by the Company Pending the
Merger. During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, except as set forth in Section 4.03 of the
Company's Disclosure Schedule or unless Parent shall otherwise agree in writing,
the Company shall conduct its business, and cause the businesses of its
subsidiaries to be conducted, in the ordinary course of business and consistent
with past practice, other than actions taken by the Company or its subsidiaries
in contemplation of the Merger and acquisitions not prohibited by clause (b)
below, and shall not directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change the Company's Articles of Organization
or By-Laws;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person which, in any such case,
would materially delay or prevent the consummation of the transactions
contemplated by this Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of the
Company may declare and pay a dividend to its parent, and except that the
Company may declare and pay cash dividends of $0.05 per quarter consistent
with past practice; or
(d) take or agree in writing or otherwise to take any action which
would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
SECTION 4.04. No Solicitation by the Company. (a) The Company shall not,
directly or indirectly, through any officer, director, employee, representative
or agent of the Company or any of its subsidiaries, solicit or encourage the
initiation of any inquiries or proposals regarding any Change of Control
Proposal. "Change of Control Proposal" means (i) any merger or any acquisition
of any capital stock of the Company (including without limitation by way of a
tender offer) or similar transactions involving the Company as a result of which
the shareholders of the Company immediately prior to the consummation of such
transaction would own less than 50% of the voting stock of the Company or, if
the Company is not the surviving corporation, the surviving corporation
immediately following the consummation of such transaction or (ii) the sale of
all or substantially all of the assets of the Company. Nothing contained in this
Section 4.04(a) shall prevent the Board of Directors of the Company from (i)
considering, negotiating, approving and recommending to the shareholders of the
Company a bona fide Change of Control Proposal not solicited in violation of
this Agreement, (ii) taking and disclosing to its shareholders a position
contemplated by Exchange Act Rule 14e-2 or (iii) making any disclosure to its
shareholders; provided that, as to each of clauses (i), (ii) and (iii), the
Board of Directors of the Company determines in good faith (upon advice of
independent counsel) such action is necessary for it to act in a manner
consistent with its fiduciary duties under applicable law.
(b) The Company shall promptly notify Parent after receipt of any Change of
Control Proposal, or any modification of or amendment to any Change of Control
Proposal, or any request for non-public information relating to the Company or
any of its subsidiaries in connection with a Change of Control Proposal or for
access to the properties, books or records of the Company or any subsidiary by
any person or entity that informs the Board of Directors of the Company or such
subsidiary that it is considering making, or has made, a Change of Control
Proposal. Such notice to the Company shall be made orally and in writing, and
shall indicate the identity of the person making the Change of Control Proposal
or intending to make a Change of Control Proposal or requesting non-public
information or access to the books and records of the Company, the terms of any
such Change of Control Proposal or modification or amendment to a Change of
Control Proposal, and whether the Company is providing or intends to provide the
person making the Change of Control Proposal with access to information
concerning the Company as provided in Section 4.04(c).
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(c) If the Board of Directors of the Company receives a request for
material nonpublic information by a person who makes a bona fide Change of
Control Proposal, and the Board of Directors determines in good faith and upon
the advice of independent counsel that it is required to cause the Company to
act as provided in this Section 4.04(c) in order for the Board of Directors to
act in a manner consistent with its fiduciary duties, then, provided the person
making the Change of Control Proposal has executed a confidentiality agreement
substantially similar to the one then in effect between the Company and Parent,
the Company may provide such person with access to information regarding the
Company.
(d) Anything to the contrary in this Section or elsewhere in this Agreement
notwithstanding, the Board of Directors of the Company shall not (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to the Company,
the approval or recommendation by such Board of Directors of this Agreement, the
Merger or any of the other transactions contemplated hereby, (ii) approve or
recommend, or propose to approve or recommend, any Change of Control Proposal or
(iii) cause the Company to enter into any agreement with respect to any Change
of Control Proposal, except (x) upon the advice of independent counsel that it
is required to cause the Company to act as provided in this Section 4.04(d) in
order for the Board of Directors to act in a manner consistent with its
fiduciary duties and (y) with respect to the approval or recommendation of any
Change of Control Proposal or entering into any agreement with respect to any
Change of Control Proposal, after the third business day following Parent's
receipt of written notice of the information with respect to such Change of
Control Proposal, and, if applicable, the second business day after Parent's
receipt of written notice of the information with respect to all material
amendments or modifications thereto, in each case as contemplated by Section
4.04(b) above.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 4.04.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Joint Proxy Statement/Prospectus; Registration
Statement. As promptly as practicable after the execution of this Agreement,
the Company and Parent shall prepare and file with the SEC preliminary proxy
materials which shall constitute the Joint Proxy Statement/Prospectus and the
Registration Statement. As promptly as practicable after comments are received
from the SEC thereon and after the furnishing by the Company and Parent of all
information required to be contained therein, the Company and Parent shall file
with the SEC a combined proxy and Registration Statement on Form S-4 (or on such
other form as shall be appropriate) relating to the adoption of this Agreement
and approval of the transactions contemplated hereby by the shareholders of the
Company pursuant to this Agreement, and the approval by the shareholders of
Parent of the Reverse Stock Split, the Share Amendment, the issuance of Parent
Common Stock in the Merger, the Parent Name Change and the New Parent Director
Election, and shall use all reasonable efforts to cause the Registration
Statement to become effective as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Boards of Directors
of the Company and Parent in favor of the Merger and the other transactions
contemplated hereby, as applicable, subject to the last sentence of Section 5.02
and Section 5.03(d).
SECTION 5.02. Company Shareholders Meeting. The Company shall call the
Company Shareholders Meeting as promptly as practicable for the purpose of
voting upon the approval of the Merger, and the Company shall use its reasonable
best efforts to hold the Company Shareholders Meeting as soon as practicable
after the date on which the Registration Statement becomes effective. Unless
otherwise required under the applicable fiduciary duties of the directors of the
Company, as determined by such directors in good faith after consultation with
and based upon the advice of independent legal counsel, the Company shall
solicit from its shareholders proxies in favor of adoption of this Agreement and
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approval of the transactions contemplated thereby, and shall take all other
action necessary or advisable to secure the vote or consent of stockholders to
obtain such approvals.
SECTION 5.03. Parent Shareholders Meeting. (a) Parent shall call the
Parent Shareholders Meeting as promptly as practicable, and Parent shall use its
reasonable best efforts to hold the Parent Shareholders Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective.
(b) The Parent Shareholders Meeting shall be called for the following
purposes:
(i) to approve a consolidation of the Parent Common Stock (the
"Reverse Stock Split") such that, immediately prior to (but conditioned
upon the occurrence of) the Effective Time, each share of Parent Common
Stock, par value $.10 per share, shall be consolidated in the ratio (the
"Reverse Stock Split Ratio") equal to (subject to Section 7.01(n)) one
share of Parent Common Stock, par value $.20 per share, for each 2.0776
shares of Parent Common Stock, par value $.10 per share (with the resulting
number of shares of each registered holder being rounded down to the
nearest whole number and with each registered holder being entitled to
receive from Parent in respect of any fractional shares of Parent Common
Stock an amount in cash (without interest) equal to such fraction
multiplied by the closing price per share of Parent Common Stock on the
NYSE on the date of the Effective Time);
(ii) to approve (A) an increase in or reorganization of the authorized
number of shares of Parent Common Stock (the "Share Amendment"),
immediately following the Reverse Stock Split and prior to (but conditioned
upon the occurrence of) the Effective Time, in an amount not less than is
required to issue the Parent Common Stock, par value $.20 per share, in the
Merger, as contemplated by this Agreement, either by (x) the creation of
additional authorized shares of Parent Common Stock, par value $.20 per
share, or (y) the sub-division and consolidation of Parent Convertible
Preference Stock and/or Parent Exchangeable Preference Stock into shares of
Parent Common Stock, par value $.20 per share, and (B) any changes to
Parent's Bye-Laws necessary to reflect such increase;
(iii) to authorize and approve the issuance by Parent of the Parent
Common Stock in the Merger, as contemplated by this Agreement;
(iv) to approve a change in the name of Parent to Tyco International
Ltd., effective upon the Effective Time of the Merger or as soon thereafter
as practicable (the "Parent Name Change"); and
(v) to remove all of the directors of Parent in office immediately
prior to the Effective Time and to elect as directors of Parent, to take
office as of the Effective Time, the persons set forth on or designated in
accordance with Annex A to this Agreement to serve until the next annual
shareholders meeting of Parent (the "New Parent Director Election");
provided, that none of the matters set forth in the foregoing clauses (i)
through (v) shall be deemed approved by the shareholders of the Parent unless
all of them are so approved.
(c) Parent shall take all action required for the nomination of the persons
set forth on or designated in accordance with Annex A for election as directors
of Parent at the Parent Shareholders Meeting.
(d) Unless otherwise required under the applicable fiduciary duties of the
directors of Parent, as determined by such directors in good faith after
consultation with and based upon the advice of independent legal counsel, Parent
shall solicit from its shareholders proxies in favor of the Reverse Stock Split,
the Share Amendment, the issuance of Parent Common Stock in the Merger, the
Parent Name Change and the New Parent Director Election, and shall take all
other action necessary or advisable to secure the vote or consent of
shareholders to obtain such approvals.
SECTION 5.04. Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), the Company and Parent shall each (and shall cause each of
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their subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the other, reasonable access, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, the Company and Parent each
shall (and shall cause each of their subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such information confidential in accordance with the terms of the respective
confidentiality letters, dated March 5, 1997 (the "Confidentiality Letter"),
between Parent and the Company.
SECTION 5.05. Consents; Approvals. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States and foreign
governmental and regulatory rulings and approvals), and the Company and Parent
shall make all filings (including, without limitation, all filings with United
States and foreign governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
The Company and Parent shall furnish all information required to be included in
the Joint Proxy Statement/Prospectus and the Registration Statement, or for any
application or other filing to be made pursuant to the rules and regulations of
any United States or foreign governmental body in connection with the
transactions contemplated by this Agreement.
SECTION 5.06. Agreements with Respect to Affiliates. (a) The Company
shall deliver to Parent, as soon as practicable, a letter (the "Company
Affiliate Letter") identifying all persons who are anticipated to be, at the
time of the Company Shareholders Meeting, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act ("Rule 145") or the rules and
regulations of the SEC relating to pooling of interests accounting treatment for
merger transactions (the "Pooling Rules"). The Company shall use its best
efforts to cause each person who is identified as an "affiliate" in the Company
Affiliate Letter to deliver to Parent, no less than 35 days prior to the date of
the Company Shareholders Meeting, a written agreement (a "Company Affiliate
Agreement") in connection with restrictions on affiliates under Rule 145 and
pooling of interests accounting treatment, in form mutually agreeable to the
Company and Parent.
(b) Parent shall deliver to the Company, as soon as practicable, a letter
(the "Parent Affiliate Letter") identifying all persons who are anticipated to
be, at the time of the Parent Shareholders Meeting, "affiliates" of Parent for
purposes of the Pooling Rules. Parent shall use its best efforts to cause each
person who is identified as an "affiliate" in the Parent Affiliate Letter to
deliver to the Company, no less than 35 days prior to the date of the Parent
Shareholders Meeting, a written agreement (a "Parent Affiliate Agreement") in
connection with restrictions on affiliates under pooling of interests accounting
treatment, in form mutually agreeable to the Company and Parent.
SECTION 5.07. Indemnification and Insurance.
(a) Company Indemnification and Insurance. (i) The By-Laws of the
Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the By-Laws of the Company, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors, officers,
employees or agents of the Company or any of its subsidiaries, unless such
modification is required by law.
(ii) The Surviving Corporation shall, to the fullest extent permitted under
applicable law or under the Surviving Corporation's Articles of Organization or
By-Laws, indemnify and hold harmless, each present and former director or
officer of the Company or any of its subsidiaries (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, (x)
arising out of or pertaining to
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the transactions contemplated by this Agreement or (y) otherwise with respect to
any acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Restated Articles of Organization or By-Laws
or any applicable contract or agreement as in effect on the date hereof, in each
case for a period of six years after the date hereof. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (A) any counsel retained by the Indemnified Parties
shall be reasonably satisfactory to the Surviving Corporation, (B) after the
Effective Time, the Surviving Corporation shall pay the reasonable fees and
expenses of such counsel, promptly after statements therefor are received, and
(C) the Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld); and provided, further, that, in the event that any claim
or claims for indemnification are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims shall
continue until the disposition of any and all such claims. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to any single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties, in which case each Indemnified Person with respect to
whom such a conflict exists (or group of Indemnified Persons who among them have
no such conflict) may retain one separate law firm.
(iii) For a period of six years after the Effective Time, Parent shall
cause the Surviving Corporation to maintain in effect, if available, directors'
and officers' liability insurance covering those persons who are currently
covered by the Company's directors' and officers' liability insurance policy (a
copy of which has been made available to Parent) on terms comparable to those
now applicable to directors and officers of the Company or any of its
subsidiaries; provided, however, that in no event shall Parent or the Surviving
Corporation be required to expend in excess of 200% of the annual premium
currently paid by the Company for such coverage; and provided further, that if
the premium for such coverage exceeds such amount, Parent or the Surviving
Corporation shall purchase a policy with the greatest coverage available for
such 200% of the annual premium.
(iv) From and after the Effective Time, Parent shall guarantee the
obligations of the Surviving Corporation under this Section.
(v) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
the Surviving Corporation and shall be enforceable by the Indemnified Parties.
(b) Parent Indemnification and Insurance. (i) The Bye-Laws of Parent which
contain the provisions with respect to indemnification shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of individuals
who at the Effective Time were directors, officers, employees or agents of
Parent or any of its Subsidiaries, unless such modification is required by law.
(ii) Parent shall, to the fullest extent permitted under applicable law or
under Parent's Memorandum of Association or Bye-Laws, indemnify and hold
harmless, each present and former director or officer of Parent or any of its
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, (x) arising out of or pertaining to the transactions contemplated
by this Agreement or (y) otherwise with respect to any acts or omissions
occurring at or prior to the Effective Time, to the same extent as provided in
Parent's Memorandum of Association or Bye-Laws or any applicable contract or
agreement as in effect on the date hereof, in each case for a period of six
years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (A) any counsel retained by the Indemnified Parties shall be reasonably
satisfactory to Parent, (B) after the Effective Time, Parent shall pay the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received, and (C) Parent will cooperate
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in the defense of any such matter; provided, however, that Parent shall not be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties, in which case each Indemnified Person
with respect to whom such a conflict exists (or group of Indemnified Persons who
among them have no such conflict) may retain one separate law firm.
(iii) For a period of six years after the Effective Time, Parent shall
maintain in effect, if available, directors' and officers' liability insurance
covering those persons who are currently covered by Parent's directors' and
officers' liability insurance policy (a copy of which has been made available to
the Company) on terms comparable to those now applicable to directors and
officers of Parent or any of its Subsidiaries; provided, however, that in no
event shall Parent be required to expend in excess of 200% of the annual premium
currently paid by Parent for such coverage; and provided further, that if the
premium for such coverage exceeds such amount, Parent shall purchase a policy
with the greatest coverage available for such 200% of the annual premium.
(iv) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit Parent and the Indemnified Parties, shall
be binding on all successors and assigns of Parent and shall be enforceable by
the Indemnified Parties.
SECTION 5.08. Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to be materially untrue or inaccurate, or (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided further that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.02(a) or 6.03(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.09. Further Action. Upon the terms and subject to the
conditions hereof, each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement. The foregoing covenant shall not include any obligation by the
Company or Parent to agree to divest, abandon, license or take similar action
with respect to any assets (tangible or intangible) of Parent or the Company.
SECTION 5.10. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law or the rules and
regulations of the NYSE or as Parent or the Company determines to be reasonably
necessary or appropriate in connection with any competing Acquisition Proposal
or competing proxy solicitation, if it has used all reasonable efforts to
consult with the other party.
SECTION 5.11. Listing of Shares of Parent Common Stock. Parent shall use
its best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be listed, upon official notice of issuance, on the NYSE prior to the
Effective Time.
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SECTION 5.12. Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time, and the
Surviving Corporation shall be responsible for the payment of all such taxes and
fees.
SECTION 5.13. Accountant's Letters. Upon reasonable notice from the
other, the Company shall use its best efforts to cause Coopers & Lybrand to
deliver to Parent, and Parent shall use its best efforts to cause Coopers &
Lybrand to deliver to the Company, a letter covering such matters as are
requested by Parent or the Company, as the case may be, and as are customarily
addressed in accountant's "comfort" letters.
SECTION 5.14. Pooling Accounting Treatment. Parent and the Company each
agrees not to take any action that would reasonably be expected to adversely
affect the ability of Parent to account for the business combination to be
effected by the Merger as a pooling of interests, and Parent and the Company
each agrees to take such action as may be reasonably required to negate the
impact of any past actions by Parent, the Company or their respective affiliates
which would reasonably be expected to adversely impact the ability of Parent to
treat the Merger as a pooling of interests. The taking by Parent or the Company
of any action prohibited by the previous sentence, or the failure of Parent or
the Company to take any action required by the previous sentence, if the Merger
is not able to be accounted for as a pooling of interests because of such action
or failure to take action, shall constitute a breach of this Agreement by such
party for the purposes of Section 7.01(i).
SECTION 5.15. Company Stock Options. The Company shall take such action
as may be required under the Tyco International Ltd. Company 1995 Stock Option
Plan and all other stock options plans of the Company such that, following the
Effective Time, each Stock Option shall be treated in the manner described in
Section 1.06(c).
SECTION 5.16. Parent Stock Options and Severance Arrangements. (a) Parent
and the Company agree that at the Effective Time outstanding stock options
("Parent Options") listed on Section 2.11(c) of the Parent Disclosure Schedule
shall be fully exercisable and that Parent shall take any and all action prior
to the Effective Time as may be required to effectuate such result; provided
that this shall not apply to any New Parent Options.
(b) Parent and the Company further agree that consummation of the Merger
shall constitute a "change of control" of Parent for purposes of the severance
and other similar agreements which contain "change of control" provisions (the
"Severance Agreements") and that, prior to the Effective Time, Parent and the
Company agree to take any and all such actions as may be required to effectuate
such result.
Notwithstanding anything to the contrary contained in this Section 5.16, no
transaction contemplated by this Section 5.16 shall be effected if any such
transaction would reasonably be expected to adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests.
SECTION 5.17. Rights. Prior to the Effective Time, at the election of the
Company communicated to Parent not less than fifteen business days prior to the
Parent Shareholders Meeting, Parent shall take such action as shall be required
to either (i) amend the Shareholder Rights Plan to affirmatively provide that no
Distribution Date (as such term is defined in the Shareholder Rights Plan) shall
occur and no person shall become an Acquiring Person (as such term is defined in
the Shareholder Rights Plan), by reason or as a result of the consummation of
the Merger or any other transactions contemplated by this Agreement or (ii)
redeem or otherwise terminate all outstanding Rights, such that all such Rights
shall be of no further force and effect, and none of such Rights shall entitle
any holder thereof to any rights, payments, distributions or other benefits
whatsoever by reason or as a result of the consummation of Merger or any other
transactions contemplated by this Agreement; provided, however,
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that if the Company shall communicate to Parent no such election, the Company
shall be deemed to have communicated to Parent the election in clause (i) above.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose and no similar proceeding in respect of the Joint Proxy
Statement/Prospectus shall have been initiated or threatened by the SEC;
(b) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the shareholders of the
Company, and the Reverse Stock Split, the Share Amendment, the issuance of
Parent Common Stock in the Merger, the Parent Name Change and the New
Parent Director Election, shall have been approved by the requisite vote of
the shareholders of Parent;
(c) Reverse Stock Split and Share Amendment. All actions shall have
been taken such that the Reverse Stock Split and the Share Amendment shall
become effective immediately prior to (but conditioned upon the occurrence
of) the Effective Time;
(d) Listing. The shares of Parent Common Stock issuable in the Merger
shall have been authorized for listing on the NYSE upon official notice of
issuance;
(e) HSR Act. All waiting periods applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated;
(f) Governmental Actions. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or
other inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction,
domestic or foreign, nor shall there be in effect any judgment, decree or
order of any governmental authority, administrative agency or court of
competent jurisdiction, or any other legal restraint (i) preventing or
seeking to prevent consummation of the Merger or the effectiveness of the
Reverse Stock Split, the Share Amendment or the New Parent Director
Election, (ii) prohibiting or seeking to prohibit or limiting or seeking to
limit Parent from exercising all material rights and privileges pertaining
to its ownership of the Surviving Corporation or the ownership or operation
by Parent or any of its subsidiaries of all or a material portion of the
business or assets of Parent or any of its subsidiaries, or (iii)
compelling or seeking to compel Parent or any of its subsidiaries to
dispose of or hold separate all or any material portion of the business or
assets of Parent or any of its subsidiaries (including the Surviving
Corporation and its subsidiaries), in each case as a result of the Merger
or the transactions contemplated by this Agreement;
(g) Illegality. No statute, rule, regulation or order shall be
enacted, entered, enforced or deemed applicable to the Merger which makes
the consummation of the Merger or the effectiveness of the Reverse Stock
Split, the Share Amendment or the New Parent Director Election illegal; and
(h) Pooling Opinion. The Company and Parent shall have received a
written opinion of Coopers & Lybrand, in form and substance reasonably
satisfactory to each of them, to the effect that the Merger will qualify
for accounting treatment as a pooling of interests. To the extent such a
legal opinion is requested by Coopers & Lybrand, Davis Polk & Wardwell,
counsel to Parent, shall have
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delivered its opinion, in form and substance reasonably satisfactory to
Coopers & Lybrand, that Western Resources, Inc. is not an affiliate of
Parent. Each party agrees to make reasonable and necessary representations
and covenants in connection with the rendering of the opinion of Coopers &
Lybrand, and Parent shall make reasonable and necessary representations in
connection with the rendering of the opinion of Davis Polk & Wardwell.
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all respects on and as of the Effective Time, except for (i)
changes contemplated by this Agreement, (ii) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date, subject to clause (iii)), and
(iii) where the failure to be true and correct would not reasonably be
expected to have a Material Adverse Effect, with the same force and effect
as if made on and as of the Effective Time, and Parent and Merger Sub shall
have received a certificate to such effect signed by the Chief Executive
Officer and the Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent and Merger Sub shall have received
a certificate to such effect signed by the Chief Executive Officer and the
Chief Financial Officer of the Company;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company, except where the
failure to receive such consents, etc. would not reasonably be expected to
have a Material Adverse Effect on the Company or Parent; and
(d) Company Affiliate Agreements. Parent shall have received from
each person who is identified in the Company Affiliate Letter as an
"affiliate" of the Company a Company Affiliate Agreement, and such Company
Affiliate Agreement shall be in full force and effect.
SECTION 6.03. Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all respects on and as of the Effective Time, except
for (i) changes contemplated by this Agreement, (ii) those representations
and warranties which address matters only as of a particular date (which
shall have been true and correct as of such date, subject to clause (iii)),
and (iii) where the failure to be true and correct would not reasonably be
expected to have a Material Adverse Effect, with the same force and effect
as if made on and as of the Effective Time, and the Company shall have
received a certificate to such effect signed by the Chief Executive Officer
and the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed by the Chief Executive Officer and the
Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent and Merger
Sub,
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except where the failure to receive such consents, etc. would not
reasonably be expected to have a Material Adverse Effect on the Company or
Parent;
(d) Parent Affiliate Agreements. The Company shall have received from
each person who is identified in the Parent Affiliate Letter as an
"affiliate" of Parent a Parent Affiliate Agreement, and such Parent
Affiliate Agreement shall be in full force and effect; and
(e) Rights. The Shareholder Rights Plan shall have been amended or
the Rights shall have been redeemed or otherwise terminated, as provided in
Section 5.17.
ARTICLE VII
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval hereof or of the
transactions contemplated hereby by the shareholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by August 15, 1997 (provided that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date); or
(c) by either Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling
or taken any other action having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, the Reverse Stock Split, the
Share Amendment, the Parent Name Change or the New Parent Director Election
(provided that the right to terminate this Agreement under this Section
7.01(c) shall not be available to any party who has not complied with its
obligations under Section 5.09 and such noncompliance materially
contributed to the issuance of any such order, decree or ruling or the
taking of such action); or
(d) by Parent, if the requisite vote of the shareholders of the
Company shall not have been obtained by August 15, 1997, or by the Company,
if the requisite vote of the shareholders of Parent shall not have been
obtained by August 15, 1997; or
(e) by the Company, if (i) the Board of Directors of Parent shall
withdraw, modify or change its approval or recommendation of this
Agreement, the Merger or the other transactions contemplated hereby in a
manner adverse to the Company or shall have resolved to do so; (ii) the
Board of Directors of Parent shall have recommended to the shareholders of
Parent an Alternative Transaction (as hereinafter defined); or (iii) a
tender offer or exchange offer for 25% or more of the outstanding shares of
Parent Common Stock is commenced (other than by the Company or an affiliate
of the Company) and the Board of Directors of Parent recommends that the
shareholders of Parent tender their shares in such tender or exchange
offer; or
(f) by Parent, if the Board of Directors of Parent shall withdraw,
modify or change its approval or recommendation of this Agreement or the
Merger in a manner adverse to the Company or shall have resolved to do so,
in each case in compliance with the provisions of Section 4.02; or
(g) by Parent or the Company, if any representation or warranty of the
Company or Parent, respectively, set forth in this Agreement shall be
untrue when made, such that the conditions set forth in Sections 6.02(a) or
6.03(a), as the case may be, would not be satisfied (a "Terminating
Misrepresentation"); provided, that, if such Terminating Misrepresentation
is curable prior to August 15, 1997 by the Company or Parent, as the case
may be, through the exercise of its reasonable best efforts and for so long
as the Company or Parent, as the case may be, continues to
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exercise such reasonable best efforts, neither Parent nor the Company,
respectively, may terminate this Agreement under this Section 7.01(g); or
(h) by Parent, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.02(a)
would not be satisfied, or by the Company, if any representation or
warranty of Parent shall have become untrue such that the condition set
forth in Section 6.03(a) would not be satisfied, in either case other than
by reason of a Terminating Breach (as hereinafter defined); provided that
if any such Terminating Misrepresentation is curable prior to August 15,
1997 by the Company or Parent, as the case may be, through the exercise of
its reasonable best efforts, and for so long as the Company or Parent, as
the case may be, continues to exercise such reasonable best efforts,
neither Parent nor the Company, respectively, may terminate this Agreement
under this Section 7.01(h); or
(i) by Parent or the Company, upon a breach of any covenant or
agreement on the part of the Company or Parent, respectively, set forth in
this Agreement, such that the conditions set forth in Sections 6.02(b) or
6.03(b), as the case may be, would not be satisfied (a "Terminating
Breach"); provided, that, if such Terminating Breach is curable prior to
August 15, 1997 by the Company or Parent, as the case may be, through the
exercise of its reasonable best efforts and for so long as the Company or
Parent, as the case may be, continues to exercise such reasonable best
efforts, neither Parent nor the Company, respectively, may terminate this
Agreement under this Section 7.01(i);
(j) by Parent, if the Board of Directors of the Company shall
withdraw, modify or change its approval or recommendation of this
Agreement, the Merger or the other transactions contemplated hereby in a
manner adverse to Parent or shall have resolved to do so; or
(k) by the Company, if the Board of Directors of the Company shall
withdraw, modify or change its approval or recommendation of this Agreement
or the Merger in a manner adverse to Parent or shall have resolved to do
so, in each case in compliance with the provisions of Section 4.04; or
(l) by Parent or the Company, if the 10-Day Reference Price (as
defined below) for any 10 consecutive trading day period commencing on or
after April 8, 1997 shall be below $56; provided, however, that such right
to terminate pursuant to this subsection (l) may only be exercised in
respect of any such 10-day period within three trading days following the
expiration of such 10-day period; and provided further that the right of
Parent or the Company to terminate pursuant to this subsection (l) shall be
a continuing one and may be exercised at any time that the conditions set
forth in this subsection are satisfied notwithstanding that the Company or
Parent, as the case may be, has not exercised its right to terminate
pursuant to this subsection at any prior time that such conditions were
satisfied;
(m) by the Company, if the 10-Day Reference Price for the 10
consecutive trading days ending on the fourth trading day prior to the
Parent Shareholders Meeting (the "Final 10-Day Reference Price") is less
than $56, and the Company has not agreed to change the Reverse Stock Split
Ratio as provided in clause (y) of subsection (n) below; or
(n) by Parent, if (x) the Final 10-Day Reference Price is less than
$56 and (y) on or before the second trading day prior to the date of the
Parent Shareholders Meeting, the Company has not agreed by notice to Parent
in writing to change the Reverse Stock Split Ratio so that each share of
Parent Common Stock, par value $.10 per share, shall be consolidated in the
ratio of one share of Parent Common Stock, par value $.20 per share, for a
number of shares of Parent Common Stock, par value $.10 per share, not more
than the number determined by dividing the Final 10-Day Reference Price by
$27; provided that, the Reverse Stock Split Ratio shall thereafter, for all
purposes of this Agreement, be deemed to be such ratio.
"10-Day Reference Price" means the average of the Daily Per Share Prices
(as hereinafter defined) for any ten consecutive trading days. The "Daily Per
Share Price" for any trading day means the weighted
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average of the per share selling prices on the NYSE of Company Common Stock (as
reported in the NYSE Composite Transactions) for that day.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than the Company or its
affiliates (a "Third Party") acquires or would acquire more than 25% of the
outstanding shares of any class of equity securities of Parent, or, in the case
of any person (or group of persons other than the Company and its affiliates)
which has filed a statement on Schedule 13D as of the date of this Agreement
indicating that it is the beneficial owner of more than 25% of the outstanding
shares of Parent Common Stock, would acquire an additional 5% or more of such
securities, whether from Parent or pursuant to a tender offer or exchange offer
or otherwise, (ii) a merger or other business combination involving Parent
pursuant to which any Third Party acquires more than 25% of the outstanding
equity securities of Parent or the entity surviving such merger or business
combination, or (iii) any other transaction pursuant to which any Third Party
acquires or would acquire control of assets (including for this purpose the
outstanding equity securities of subsidiaries of Parent and the entity surviving
any merger or business combination including any of them) of Parent, or any of
its subsidiaries having a fair market value (as determined by the Board of
Directors of the Company in good faith) equal to more than 25% of the fair
market value of all the assets of Parent and its subsidiaries, taken as a whole,
immediately prior to such transaction; provided, however, that the term
Alternative Transaction shall not include any acquisition of securities by a
broker dealer in connection with a bona fide public offering of such securities.
SECTION 7.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.01, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.03 and Section 8.01 hereof, and (ii) nothing herein shall relieve any
party from liability for any breach hereof.
Section 7.03. Fees and Expenses. (a) Except as set forth in this Section
7.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Parent and the Company shall share equally all SEC filing fees and printing
expenses incurred in connection with the printing and filing of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) Parent shall pay the Company a fee of $150 million (the "Fee"), plus
the Company's actual, documented and reasonable out-of-pocket expenses relating
to the transactions contemplated by this Agreement (including, but not limited
to, fees and expenses of counsel and accountants and out-of-pocket expenses (but
not fees) of financial advisers) ("Expenses"), but in no event shall such
Expenses exceed $7,500,000, upon the first to occur of any of the following
events; provided that no Fee or Expenses shall be payable pursuant to this
Section 7.03(b) if this Agreement has been previously terminated and such
previous termination did not entitle the Company to receive a Fee pursuant to
this Section 7.03(b):
(i) the Final 10-Day Reference Price is equal to or greater than $56
and either (x) the shareholders of Parent shall not have approved each of
the Reverse Stock Split, the Share Amendment, the issuance of Parent Common
Stock in the Merger, the Parent Name Change and the New Parent Director
Election on or before August 15, 1997 or (y) the shareholders of Parent
shall have affirmatively disapproved any of such actions at any time on or
before August 15, 1997; or
(ii) the shareholders of Parent shall have approved an Acquisition
Proposal (other than with the Company or its affiliates) on or before
August 15, 1997; or
(iii) if following the termination of this Agreement by the Company
pursuant to Section 7.01(l), Parent shall accept and consummate an
Acquisition Proposal at a price per share of Parent Common Stock in excess
of $29, which Acquisition Proposal is publicly announced within 60 days of
such termination; or
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(iv) the termination of this Agreement by the Company pursuant to
Section 7.01(e); or
(v) the termination of this Agreement by Parent pursuant to Section
7.01(f); or
(vi) the termination of this Agreement by the Company pursuant to
Section 7.01(i).
(c) The Company shall pay Parent a fee of $150 million (the "Fee"), plus
Parent's actual, documented and reasonable out-of-pocket expenses relating to
the transactions contemplated by this Agreement (including, but not limited to,
fees and expenses of counsel and accountants and out-of-pocket expenses (but not
fees) of financial advisers) ("Expenses"), but in no event shall such Expenses
exceed $7,500,000, upon the first to occur of any of the following events;
provided that no Fee or Expenses shall be payable pursuant to this Section
7.03(c) if this Agreement has been previously terminated and such previous
termination did not entitle Parent to receive a Fee pursuant to this Section
7.03(c):
(i) the shareholders of Parent shall have approved each of the Reverse
Stock Split, the Share Amendment, the issuance of Parent Common Stock in
the Merger, the Parent Name Change and the New Parent Director Election on
or before August 15, 1997 and either (x) the shareholders of the Company
shall not have approved and adopted this Agreement by August 15, 1997 or
(y) the shareholders of the Company shall have affirmatively disapproved
this Agreement at any time on or before August 15, 1997; or
(ii) the termination of this Agreement by Parent pursuant to Section
7.01(j); or
(iii) the termination of this Agreement by the Company pursuant to
Section 7.01(k); or
(vi) the termination of this Agreement by Parent pursuant to Section
7.01(i).
(d) Upon a termination of this Agreement by Parent pursuant to Section
7.01(g), the Company shall pay to Parent the Expenses of Parent relating to the
transactions contemplated by this Agreement, but in no event more than
$7,500,000. Upon a termination of this Agreement by the Company pursuant to
Section 7.01(g), Parent shall pay to the Company the Expenses of the Company
relating to the transactions contemplated by this Agreement, but in no event
more than $7,500,000.
(e) The Fee and/or Expenses payable pursuant to Section 7.03(b), Section
7.03(c) or Section 7.03(d) shall be paid within three business days after the
first to occur of any of the events described in Section 7.03(b), Section
7.03(c) or Section 7.03(d); provided that, in no event shall Parent or the
Company, as the case may be, be required to pay such Fee and/or Expenses to the
other party if, immediately prior to the termination of this Agreement, the
party entitled to receive such Fee and/or Expenses was in material breach of its
obligations under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc. (a) Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I and Article VIII and Section 5.07 and Section 5.16 shall
survive the Effective Time indefinitely and those set forth in Section 7.03
shall survive termination indefinitely. The Confidentiality Letter shall survive
termination of this Agreement as provided therein.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent.
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SECTION 8.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a person as shall be specified by like notice):
(a) If to Parent or Merger Sub:
ADT Limited
Cedar House
41 Cedar House
Hamilton HM 12 Bermuda
Attention: John D. Campbell, Esq.
Telecopier No.: (441) 292-8666
Telephone No.: (441) 295-2244
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 450-4800
Telephone No.: (212) 450-4000
Attention: J.J. McCarthy, Esq.
(b) If to the Company:
Tyco International Ltd.
One Tyco Park
Exeter, NH 03833
Telecopier No.: (603) 778-7330
Telephone No.: (603) 778-9700
Attention: Chairman
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attention: Joshua M. Berman, Esq.
SECTION 8.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person; including, without
limitation, any partnership or joint venture in which the Company (either
alone, or through or together with any other subsidiary) has, directly or
indirectly, an interest of 5% or more;
(b) "beneficial owner" with respect to any shares of Company
Common Stock means a person who shall be deemed to be the beneficial owner
of such shares (i) which such person or any of its affiliates or associates
(as such term is defined in Rule 12b-2 of the Exchange Act) beneficially
owns, directly or indirectly, (ii) which such person or any of its
affiliates or associates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or subject only to
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the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom
such person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of any shares;
(c) "business day" means any day other than a day on which banks
in the City of New York, Borough of Manhattan are required or authorized to
be closed;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.04. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.06. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.07. Severability. (a) If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
(b) The Company and Parent agree that the Fees provided in Section 7.03(b)
and 7.03(c) are fair and reasonable in the circumstances. If a court of
competent jurisdiction shall nonetheless, by a final, non-appealable judgment,
determine that the amount of any such Fee exceeds the maximum amount permitted
by law, then the amount of such Fee shall be reduced to the maximum amount
permitted by law in the circumstances, as determined by such court of competent
jurisdiction.
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SECTION 8.08. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letter), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 8.09. Assignment; Merger Sub. This Agreement shall not be
assigned by operation of law or otherwise, except that all or any of the rights
of Merger Sub hereunder may be assigned to any direct, wholly-owned subsidiary
of Parent provided that no such assignment shall relieve the assigning party of
its obligations hereunder. Parent guarantees the full and punctual performance
by Merger Sub of all the obligations hereunder of Merger Sub or any such
assignees.
SECTION 8.10. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 5.07 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties) and Section 5.16 (which
is intended to be for the benefit of the persons who are parties to the Parent
Options and the Severance Agreements and may be enforced by such persons).
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. Governing Law; Jurisdiction. (a) This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
New York applicable to contracts executed and fully performed within the State
of New York.
(b) Each of the parties hereto submits to the non-exclusive jurisdiction of
the federal courts of the United States and the courts of the State of New York
located in the City of New York, Borough of Manhattan solely with respect to any
claim or cause of action arising out of this Agreement or the transactions
contemplated hereby.
SECTION 8.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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<PAGE> 179
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ADT LIMITED
By: /s/ STEPHEN J. RUZIKA
------------------------------------
Name: Stephen J. Ruzika
Title: Chief Financial Officer and
Executive Vice President
LIMITED APACHE, INC.
By: /s/ STEPHEN J. RUZIKA
------------------------------------
Name: Stephen J. Ruzika
Title: Vice President and
Treasurer
TYCO INTERNATIONAL LTD.
By /s/ BARBARA S. MILLER
------------------------------------
Name: Barbara S. Miller
Title: Vice President and Treasurer
I-46
<PAGE> 180
ANNEX A
TO
ANNEX I
The following persons shall be nominated for election pursuant to the New
Parent Director Election (as defined in Section 5.03):
(i) The current Chairman of the Board and Chief Executive Officer of
the Company and each other member of the Board of Directors of the Company
serving on the date of this Agreement, or any other person selected by the
Company and reasonably acceptable to Parent, such that the total number of
directors nominated in accordance with this clause (i) shall be eight (8);
and
(ii) The current Chairman of the Board and Chief Executive Officer of
Parent and any two independent members of the Board of Directors of Parent
serving on the date of this Agreement, or any other person selected by
Parent and reasonably acceptable to the Company, such that the total number
of directors nominated in accordance with this clause (ii) shall be three
(3).
I-47
<PAGE> 181
ANNEX B
TO
ANNEX I
ADT Holdings, Inc.
ADT Operations, Inc.
ADT Security Services, Inc.
ADT Automotive Holdings, Inc.
ADT Automotive, Inc.
ADT Security Services Canada, Inc.
ADT Group N.V.
ADT Holdings B.V.
ADT Services AG
ADT Monitoring Services AG
ADT Franchising AG
ADT (UK) Holdings plc
ADT Finance plc
Electric Protection Services Limited
Modern Security Systems Ltd.
Sandalwood
ADT Luxembourg SA
I-48
<PAGE> 182
ANNEX C
TO
ANNEX I
Carlisle Plastics, Inc.
The Earth Technology Corporation (USA)
Grinnell Corporation
Allied Tube & Conduit Corp.
Ludlow Corporation
Mueller Co.
Simplex Technologies
Water Holdings Corp.
Ansul, Incorporated
I-49
<PAGE> 183
ANNEX II
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE> 184
[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
June 3, 1997
Board of Directors
Tyco International Ltd.
One Tyco Park
Exeter, New Hampshire 03833-1108
Members of the Board:
You have asked us to advise you with respect to the fairness from a
financial point of view to the stockholders of Tyco International Ltd. (the
"Company") of the Exchange Ratio (as defined below) contemplated by the
Agreement and Plan of Merger (the "Merger Agreement") among ADT Limited
("Parent"), Limited Apache, Inc., a wholly owned subsidiary of Parent ("Merger
Sub"), and the Company. The Merger Agreement provides for, among other things,
the merger (the "Merger") of Merger Sub with and into the Company pursuant to
which the Company will become a wholly owned Subsidiary of Parent and each
outstanding share of common stock, $.50 par value per share, of the Company (the
"Company Common Stock") will be converted, subject to the prior effectiveness of
the Reverse Stock Split (as defined below), into the right to receive one share
(the "Exchange Ratio") of common stock, $.20 par value per share, of Parent (the
"Parent Common Stock"). The Merger Agreement also provides that, immediately
prior to (but conditioned upon the occurrence of) the consummation of the
Merger, in connection with a reverse stock split (the "Reverse Stock Split"),
each share of common stock, $.10 par value per share, of Parent then outstanding
will be consolidated into 0.48133 shares of Parent Common Stock. The Company has
advised us that the Merger will qualify for pooling-of-interest treatment in
accordance with U.S. generally accepted accounting principles and will be
taxable to the Company's stockholders.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and Parent, as well
as the Merger Agreement. We have also reviewed certain other information,
including financial forecasts, provided to us by the Company and Parent, and
have met with the managements of the Company and Parent to discuss the business
and prospects of the Company and Parent. In addition, we have reviewed certain
estimates provided to us by the Company of the synergies and savings expected to
result from the Merger, and have met with the management of the Company to
discuss such synergies and savings.
We have also considered certain financial and stock market data of the
Company and Parent, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of the Company and Parent
and have considered the financial terms of certain other business combinations
and other transactions which have recently been effected. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of the Company and Parent as to the future financial performance of
the Company and Parent. We have also assumed that the estimates provided to us
by the Company of the synergies and savings expected to result from the Merger
reflect the best currently available estimates and judgment of such management
as to such synergies and savings. In addition, we have relied on the conclusions
of the Company as to the impact of the Merger on the current tax status of
Parent. In addition, we have not made an independent
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<PAGE> 185
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company or Parent, nor have we been furnished with any such evaluations
or appraisals. Our opinion is necessarily based upon financial, economic, market
and other conditions as they exist and can be evaluated on the date hereof. We
are not expressing any opinion as to what the value of the Parent Common Stock
actually will be when issued to the Company's stockholders pursuant to the
Merger or the prices at which the Parent Common Stock will trade subsequent to
Merger.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
In the past, we have performed certain investment banking services for the
Company and Parent and have received customary fees for such services. In the
ordinary course of business, Credit Suisse First Boston and its affiliates may
actively trade the debt and equity securities of both the Company and Parent for
their own accounts and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Merger,
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the Merger and, except as set forth in our engagement
letter with the Company, is not to be quoted or referred to, in whole or in
part, in any registration statement, prospectus or proxy statement, or in any
other document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purpose, without Credit Suisse First
Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
stockholders of the Company.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
II-2
<PAGE> 186
ANNEX III
OPINION OF MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED
<PAGE> 187
<TABLE>
<S> <C>
INVESTMENT BANKING
CORPORATE AND INSTITUTIONAL
CLIENT GROUP
WORLD FINANCIAL CENTER
NORTH TOWER
NEW YORK, NEW YORK 10281-1330
[MERRILL LYNCH LOGO] 212 449 1000
</TABLE>
June 3, 1997
Board of Directors
ADT Limited
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
Members of the Board:
ADT Limited ("ADT"), Limited Apache, Inc., a wholly-owned subsidiary of ADT
("Sub"), and Tyco International Ltd. ("Tyco") have entered into an agreement and
plan of merger dated as of March 17, 1997 (the "Agreement") pursuant to which
Sub will be merged with Tyco in a transaction (the "Merger") in which each share
of Tyco common stock, $.50 par value per share (a "Tyco Share"), will be
converted into the right to receive one ADT common share, $.20 par value per
share (an "ADT Share") (the "Exchange Ratio").
The Agreement provides that (i) immediately prior to the Merger, each ADT
common share, $.10 par value per share, will be consolidated (the
"Consolidation") into 0.48133 ADT Shares, (ii) the Exchange Ratio will not be
adjusted to reflect the Consolidation, and (iii) upon consummation of the Merger
(a) the name of ADT will be changed to "Tyco International Ltd." and (b) the
composition of Board of Directors of ADT will be changed as specified in the
Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair to
the shareholders of ADT from a financial point of view.
In arriving at the opinion set forth below, we have:
(1) reviewed Tyco's Annual Reports on Form 10-K and related audited
financial statements for the five fiscal years ended June 30, 1996,
Tyco's Quarterly Reports on Form 10-Q and the related unaudited
financial statements for the quarterly periods ended September 30,
1996, December 31, 1996 and March 31, 1997, and Tyco's Prospectus
dated February 5, 1997 and the related Prospectus Supplement dated
February 27, 1997 with respect to the offer and sale by Tyco of
10,000,000 Tyco Shares (the "February 1997 Offering");
(2) reviewed ADT's Annual Reports on Form 10-K and related audited
financial statements for the five fiscal years ended December 31,
1996, ADT's Quarterly Report on Form 10-Q and the related unaudited
financial statements for the quarterly period ended March 31, 1997,
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 certain financial information, including financial forecasts,
relating to the financial condition, business, earnings, cash flow,
assets, liabilities, and prospects of Tyco and ADT, that were
furnished to us by Tyco and ADT, respectively;
III-1
<PAGE> 188
(4) conducted discussions with members of senior management of Tyco and
ADT concerning their respective financial condition, business,
earnings, cash flow, assets, liabilities, operations, contingencies
and prospects;
(5) reviewed certain information relating to the proposed acquisitions by
Tyco of Keystone International Inc. ("Keystone"), INBRAND Corp.
("INBRAND") and the submarine systems business of AT&T Corp. (together
with Keystone and INBRAND, the "Tyco Acquisition Companies"),
including, with respect to Keystone and INBRAND, their respective
publicly available historical audited financial statements for their
three most recent fiscal years and their respective publicly available
unaudited financial statements for each of the quarterly periods ended
since the end of their most recent respective fiscal years, as well as
financial and other information relating to the proposed acquisitions
that was furnished to us by Tyco's management;
(6) reviewed the historical market prices and trading activity for Tyco
Shares and ADT Shares and compared such data with indices that we
deemed relevant;
(7) compared the respective financial condition and results of operations
of Tyco and ADT with that of certain publicly traded companies that we
deemed to be relevant;
(8) compared the proposed financial terms of the transactions contemplated
by the Agreement with the financial terms of certain other mergers and
acquisitions that we deemed to be relevant;
(9) reviewed the amount and timing of the projected cost savings, the
related expenses required to achieve such savings, and the revenue
enhancements expected to result from the Merger (the "Expected
Synergies"), as presented by the managements of ADT and Tyco;
(10) considered the pro forma impact of the transactions contemplated by
the Agreement on the income statement, balance sheet and cash flows of
ADT;
(11) reviewed the Agreement dated as of March 17, 1997; 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 assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by ADT and Tyco 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, of ADT, Tyco
or the Tyco Acquisition Companies or any of their subsidiaries, nor have we been
furnished any such evaluation or appraisal. In addition, we have not conducted
any physical inspection of the properties or facilities of ADT, Tyco or the Tyco
Acquisition Companies. With respect to the financial forecasts (including the
Expected Synergies) furnished by ADT and Tyco, with your consent, we have
assumed that such forecasts have been reasonably prepared and reflect the best
currently available estimates, allocations and judgements of the respective
managements of ADT and Tyco as to the future financial performance of ADT, Tyco
or the combined entity, as the case may be. We have also assumed with your
consent that the Merger will be accounted for as a pooling of interests under
generally accepted accounting principles.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof. In rendering our opinion,
we have assumed with your consent that in the course of obtaining the necessary
regulatory or other consents or approvals for the Merger, no restrictions,
including any divestiture requirements or amendments or modifications will be
imposed that will have a material adverse effect on the contemplated benefits of
the Merger.
We were not authorized or requested to, and accordingly with your consent
did not, solicit any other company or person with respect to entering into a
business combination with or acquisition of ADT.
In addition, in rendering our opinion, we have taken into account the
exchange offer (the "Offer") initiated by Western Resources, Inc. ("Western")
for any and all of the outstanding common ADT Shares
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<PAGE> 189
pursuant to which the holders of each outstanding ADT Share will be entitled to
receive $10.00 per ADT 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), for each of their ADT Shares purchased pursuant to the
Offer, all as set forth more fully in the Offer to Exchange contained in
Western's registration statement on Form S-4 dated March 17, 1997 and related
proxy materials filed under Section 14(a) of the Securities Exchange Act of
1934, each as amended to 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 Merger and
will receive a fee for our services. We have, in the past, provided, and
continue to provide, financial advisory and financing services to ADT and have
received, and continue to receive, 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 ADT and its 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.
We have, in the past, provided, and continue to provide, financial advisory
and financing services to Tyco, including acting as lead managing underwriter
with respect to the February 1997 Offering and acting as financial adviser to
Tyco in connection with a possible significant acquisition, and have received,
and continue to receive, 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 Tyco and its 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.
It is understood that this letter is for the information of the Board of
Directors of ADT in connection with its consideration of the Merger and does not
constitute a recommendation to any shareholder of ADT as to how such shareholder
should vote on matters relating to the Merger. We are not expressing any opinion
herein as to the prices at which either ADT Shares or Tyco Shares will trade
following the announcement or consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratio is fair to the shareholders of ADT from a financial point of
view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By
--------------------------------------
Managing Director
Investment Banking Group
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<PAGE> 190
ANNEX IV
PROVISIONS OF MASSACHUSETTS LAW
GOVERNING SHAREHOLDER DISSENTERS' RIGHTS
<PAGE> 191
Massachusetts Business Corporation Law
Sections 85-98
SEC. 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION.
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SEC. 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES.
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SEC. 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM.
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of
the General Laws of Massachusetts."
SEC. 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO.
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and
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<PAGE> 192
whose shares were not voted in favor of the approval of such action, that the
action approved at the meeting of the corporation of which he is a stockholder
has become effective. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock. The notice shall be sent by registered or certified mail, addressed to
the stockholder at his last known address as it appears in the records of the
corporation.
SEC. 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT.
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
SEC. 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE.
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SEC. 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE.
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SEC. 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE.
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
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<PAGE> 193
SEC. 93. REFERENCE TO SPECIAL MASTER.
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SEC. 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL.
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SEC. 95. COSTS; INTEREST.
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SEC. 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT.
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporation action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SEC. 97. STATUS OF SHARES PAID FOR.
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SEC. 98. EXCLUSIVE REMEDY; EXCEPTION.
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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<PAGE> 194
ANNEX V
AMENDED ADT LIMITED 1993
LONG TERM INCENTIVE PLAN
<PAGE> 195
ADT LIMITED 1993
LONG TERM INCENTIVE PLAN
(AS AMENDED , 1997)
(TO BE KNOWN HEREAFTER AS THE
TYCO INTERNATIONAL LTD.
LONG TERM INCENTIVE PLAN)*
SECTION 1. Purpose.
The purposes of this Tyco International Ltd. Long Term Incentive Plan (the
"Plan") are to promote the interest of Tyco International Ltd. (together with
any successor thereto, the "Company") and its stockholders by (i) attracting and
retaining officers, key employees or directors of the Company and its
Subsidiaries (ii) motivating such employees or directors by means of
performance-related incentives to achieve longer-range performance goals, and
(iii) enabling such employees or directors to participate in the long-term
growth and financial success of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
"ADT Merger" shall mean the merger described in the Merger Agreement.
"Award" shall mean any Option, Stock Appreciation Right, Performance
Award, Dividend Equivalent, or other Stock Based Award, including any Prior
ADT Option or Prior Tyco Option.
"Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as amended
from time to time.
"Committee" shall mean the Board or a committee of the Board
designated by the Board to administer the Plan and composed of not less
than the minimum number of persons from time to time required by Rule 16b-3
or any applicable law, each of whom, to the extent necessary to comply with
Rule 16b-3 only, is a "non-employee director" within the meaning of Rule
16b-3.
"Director" shall mean any member of the Board.
"Dividend Equivalent" shall mean any right granted under Section 6(d)
of the Plan.
"Employee" shall mean any officer or key employee of the Company or of
any Subsidiary, as determined by the Committee.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, (A) with respect to any property other
than the Shares, the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the
Committee and (B) with respect to the Shares, as of any date, (i) the last
reported sales price regular way on the New York Stock Exchange or, if not
reported for the New York Stock Exchange, on the Composite Tape, or, in
case no such reported sale takes place on such day, the average of the
reported closing bid and asked quotations on the New York Stock Exchange,
(ii) if the Shares are not listed on the New York Stock Exchange or no such
quotations are available, the closing price of the Shares as reported by
the National Market System, or similar organization, or
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* In the event the merger described in the Agreement and Plan of Merger dated
March 17, 1997 among Tyco International Ltd., ADT Limited and Limited Apache,
Inc., is not consummated, the name of the plan will continue to be the ADT
Limited 1993 Long Term Incentive Plan, and references in the Plan to Tyco
International Ltd. shall be disregarded or treated as references to ADT
Limited, as appropriate.
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if no such quotations are available, the average of the high bid and low asked
quotations in the over-the-counter market as reported by the National Quotation
Bureau Incorporated or similar organization; or (iii) in the event that there
shall be no public market for the Shares, the fair market value of the Shares as
determined (which determination shall be conclusive) in good faith by the
Committee, based upon the value of the Company as a going concern, as if such
Shares were publicly owned stock, but without any discount with respect to
minority ownership.
"Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422
of the Code or any successor provision thereto.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated
as of March 17, 1997 by and among ADT Limited, Limited Apache, Inc. and
Tyco International Ltd.
"Option" shall mean an option granted under Section 6(a) of the Plan.
"Other Stock-Based Award" shall mean any right granted under Section
6(e) of the Plan.
"Participant" shall mean any Employee or Director granted an Award
under the Plan.
"Performance Award" shall mean any right granted under Section 6(c) of
the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Prior ADT Option" shall mean any option granted under the ADT Senior
Executive Share Option Plan, the ADT US Stock Option Plan 1990, the ADT
International Executive Share Option Plan, or this Plan by ADT Limited or
its affiliate with respect to Prior ADT Shares.
"Prior ADT Shares" shall mean the common shares of ADT Limited prior
to the ADT Merger.
"Prior Tyco Option" shall mean any option granted with respect to
Prior Tyco Shares by Tyco International Ltd. to its employee, or assumed by
Tyco International Ltd., prior to the ADT Merger.
"Prior Tyco Shares" shall mean the common shares of Tyco International
Ltd. prior to the ADT Merger.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act or any successor rule or regulation thereto as in effect from
time to time.
"SEC" shall mean the U.S. Securities and Exchange Commission, or any
successor thereto.
"Shares" shall mean the common shares of the Company, U.S. $0.20 par
value, and such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(b) of the Plan.*
"Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
"Subsidiary" shall mean a subsidiary company (wherever incorporated)
as defined by Section 86 of the Companies Act 1981 of Bermuda (as amended).
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* If the ADT Merger is not consummated, then "Shares" will mean common shares of
ADT, U.S.$0.10 par value.
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SECTION 3. Administration.
The Plan shall be administered by the Committee. Subject to the terms of
the Plan and applicable law, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the Committee shall have
full power and authority to (i) designate Participants; (ii) determine the type
or types of Awards to be granted to an eligible Employee or Director; (iii)
determine the number of Shares to be covered by, or with respect to which
payments, rights, or other matters are to be calculated in connection with,
Awards; (iv) determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may be settled or
exercised in cash, Shares, other securities, other Awards or other property, or
canceled, forfeited, or suspended and the method or methods by which Awards may
be settled, exercised, canceled, forfeited, or suspended, (vi) determine
whether, to what extent, and under what circumstances cash, Shares, other
securities, other Awards, other property and other amounts payable with respect
to an Award shall be deferred either automatically or at the election of the
holder thereof or of the Committee; (vii) interpret and administer the Plan and
any instrument or agreement relating to, or Award made under, the Plan; (viii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any shareholder and any Employee.
SECTION 4. Shares Available for Awards.
(a) Shares Available
Subject to adjustment as provided in Section 4(b);
(i) Calculation of Number Shares Available.
The number of Shares with respect to which Awards may be granted under
the Plan shall be 22,000,000.* If, during the term of the Plan, any Award
is forfeited, or any Award otherwise terminates or is canceled without the
delivery of Shares or of other consideration, then the Shares covered by
such Award or to which such Award relates, or the number of Shares
otherwise counted against the aggregate number of Shares with respect to
which Awards may be granted, to the extent of any such forfeiture,
termination or cancellation, shall again be, or shall become, Shares with
respect to which Awards may be granted.
(ii) Accounting for Awards
For purposes of this Section 4:
(A) if an Award (other than a Dividend Equivalent) is related to or
payable in Shares, the number of Shares covered by such Award, or to
which such Award related, shall be counted on the date of grant of such
Award against the aggregate number of Shares with respect to which
Awards may be granted under the Plan; and
(B) Dividend Equivalents and Awards not related to or payable in
Shares shall be counted against the aggregate number of Shares with
respect to which Awards may be granted under the Plan in such amount and
at such time as the Committee shall determine under procedures adopted
by the Committee consistent with the purposes of the Plan.
provided, that Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or that are substituted
for, other Awards may be counted or not counted under procedures adopted by
the Committee in order to avoid double counting. Subject to the
requirements
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* 22,000,000 reflects the reverse stock split contemplated by the ADT Merger. If
the ADT Merger is not consummated, the number of ADT common shares with
respect to which Awards may be granted under the Plan shall remain 17,000,000
(not adjusted for the reverse stock split).
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of applicable law, any Shares delivered by the Company, or any Shares with
respect to which Awards are made by the Company, or any Shares with respect to
which the Company becomes obligated to make Awards, through the assumption of,
or in substitution for, outstanding awards previously granted by an acquired
company, shall not be counted against the Shares available for Awards under the
Plan.
(iii) Sources of Shares Deliverable Under Awards
Any Shares delivered pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or, to the extent permissible under
applicable law, of Shares acquired by any Subsidiary or any other Person
designated by the Company.
(b) Adjustments
In the event that the Committee determines that any dividend or other
distribution (whether in the form of cash, Shares, other securities, or other
property), recapitalization, stock split, reverse stock split, subdivision,
consolidation or reduction of capital, reorganization, merger, scheme of
arrangement, split-up, spin-off or combination involving the Company or
repurchase or exchange of Shares or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that any adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or property) with respect
to which Awards may be granted, (ii) the number and type of Shares (or other
securities or property subject to outstanding Awards), and (iii) the grant or
exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided, in
each case that with respect to Awards of Incentive Stock Options no such
adjustment shall be authorized to the extent that such authority would cause the
Plan to violate Section 422(b)(1) of the Code or any successor provision
thereto; and provided further, that the number of Shares subject to any Award
denominated in Shares shall always be a whole number.
(c) Limitation
No Participant shall be granted Awards for more than 3,000,000 Shares in
1997 or any subsequent calendar year. For purposes of this limitation, neither
the modification of a Prior ADT Option pursuant to Section 7(a) nor the
replacement of a Prior Tyco Option pursuant to Section 7(b) shall be treated as
the grant of an Award.
SECTION 5. Eligibility.
Any Employee or Director shall be eligible to be designated a Participant.
SECTION 6. Awards.
(a) Options
The Committee is hereby authorized to grant to eligible Employees and
Directors an option to purchase Shares (an "Option") which shall (except as
otherwise provided in Section 7) contain the following terms and conditions and
such additional terms and conditions, which are not inconsistent with the
provisions of the Plan, as the Committee shall determine.
(i) Exercise Price
The purchase price per Share under an Option shall be not less than
the Fair Market Value of a Share at the date of the grant, except that if
the Award requires the option to be paid for by the Participant, or if any
discount from such Fair Market Value is expressly granted in lieu of a
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reasonable amount of salary or cash bonus, the Committee may fix such purchase
price at not less than 85% of such Fair Market Value.
(ii) Time and Method of Exercise
The Committee shall determine the time or times at which an Option may
be exercised in whole or in part, and the method or methods by which, and
the form or forms (which may include, without limitation, cash, Shares,
outstanding Awards, other securities or other property, or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant exercise price) in which, payment of the exercise price with
respect thereto may be deemed to have been made.
(iii) Incentive Stock Options
The terms of any Incentive Stock Option granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code, or
any successor provisions, and any regulations promulgated thereunder. The
aggregate fair market value (determined on the date an option is granted)
of shares with respect to which Incentive Stock Options become exercisable
by any Employee in any year shall not exceed $100,000.
(b) Stock Appreciation Rights
The Committee is hereby authorized to grant to eligible Employees and
Directors a "Stock Appreciation Right", which shall consist of a right to
receive the excess of (i) the Fair Market Value of one Share on the date the
right is exercised or, if the Committee shall so determine in the case of any
such right other than one related to any Incentive Stock Option, at any time
during a specified period before or after the date of exercise over (ii) the
grant price (determined in the manner set forth below) of the right. A Stock
Appreciation Right may be granted in tandem with an Option, in addition to an
Option, or free standing and unrelated to an Option.
(i) Grant Price
The grant price of a Stock Appreciation Right shall be not less than
the Fair Market Value of a Share at the date of the grant, except that if
the Award requires the SAR to be paid for by the Participant, or if any
discount from such Fair Market Value is expressly granted in lieu of a
reasonable amount of salary or cash bonus, the Committee may fix such grant
price at not less than 85% of such Fair Market Value.
(ii) Other Terms and Conditions
Subject to the terms of the Plan and any applicable Award Agreement,
the Committee shall determine, at or after the grant of a Stock
Appreciation Right, the term, methods of exercise, methods of settlement,
and any other terms and conditions of any Stock Appreciation Right. Any
such determination by the Committee may be changed by the Committee from
time to time and may govern the exercise of Stock Appreciation Rights
granted or exercised prior to such determination as well as Stock
Appreciation Rights granted or exercised thereafter. The Committee may
impose such conditions or restrictions on the exercise of any Stock
Appreciation Right as it shall deem appropriate.
(c) Performance Awards
The Committee is hereby authorized to grant to eligible Employees and
Directors a "Performance Award", which shall consist of a right, (i) denominated
or payable in cash, Shares, other securities or other property (including
without limitation, restricted securities), and (ii) which shall confer on the
holder thereof rights valued as determined by the Committee and payable to, or
exercisable by, such holder, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee shall
establish. The criteria with respect to which performance goals may be
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established are stock price, market share, sales, earnings, earnings per share,
earnings before income tax, cash flow and return on equity.
(i) Terms and Conditions
Subject to the terms of the Plan and any applicable Award Agreement,
the Committee shall determine the performance goals to be achieved during
any performance period, the length of any performance period, the amount of
any Performance Award and the amount of any payment or transfer to be made
pursuant to any Performance Award.
(ii) Payment of Performance Awards
Performance Awards may be paid in a lump sum or in installments
following the close of the performance period or, in accordance with
procedures established by the Committee, on a deferred basis.
(d) Dividend Equivalents
The Committee is hereby authorized to grant to eligible Employees and
Directors a "Dividend Equivalent", which shall consist of a right pursuant to
which any such eligible Employee or Director shall be entitled to receive
payments equivalent to dividends with respect to a number of Shares determined
by the Committee, and the Committee may provide that such amounts (if any) shall
be deemed to have been reinvested in additional Shares or otherwise reinvested.
Subject to the terms of the Plan and any applicable Award Agreement, such Awards
may have such terms and conditions as the Committee shall determine.
(e) Other Stock-Based Awards
The Committee is hereby authorized to grant to eligible Employees and
Directors an "Other Stock-Based Award", which shall consist of a right (i) which
is other than an Award or right described in Section 6(a), (b), (c), or (d)
above and (ii) which is denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to Shares (including, without
limitation, securities convertible into Shares), as are deemed by the Committee
to be consistent with the purposes of the Plan. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine the terms and
conditions of any such Other Stock-Based Award, which conditions may include
satisfaction of performance goals relating to stock price, market share, sales,
earnings, earnings per share, earnings before income tax, cash flow and return
on equity.
(f) General
(i) Awards May be Granted Separately or Together
Awards may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with, or in substitution for any other
Award granted under the Plan or any award granted under any other plan of
the Company or any Subsidiary. Awards granted in addition to or in tandem
with other Awards or awards granted under any other plan of the Company or
any Subsidiary may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(ii) Forms of Payment by Company Under Awards
Subject to the terms of the Plan and of any applicable Award Agreement
and the requirements of applicable law, payments or transfers to be made by
the Company or a Subsidiary upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine,
including, without limitation, cash, Shares, other securities, other Awards
or other property, or any combination thereof, and may be made in a single
payment or transfer, in installments, or on a deferred basis, in each case
in accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents in respect of
installment or deferred payments denominated in Shares.
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(iii) Limits on Transfer of Awards
Subject to paragraph (ix) below:
(A) Each Award, and each right under any Award, shall be
exercisable only by the Participant during the Participant's lifetime,
or, if permissible under applicable law, by the Participant's guardian
or legal representative or by a transferee receiving such Award pursuant
to a qualified domestic relations order (a "QDRO") as defined in the
Code or Title I of the U.S. Employee Retirement Income Security Act of
1974 ("ERISA"), or the rules thereunder, or any analogous order in any
other relevant jurisdiction.
(B) No Award (prior to the time, if applicable, Shares are issued
in respect of such Award), and no right under any such Award, may be
assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant otherwise than by will or by the laws of
descent and distribution (or, in the case of restricted securities, to
the Company) or pursuant to a QDRO, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Subsidiary; provided,
that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
(iv) Terms of Awards
The term of each Award shall be for such period as may be determined
by the Committee; provided, that in no event shall the term of any
Incentive Stock Option exceed a period of ten years from the date of its
grant.
(v) Rule 16b-3 Six-Month Limitations
To the extent required in order to comply with Rule 16b-3 only, any
equity security offered pursuant to the Plan must be held for at least six
months after the date of grant, and with respect to any derivative security
issued pursuant to the Plan at least six months must elapse from the date
of acquisition of such derivative security to the date of disposition
(other than upon exercise or conversion) of the derivative security or its
underlying equity security after the grant thereof. Terms used in the
preceding sentence shall, for the purposes of such sentence only, have the
meanings, if any, assigned to them under Rule 16b-3.
(vi) Share Certificates
All certificates for Shares or other securities of the Company or any
Subsidiary delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the U.S. Securities and
Exchange Commission, any stock exchange upon which such Shares or other
securities are then listed, and any applicable laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. Notwithstanding the foregoing,
no action shall be taken by the Committee which would, under the laws of
Bermuda, cause a separate class of securities other than Shares to be
created and the Committee shall consult with appropriate legal counsel in
this regard.
(vii) Consideration for Grants
Awards may be granted for no cash consideration, for such nominal cash
consideration as may be required by applicable law or for such greater
amount as may be established by the Committee.
(viii) Delivery of Shares or Other Securities and Payment by
Participant of Consideration
No Shares or other securities shall be delivered pursuant to any Award
until payment in full of any amount required to be paid pursuant to the
Plan or the applicable Award Agreement is received
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by the Company. Such payment may be made by such method or methods and in such
form or forms as the Committee shall determine, including, without limitation,
cash, Shares, other securities, other Awards or other property, or any
combination thereof, provided that the combined value, as determined by the
Committee, of all cash and cash equivalent and the Fair Market Value of any such
Shares or other property so tendered to the Company, as of the date of such
tender, is at least equal to the full amount required to be paid pursuant to the
Plan or the applicable Award Agreement to the Company.
(ix) Committee Discretion to Remove or Amend Restrictions on
Transferability
Notwithstanding the provisions of paragraph (iii) above and any other
restrictions on transferability of Awards referred to in this Plan, the
Committee may, in its discretion, either generally or specifically,
prospectively or retroactively, (a) grant Awards without limits on
transferability thereof or with such limits on transferability as the
Committee may deem appropriate in the circumstances, and (b) waive, amend,
alter, suspend, discontinue, cancel or terminate any limits on
transferability of Awards on such terms as the Committee may deem
appropriate; provided, that any of the acts described in clause (b) of this
paragraph that would impair the rights of any Participant, or any holder or
any beneficiary of any Award theretofore granted, shall not to that extent
be effective without the consent of the affected Participant, holder or
beneficiary.
SECTION 7. Modification and Replacement of Outstanding Options.*
(a) Modification of Prior ADT Options
Each Prior ADT Option outstanding as of the effective date of the ADT
Merger shall be modified, as of that date, as follows:
(i) Shares to Which Option Relates.
Each Prior ADT Option shall entitle the recipient to purchase a number
of Shares equal to the product of .48133 (subject to adjustment as
necessary to reflect any change in the "Reverse Stock Split Ratio" under
the Merger Agreement) and the number of Prior ADT Shares to which such
Prior ADT Option originally related.
(ii) Exercise Price.
The exercise price of each Prior ADT Option shall be equal to the
original exercise price of such Prior ADT Option, divided by .48133
(subject to adjustment as necessary to reflect any change in the "Reverse
Stock Split Ratio" under the Merger Agreement).
Each Prior ADT Option shall continue to have the same term, and shall
otherwise continue to be subject to all of the other terms and conditions, as
applied to such option prior to the ADT Merger. In the event of a conflict
between the terms of this Plan and the terms of the Award Agreement by which a
Prior ADT Option was originally granted, the terms of the Award Agreement shall
govern.
(b) Replacement of Prior Tyco Options
In addition to any other Awards that may be granted under the Plan, Options
("Substitute Options") shall be granted hereunder in replacement of all
outstanding Prior Tyco Options, as of the effective date of the ADT Merger. The
number of Shares subject to each Substitute Option issued in respect of a Prior
Tyco Option shall be the same as the number of Prior Tyco Shares to which such
Prior Tyco Option related, and the exercise price of such Substitute Option
shall be the same as the exercise price of such Prior Tyco Option. Each
Substitute Option shall have the same term as the original option in respect of
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* In the event the ADT Merger is not consummated, only clause (c) of Section 7
shall be applicable.
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which it is granted, and shall otherwise be subject to all of the other terms
and conditions as applied to such original option. Except to the extent required
to reflect the ADT Merger, in the event of a conflict between the terms of this
Plan and the terms of the Award Agreement by which a Prior Tyco Option was
originally granted, the terms of the Award Agreement shall govern.
(c) All Prior ADT Options Subject to Plan.
From and after the date on which this amended Plan is effective each
outstanding Prior ADT Option will be subject to the terms of this Plan and the
Award Agreement with respect to such Option.
SECTION 8. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan
The Board may amend, alter, suspend, discontinue, or terminate the
Plan without the consent of any shareholder, Participant, other holder or
beneficiary of an Award, or other Person; provided that any such amendment,
alteration, suspension, discontinuation, or termination that would impair
the rights of any Participant, or any other holder or beneficiary of any
Award theretofore granted, shall not to that extent be effective without
the consent of the affected Participant, holder or beneficiary and provided
further, that notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the shareholders of the Company no such
amendment, alteration, suspension, discontinuation, or termination shall be
made that would:
(i) increase the total number of Shares available for Awards under
the Plan, except as provided in Section 4 of the Plan; or
(ii) otherwise cause the Plan to cease to comply with any
applicable law or regulatory requirement with respect to which the Board
determines compliance is necessary or desirable.
(b) Amendments to Awards
The Committee may waive any conditions or rights under, amend any
terms of, or alter, suspend, discontinue, cancel or terminate, any Award
theretofore granted, prospectively or retroactively, without the consent of
any relevant Participant or holder or beneficiary of an Award; provided
that, subject to the Committee's right to adjust Awards pursuant to Section
6(f)(ix) and Section 8(c) and (d), (i) any such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination that
would materially impair the rights of any Participant, or any holder or
beneficiary of any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary; and (ii) without the approval of the shareholders of the
Company, no such waiver, amendment, alteration, suspension, discontinuance,
cancellation or termination that would materially increase the rights of
any Participant or any holder or beneficiary of any Award, shall be
effective unless the Award, after giving effect to such waiver, amendment,
alteration, suspension, discontinuance, cancellation or termination, could
permissibly have been granted under the terms of the Plan (without regard
to this Section 8(b)).
(c) Adjustments of Awards Upon Certain Acquisitions
In the event the Company or any Subsidiary shall assume outstanding
employee awards or the right or obligation to make future employee awards
in connection with the acquisition of another business or another
corporation or business entity, the Committee may make such adjustments,
not inconsistent with the terms of the Plan, in the terms of Awards as it
shall deem appropriate in order to achieve reasonable comparability, or
other equitable relationship between the assumed awards and the Awards as
so adjusted.
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(d) Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events
The Committee is hereby authorized to make adjustments in the terms
and conditions of and the criteria included in, Awards in recognition of
unusual or nonrecurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the Company, any Subsidiary, or
the financial statements of the Company or any Subsidiary, or of changes in
applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, or to be derived by the
Company.
SECTION 9. Change in Control.
(a) In addition to the Committee's authority set forth in Section
8(d), in order to maintain the Participants' rights in the event of any
Change in Control, as hereinafter defined, the Committee, as constituted
before such Change in Control, is hereby authorized, and has sole
discretion, as to any Award, either at the time such Award is made
hereunder or any time thereafter, to take any one or more of the following
actions: (i) provide for the acceleration of any time periods relating to
the exercise or realization of such Award so that such Award may be
exercised or realized in full on or before a date fixed by the Committee;
(ii) provide for the purchase of any such Award, upon the Participant's
request, for an amount of cash equal to the amount that could have been
attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable;
(iii) make such adjustment to any such Award then outstanding as the
Committee deems appropriate to reflect such Change in Control; or (iv)
cause any such Award then outstanding to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation after such
Change in Control. The Committee may, in its discretion, include such
further provisions and limitations in any Award Agreement as it may deem
equitable and in the best interests of the Company.
(b) A "Change in Control" shall mean the occurrence of any of the
following events:
(i) any "person" or "group" (as defined under Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) is or
becomes the direct or indirect "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), of securities representing 50%
or more of the combined voting power of the Company's then outstanding
voting securities;
(ii) individuals who either:
(A) are Directors of the Company at [DATE OF ADOPTION OF AMENDED
PLAN] or subsequently are appointed as Directors of the Company by,
or on the recommendation of, a majority of the Directors in office at
[DATE OF ADOPTION OF AMENDED PLAN]; or
(B) are subsequently appointed as Directors of the Company by,
or on the recommendation of, a majority of those Directors of the
Company referred to in paragraph (A) above,
cease for any reason, other than death or incapacity of a Director or
his retirement at a general meeting of the Company at which he is
re-elected as a Director (but including as a result of any proxy contest
involving the solicitation of revocable proxies under Section 14(a) of
the Exchange Act), to constitute a majority of the Board of Directors of
the Company;
(iii) any "person" or "group" (other than an employee benefit plan
or plans maintained by the Company or its affiliate) comes to possess,
directly or indirectly, the legal right to direct the management and
policies of the Company, whether through the ownership of securities, by
contract or otherwise (other than solely by virtue of membership on the
Board of Directors of the Company or any committee thereof);
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<PAGE> 205
(iv) the Company effects a merger, amalgamation, scheme of
arrangement or other combination in which the Company is not the
surviving entity, or a sale or disposition of all, or substantially all,
of the assets of the Company; or
(v) a merger, amalgamation, scheme of arrangement or other
combination of the Company or any Subsidiary of the Company with or into
another person or any analogous or similar transaction or event occurs
as a result of which the voting rights exercisable at general meetings
of the Company in respect of the shares of the Company in issue
immediately prior to the relevant event no longer represent a majority
of all the voting rights normally exercisable at general meetings of the
Company in respect of the shares of the Company in issue immediately
after such event.
SECTION 10. General Provisions.
(a) No Rights to Awards
No Employee, Director, Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Employees, Directors, Participants, or holders or
beneficiaries of Awards. The terms and conditions of Awards need not be the
same with respect to each recipient. No Participant shall have the rights
of a shareholder with respect to any Award unless and until Shares have
been issued in respect of such Award.
(b) Delegation
Subject to the terms of the Plan and applicable law, the Committee may
delegate to one or more officers or managers of the Company or any
Subsidiary, or to a committee of such officers or managers, the authority,
subject to the terms and limitations as the Committee shall determine, to
grant Awards to, or to cancel, modify or waive rights with respect to, or
to alter, discontinue, suspend, or terminate Awards held by, Employees who
are not officers or directors of the Company for purposes of Section 16 of
the Exchange Act, or any successor section thereto, or who are otherwise
not subject to such Section.
(c) Withholding
The Company or any Subsidiary is hereby authorized to withhold from
any Award, from any payment due or transfer made under any Award or under
the Plan or from any compensation or other amount owing to a Participant
the amount (in cash, Shares, other securities, other Awards or other
property) of any applicable withholding taxes in respect of an Award, its
exercise, or any payment or transfer under an Award or under the Plan and
to take such other action as may be necessary in the opinion of the Company
to satisfy all obligations for the payment of such taxes.
(d) No Limit on Other Compensation Arrangements
Nothing contained in the Plan shall prevent the Company or any
Subsidiary from adopting or continuing in effect other compensation
arrangements (subject to shareholder approval if such approval is
required), and such arrangements may be either generally applicable or
applicable only in specific cases.
(e) No Right to Employment
The grant of an Award shall not be construed as giving a Participant
the right to be retained in the employ of the Company or any Subsidiary.
Further, the Company or a Subsidiary may at any time dismiss a Participant
from employment, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award Agreement.
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<PAGE> 206
(f) Governing Law
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
laws of Bermuda. In addition, the Committee may amend the terms of the Plan
and any Awards or Award Agreement in order to comply with the laws of
Bermuda or the laws of any other applicable jurisdiction.
(g) Severability
If any provision of the Plan or any Award is or becomes or is deemed
to be invalid, illegal, or unenforceable in any jurisdiction or as to any
Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be construed
or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan of the Award, such provision
shall be stricken as to such jurisdiction, Person or Award and the
remainder of the Plan and any such Award shall remain in full force and
effect.
(h) Additional Powers
The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and
any payment tendered to the Company by a Participant, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Participant, holder or beneficiary.
(i) No Trust or Fund Created
Neither the Plan nor any Award shall create or be construed to create
a trust or separate fund of any kind or a fiduciary relationship between
the Company or any Subsidiary and a Participant or any other Person. To the
extent that any Person acquires a right to receive payments from the
Company or any Subsidiary pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or
any Subsidiary.
(j) No Fractional Shares
No fractional Shares shall be issued or delivered pursuant to the Plan
or any Award, and the Committee shall determine whether cash, other
securities, or other property shall be paid or transferred in lieu of any
fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated or otherwise eliminated.
(k) Headings
Headings are given to the Sections and subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed
in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 11. Effective Date of the Plan.
This amended Plan shall be effective as of the date of its approval, as
amended, by the shareholders of the Company.
SECTION 12. Term of the Plan.
No Award shall be granted under the Plan after June 30, 2007. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may, and the authority of the Board or
the Committee to amend, alter, adjust, suspend, discontinue, or terminate any
such Award or to waive any conditions or rights under any such Award shall,
extend beyond such date.
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<PAGE> 207
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bye-Law 102 of the ADT Bye-Laws provides, in part, that ADT shall indemnify
its directors and officers for all costs, losses and expenses which they may
incur in the performance of their duties as director or officer, provided that
such indemnification is not otherwise prohibited under the Companies Act 1981
(as amended) of Bermuda. Section 98 of the Companies Act 1981 (as amended)
prohibits such indemnification against any liability arising out of the fraud or
dishonesty of the director or officer. However, such section permits ADT to
indemnify a director or officer against any liability incurred by him in
defending any proceedings, whether civil or criminal, in which judgement is
given in his favor or in which he is acquitted or when other similar relief is
granted to him.
ADT maintains liability insurance covering its directors and officers and
those of its subsidiaries.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2.1 -- Agreement and Plan of Merger by and among ADT Limited, Limited
Apache, Inc. and Tyco International Ltd. dated as of March 17,
1997.(1)
4.1 -- Indenture relating to the senior notes dated August 4, 1993 among
ADT Operations, Inc., as issuer, and ADT Limited and certain
subsidiaries of ADT Operations, Inc., as guarantors, and The Chase
Manhattan Bank (National Association), as trustee, and the form of
senior notes included therein.(2)
4.2 -- Indenture relating to the senior subordinated notes dated August
4, 1993 among ADT Operations, Inc., as issuer, and ADT Limited, as
guarantor, and NationsBank of Georgia, National Association, as
trustee, and the form of senior subordinated note included
therein.(2)
4.3 -- Indenture dated as of July 1, 1995 among ADT Operations, Inc., ADT
Limited and Bank of Montreal Trust Company, as trustee and the
form of note included therein.(3)
4.4 -- Rights Agreement between ADT Limited and Citibank, N.A. dated as
of November 6, 1996.(4)
4.5 -- First Amendment between ADT Limited and Citibank, N.A. dated as of
March 3, 1997 to Rights Agreement between ADT Limited and
Citibank, N.A. dated as of November 6, 1996.(5)
5.1 -- Opinion of Appleby, Spurling & Kempe regarding the validity of the
Combined Company Common Shares to be issued to the Tyco
Shareholders. (filed herewith)
8.1 -- Opinion of Kramer, Levin, Naftalis & Frankel regarding tax
matters. (filed herewith)
8.2 -- Opinion of Davis Polk & Wardwell regarding tax matters. (filed
herewith)
8.3 -- Opinion of Allen & Overy regarding tax matters. (filed herewith)
8.4 -- Opinion of Appleby, Spurling & Kempe regarding tax matters. (filed
herewith)
10.1 -- ADT Limited 1993 Long Term Incentive Plan (as amended
____________, 1997).(6)
23.1 -- Consent of independent accountants to the incorporation by
reference of the ADT Annual Report on Form 10-K into Form S-4.
(filed herewith)
23.2 -- Consent of independent accountants to the incorporation by
reference of the Tyco Annual Report on Form 10-K into Form S-4.
(filed herewith)
23.3 -- Consent of Appleby, Spurling & Kempe. (included in Exhibits 5.1
and 8.4)
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<PAGE> 208
23.4 -- Consent of Kramer, Levin, Naftalis & Frankel. (included in Exhibit
8.1)
23.5 -- Consent of Davis Polk & Wardwell. (included in Exhibit 8.2)
23.6 -- Consent of Allen & Overy. (included in Exhibit 8.3)
23.7 -- Consent of Credit Suisse First Boston Corporation. (filed
herewith)
23.8 -- Consent of Merrill, Lynch, Pierce Fenner & Smith Incorporated.
(filed herewith)
24.1-- Powers of Attorney.*
- ---------------
(1) Included as Annex I to the Joint Proxy Statement/Prospectus which forms a
part of this Registration Statement.
(2) Previously filed as an Exhibit to ADT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
(3) Previously filed as an Exhibit to ADT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(4) Previously filed as an Exhibit to ADT's Form 8-A dated November 12, 1996.
(5) Previously filed as an Exhibit to ADT's Form 8-A/A dated March 3, 1997.
(6) Included as Annex V to the Joint Proxy Statement/Prospectus which forms a
part of this Registration Statement.
* Previously filed
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the 1933 Act, as
amended, may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes as follows:
(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party which is deemed to be an underwriter
within the meaning of Rule 145(c) under the 1933 Act, such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) Every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the 1933 Act and is used in connection with an offering
of securities subject to Rule 415 under the 1933 Act, will be filed as a
part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining
any liability under the 1933 Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
II-2
<PAGE> 209
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request. The undersigned Registrant hereby further
undertakes to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of or included in the registration statement when it became
effective.
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<PAGE> 210
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED PERSON, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF BOCA RATON, STATE OF FLORIDA, ON JUNE 3, 1997.
ADT LIMITED
By: /s/ STEPHEN J. RUZIKA
--------------------------------------
Name: Stephen J. Ruzika
Title: Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES INDICATED ON JUNE 3, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ -----------------------------
<C> <S> <C>
* Chairman of the Board of
- ------------------------------------------ Directors and Chief
Michael A. Ashcroft Executive Officer
(Principal Executive
Officer)
/s/ STEPHEN J. RUZIKA Chief Financial Officer
- ------------------------------------------ (Principal Financial
Stephen J. Ruzika Officer and Principal
Accounting Officer)
* Director
- ------------------------------------------
John E. Danneberg
* Director
- ------------------------------------------
Alan B. Henderson
* Director
- ------------------------------------------
James S. Pasman, Jr.
* Director
- ------------------------------------------
W. Peter Slusser
* Director
- ------------------------------------------
William W. Stinson
* Director
- ------------------------------------------
Raymond S. Troubh
*By: /s/ STEPHEN J. RUZIKA
- ------------------------------------------
Stephen J. Ruzika
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 211
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF TYCO INTERNATIONAL LTD.
The undersigned hereby appoints L. Dennis Kozlowski and Mark H. Swartz,
and each of them, proxies with power of substitution to vote for and on behalf
of the undersigned at the Special Meeting of Shareholders of Tyco International
Ltd. (the "Company") to be held at The Helmsley Park Lane Hotel, 36 Central Park
South, New York, New York 10019 on July 2, 1997, at 10:00 a.m. and at any
adjournment thereof, all shares of Common Stock of record in the name of the
undersigned, hereby granting full power and authority to act on behalf of the
undersigned at the said meeting, and any adjournment thereof.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE, SUCH SHARES SHALL BE VOTED "FOR" ITEM (1) AND "FOR" ITEM (2).
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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<PAGE> 212
Please mark your
votes as indicated
in this example. [X]
THE BOARD OF DIRECTORS OF TYCO RECOMMENDS THAT YOU VOTE FOR ITEMS NOS. 1 AND 2.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(1) Approval of the Merger of the Company with Limited
Apache, Inc. ("Apache"), a wholly owned subsidiary
of ADT Limited ("ADT"), and of the Agreement and
Plan of Merger among ADT, Apache and the Company
attached as Annex I to the accompanying Joint Proxy
Statement/Prospectus.
FOR AGAINST ABSTAIN
(2) To authorize the proxy to vote in favor of any
proposal to adjourn the Special Meeting to a later [ ] [ ] [ ]
date which is proposed or recommended by the
Chairman of the Special Meeting and against any
other proposal to adjourn the Special Meeting to
a later date.
(3) Upon such other matters which may properly come
before the Special Meeting or any adjournment
thereof.
The undersigned hereby revokes any proxy previously given and acknowledges
receipt of written notice of, and the Joint Proxy Statement/Prospectus for, the
Special Meeting of Shareholders.
Signature(s) __________________________________ Dated: __________________, 1997
Please sign exactly as your name appears on this card. If shares are registered
in the names of two or more persons, each should sign. Executors,
administrators, guardians, attorneys, and corporate officers should add their
titles.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 213
PROXY
ADT LOGO
THIS PROXY CARD MUST BE RECEIVED, AT THE APPROPRIATE ADDRESS INDICATED
BELOW, BY D.F. KING & CO., INC., PRIOR TO 10:00 A.M. (EASTERN DAYLIGHT TIME)
ON JULY 1, 1997 OR BY D.F. KING (EUROPE) LIMITED, PRIOR TO 10:00 A.M.
(BRITISH SUMMER TIME) ON JULY 1, 1997, OR BY AS&K SERVICES LIMITED,
PRIOR TO 10:00 A.M. (BERMUDA TIME) ON JULY 1, 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 2, 1997 AT 10:00 A.M.
The undersigned, being a holder of common shares, par value $0.10 per share (the
"ADT Common 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 2, 1997 (and any
adjournment thereof) and to vote on behalf of the undersigned (or abstain from
voting) as indicated on the reverse of this card or, to the extent that no such
indication is given, as set forth herein. The Special General Meeting has been
convened to consider proposals (1) to approve the issuance of ADT Common Shares
in the merger (the "Merger") of a subsidiary of ADT and Tyco International Ltd.
("Tyco"); (2) to approve a reverse stock split of the ADT Common Shares and to
increase the authorized share capital of ADT and to approve the issuance of
those shares; (3) to expand the size of the Board of Directors to eleven, remove
all but three of the current directors and to elect eight new directors; (4) to
approve a change in the name of ADT to Tyco International Ltd. (the "Merger
Proposals"); (5) to approve certain changes to ADT's 1993 Long Term Incentive
Plan and to ratify the assumption by ADT of certain Tyco options and warrants
and the grant of existing ADT options; (6) to approve an amendment to Bye-Law 45
of ADT's Bye-Laws and (7) to approve an increase in the authorized share capital
of ADT not in connection with the Merger and to approve the issuance of those
shares (the "Other ADT Meeting Proposals"). In his discretion, the proxy is
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 forms of proxy with respect
to the Special General Meeting.
_______________________________________________________________________________
PLEASE INDICATE ON THE REVERSE OF THIS CARD HOW YOUR SHARES ARE TO BE VOTED.
THE ADT BOARD RECOMMENDS A VOTE FOR EACH OF THE MERGER PROPOSALS, FOR THE OTHER
ADT MEETING PROPOSALS AND FOR ITEM NO.8. 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 FOR EACH OF THE MERGER PROPOSALS, FOR THE
OTHER ADT MEETING PROPOSALS AND FOR ITEM NO.8.
_______________________________________________________________________________
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,
New York 10269-0069, USA (if by mail), or
D.F. King (Europe) Limited, Royex House, Aldermanbury Square,
London EC2V 74HR, United Kingdom (by hand or mail), or
AS&K Services Limited, Cedar House, 41 Cedar Avenue, P.O. Box 1179,
Hamilton HM EX, Bermuda (by hand or mail).
An instrument evidencing the appointment of a corporate representative may
be delivered to any of the above addresses up to 9:00 a.m. on July 2, 1997.
_______________________________________________________________________________
IF YOU HAVE QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT D.F. KING at
1-800-488-8035 (toll-free in the United States), at 0171-600-5005 (in the
United Kingdom) or at 212-269-5550 (outside the United States and the United
Kingdom)
- -------------------------------------------------------------------------------
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<PAGE> 214
Please mark your
votes as indicated
in this example. [X]
I. MERGER PROPOSALS
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR EACH OF THE
MERGER PROPOSALS. ---
FOR AGAINST ABSTAIN
1. To approve the issuance of ADT Common Shares to [ ] [ ] [ ]
Tyco shareholders in connection with the merger
(the "Merger") of a subsidiary of ADT and Tyco
FOR AGAINST ABSTAIN
2. To approve the reverse stock split and to [ ] [ ] [ ]
increase the authorized number of ADT Common
Shares and to approve the issuance of those
shares
FOR AGAINST ABSTAIN
3. To expand the size of the Board of Directors to [ ] [ ] [ ]
eleven, remove all but three of the current
directors and to elect eight new directors.
FOR AGAINST ABSTAIN
4. To approve a change in the name of ADT to Tyco [ ] [ ] [ ]
International Ltd.
EACH OF RESOLUTIONS 1 THROUGH 4 IS CONDITIONAL UPON THE MERGER BECOMING
EFFECTIVE
II. OTHER ADT MEETING PROPOSALS
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR ITEMS 5,
6 AND 7. ---
FOR AGAINST ABSTAIN
5. To approve amendments to the ADT Limited 1993 [ ] [ ] [ ]
Long Term Incentive Plan and to ratify and
approve the grant of all share options pursuant
to that plan and the Company's other share
option and incentive plans and, subject to the
Merger becoming effective, the assumption by
the Company of Tyco's obligations under its
share option and incentive plans and warrants.
FOR AGAINST ABSTAIN
6. To approve an amendment to Bye-Law 45, subject [ ] [ ] [ ]
to proposals 1 through 4 above being approved.
7. To approve an increase in the authorized number FOR AGAINST ABSTAIN
of ADT Common Shares and to approve the issuance [ ] [ ] [ ]
of those shares.
III. PROPOSAL TO ADJOURN THE SPECIAL GENERAL MEETING
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR ITEM NO. 8.
---
FOR AGAINST ABSTAIN
8. To authorize the proxy to vote in favor of any [ ] [ ] [ ]
proposal to adjourn the Special General Meeting
to a later date which is proposed or recommended
by the Chairman of the Special General Meeting
and against any other proposal to adjourn the
Special General Meeting to a later date.
Signature(s) (and Title(s), if any) ______________________ Date: _________, 1997
Please sign your name above 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.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 215
ADT LOGO
FORM OF PROXY
FOR ADT LIMITED JULY 2, 1997
SPECIAL GENERAL MEETING OF SHAREHOLDERS
PROXY
THIS PROXY CARD MUST BE RECEIVED, AT THE APPROPRIATE ADDRESS INDICATED BELOW,
BY D.F. KING & CO., INC., PRIOR TO 10:00 A.M. (EASTERN DAYLIGHT TIME) ON
JULY 1, 1997 OR BY D.F. KING (EUROPE) LIMITED, PRIOR TO 10:00 A.M. (BRITISH
SUMMER TIME) ON JULY 1, 1997, OR BY AS&K SERVICES LIMITED, PRIOR TO 10:00 A.M.
(BERMUDA TIME) ON JULY 1, 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 2, 1997 AT 10:00 A.M.
The undersigned, being a holder of common shares, par value $0.10 per share (the
"ADT Common 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 2, 1997 (and any
adjournment thereof) and to vote on behalf of the undersigned (or abstain from
voting) as indicated on the reverse of this card or, to the extent that no such
indication is given, as set forth herein. The Special General Meeting has been
convened to consider proposals (1) to approve the issuance of ADT Common Shares
in the merger (the "Merger") of a subsidiary of ADT and Tyco International Ltd
("Tyco"); (2) to approve a reverse stock split of the ADT Common Shares and to
increase the authorized share capital of ADT and to approve the issuance of
those shares; (3) to expand the size of the Board of Directors to eleven, remove
all but three of the current directors and to elect eight new directors; (4) to
approve a change in the name of ADT to Tyco International Ltd. (the "Merger
Proposals"); (5) to approve certain changes to ADT's 1993 Long Term Incentive
Plan and to ratify the assumption by ADT of certain Tyco options and warrants
and the grant of existing ADT options; (6) to approve an amendment to Bye-Law 45
of ADT's Bye-Laws; and (7) to approve an increase in the authorized share
capital of ADT not in connection with the Merger and to approve the issuance of
those shares (the "Other ADT Meeting Proposals"). In his discretion, the proxy
is 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 forms of proxy with respect
to the Special General Meeting.
PLEASE INDICATE ON THE REVERSE OF THIS CARD HOW YOUR SHARES ARE TO BE VOTED.
THE ADT BOARD RECOMMENDS A VOTE FOR EACH OF THE MERGER PROPOSALS, FOR THE OTHER
ADT MEETING PROPOSALS AND FOR ITEM NO. 8. 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 FOR EACH OF THE MERGER PROPOSALS, FOR
THE OTHER ADT MEETING PROPOSALS AND FOR ITEM NO. 8.
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, New York 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, 41 Cedar Avenue, P.O. Box 1179, Hamilton HM EX, Bermuda (by hand
or mail). An instrument evidencing the appointment of a corporate
representative may be delivered to any of the above addresses up to 9:00 a.m.
on July 2, 1997.
IF YOU HAVE QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT D.F.KING at
1-800-488-8035 (toll-free in the United States), at 0171-600-5005 (in the
United Kingdom) or at 212-269-5550 (outside the United States and the United
Kingdom)
PLEASE SIGN AND DATE ON REVERSE SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 216
Please mark
your votes as
indicated in
this example. [X]
I. MERGER PROPOSALS
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR EACH OF THE
MERGER PROPOSALS.
1. To approve the issuance of ADT Common Shares FOR AGAINST ABSTAIN
to Tyco shareholders in connection with the [ ] [ ] [ ]
merger (the "Merger") of a subsidiary of ADT
and Tyco.
2. To approve the reverse stock split and to FOR AGAINST ABSTAIN
increase the authorized number of ADT Common [ ] [ ] [ ]
Shares and to approve the issuance of those shares.
3. To expand the size of the Board of Directors to FOR AGAINST ABSTAIN
eleven, remove all but three of the current [ ] [ ] [ ]
directors and to elect eight new directors.
4. To approve a change in the name of ADT to Tyco FOR AGAINST ABSTAIN
International Ltd. [ ] [ ] [ ]
EACH OF RESOLUTIONS 1 THROUGH 4 IS CONDITIONAL UPON THE MERGER BECOMING
EFFECTIVE
II. OTHER ADT MEETING PROPOSALS
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR ITEMS 5, 6
AND 7.
5. To approve amendments to the ADT Limited 1993 FOR AGAINST ABSTAIN
Long Term Incentive Plan and to ratify and [ ] [ ] [ ]
approve the grant of all share options pursuant to
that plan and the Company's other share option and
incentive plans and, subject to the Merger becoming
effective, the assumption by the Company of Tyco's
obligations under its share option and incentive
plans and warrants.
6. To approve an amendment to Bye-Law 45, subject to FOR AGAINST ABSTAIN
proposals 1 through 4 above being approved. [ ] [ ] [ ]
7. To approve an increase in the authorized number FOR AGAINST ABSTAIN
of ADT Common Shares and to approve the issuance [ ] [ ] [ ]
of those shares.
III. PROPOSAL TO ADJOURN THE SPECIAL GENERAL MEETING
THE BOARD OF DIRECTORS OF ADT LIMITED RECOMMENDS THAT YOU VOTE FOR ITEM NO. 8.
8. To authorize the proxy to vote in favor of any FOR AGAINST ABSTAIN
proposal to adjourn the Special General Meeting [ ] [ ] [ ]
to a later date which is proposed or recommended
by the Chairman of the Special General Meeting
and against any other proposal to adjourn the
Special General Meeting to a later date.
Signature(s)(and Title(s), if any) Date: , 1997
-------------------------- --------
Please sign your name above 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.
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
<PAGE> 217
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Merger by and among ADT Limited, Limited Apache,
Inc. and Tyco International Ltd. dated as of March 17, 1997.(1)..........
4.1 -- Indenture relating to the senior notes dated August 4, 1993 among ADT
Operations, Inc., as issuer, and ADT Limited and certain subsidiaries of
ADT Operations, Inc., as guarantors, and The Chase Manhattan Bank
(National Association), as trustee, and the form of senior notes included
therein.(2)..............................................................
4.2 -- Indenture relating to the senior subordinated notes dated August 4, 1993
among ADT Operations, Inc., as issuer, and ADT Limited, as guarantor, and
NationsBank of Georgia, National Association, as trustee, and the form of
senior subordinated note included therein.(2)............................
4.3 -- Indenture dated as of July 1, 1995 among ADT Operations, Inc., ADT
Limited and Bank of Montreal Trust Company, as trustee and the form of
note included therein.(3)................................................
4.4 -- Rights Agreement between ADT Limited and Citibank, N.A. dated as of
November 6, 1996.(4).....................................................
4.5 -- First Amendment between ADT Limited and Citibank, N.A. dated as of March
3, 1997 to Rights Agreement between ADT Limited and Citibank, N.A. dated
as of November 6, 1996.(5)...............................................
5.1 -- Opinion of Appleby, Spurling & Kempe regarding the validity of the
Combined Company Common Shares to be issued to the Tyco Shareholders.
(filed herewith).........................................................
8.1 -- Opinion of Kramer, Levin, Naftalis & Frankel regarding tax matters.
(filed herewith).........................................................
8.2 -- Opinion of Davis Polk & Wardwell regarding tax matters. (filed
herewith)................................................................
8.3 -- Opinion of Allen & Overy regarding tax matters. (filed herewith).........
8.4 -- Opinion of Appleby, Spurling & Kempe regarding tax matters. (filed
herewith)................................................................
10.1 -- ADT Limited 1993 Long Term Incentive Plan (as amended ____________,
1997).(6)................................................................
23.1 -- Consent of independent accountants to the incorporation by reference of
the ADT Annual Report on Form 10-K into Form S-4. (filed herewith).......
23.2 -- Consent of independent accountants to the incorporation by reference of
the Tyco Annual Report on Form 10-K into Form S-4. (filed herewith)......
23.3 -- Consent of Appleby, Spurling & Kempe. (included in Exhibits 5.1 and
8.4).....................................................................
23.4 -- Consent of Kramer, Levin, Naftalis & Frankel. (included in Exhibit
8.1).....................................................................
23.5 -- Consent of Davis Polk & Wardwell. (included in Exhibit 8.2)..............
23.6 -- Consent of Allen & Overy. (included in Exhibit 8.3)......................
23.7 -- Consent of Credit Suisse First Boston Corporation. (filed herewith)......
23.8 -- Consent of Merrill, Lynch, Pierce Fenner & Smith Incorporated. (filed
herewrith)...............................................................
24.1 -- Powers of Attorney.*.....................................................
</TABLE>
- ---------------
(1) Included as Annex I to the Joint Proxy Statement/Prospectus which forms a
part of this Registration Statement.
(2) Previously filed as an Exhibit to ADT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
<PAGE> 218
(3) Previously filed as an Exhibit to ADT's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(4) Previously filed as an Exhibit to ADT's Form 8-A dated November 12, 1996.
(5) Previously filed as an Exhibit to ADT's Form 8-A/A dated March 3, 1997.
(6) Included as Annex V to the Joint Proxy Statement/Prospectus which forms a
part of this Registration Statement.
* Previously filed
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF APPLEBY, SPURLING & KEMPE]
3 June 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
U.S.A.
ADT Limited
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
Ladies and Gentlemen:
Re: Registration Statement on Form S-4
Registration No. 333-24363
---------------------------------------------
We have acted as attorneys in Bermuda for ADT Limited, a Bermuda limited
liability company ("ADT") in connection with the proposed merger of Limited
Apache, Inc., a Massachusetts corporation and a wholly owned subsidiary of ADT,
into Tyco International Ltd. ("Tyco") pursuant to the Agreement and Plan of
Merger dated as of March 17, 1997 among Tyco, ADT and Merger Subsidiary (the
"Merger Agreement").
This opinion is based upon and confined to the laws of Bermuda presently in
force as currently applied by the Courts of Bermuda. We have made no
investigation of, nor do we express any opinion as to, the laws of any
jurisdiction other than Bermuda.
In order to render this opinion, we have been supplied with and have
reviewed and relied upon the following documents:
(a) the Certificate of Incorporation, Memorandum of Association and
Bye-laws of ADT;
(b) a copy, certified by Mr. Stephen Ruzika, a Director of ADT, of the
resolutions adopted by the Board of Directors of ADT at a meeting held on
March 16, 1997 (the "Board Resolutions");
(c) a copy of the Notice of Special General Meeting of ADT (the
"Notice") to be held on July 2, 1997 (the "Special Meeting");
(d) a copy of the Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") that is part of the Registration Statement on Form
S-4 (Registration No. 333-24363) (the "Registration Statement") filed by
ADT and Tyco with the Securities and Exchange Commission; and
(e) a copy of the permission given by the Bermuda Monetary Authority
under the Exchange Control Act (1972) and related regulations for the issue
of the Combined Company Common Shares.
We have also relied upon our searches of documents of public record
maintained by the Registrar of Companies in Bermuda and of the Causes Book of
the Supreme Court of Bermuda made on May 27, 1997 (the "Searches").
<PAGE> 2
We have assumed:
(i) that there is no provision of the law, regulation or public policy
of any jurisdiction, other than Bermuda, which might have a material effect
on any of the opinions herein expressed;
(ii) that all matters of fact appearing in the Board Resolutions and
the Joint Proxy Statement/Prospectus are true and complete in all material
respects;
(iii) the genuineness of all signatures on each of the documents
examined by us;
(iv) the conformity to original documents, of all documents produced
to us as copies and the authenticity of all original documents which, or
copies of which, have been submitted to us; and
(v) that the information disclosed by our Searches has not been
materially altered and the Searches did not fail to disclose any material
information which had been delivered for filing or registration, but was
not disclosed or did not appear on the public file at the time of the
Searches.
Unless otherwise defined herein, terms defined in the Joint Proxy
Statement/Prospectus have the same meanings when used in this opinion.
Based upon the foregoing, subject to the reservations set out below, and to
any matters not disclosed to us, we are of the opinion that:
(1) ADT has been duly incorporated as a limited liability company and is
validly existing and in good standing under the laws of Bermuda and has all
requisite corporate power and authority to issue the Combined Company Common
Shares.
(2) All necessary action required pursuant to Bermuda law has been taken by
or on behalf of ADT and all the necessary authorizations and approvals of
Governmental authorities in Bermuda have been duly obtained for the issue of the
Combined Company Common Shares.
(3) When issued to Tyco shareholders in the Merger, the Combined Company
Common Shares will be duly issued and will be outstanding as fully paid and
non-assessable shares of the Combined Company.
(4) The issuance of the Combined Company Common Shares to Tyco shareholders
in the Merger will not breach or conflict with and will not constitute a default
or violation of any of the terms or provisions of the Combined Company's
Memorandum of Association, Certificate of Incorporation or Bye-laws, including
as amended pursuant to the Merger.
(5) Under Bermuda law, the liability of the holders of Combined Company
Common Shares in respect of obligations of the Combined Company is limited to
the amount unpaid in respect of their Combined Company Common Shares, to the
extent that there is no contract or agreement providing otherwise made between
the holders of the Combined Company Common Shares and the Combined Company.
(6) There are no taxes, duties or other charges payable to or chargeable by
the Government of Bermuda, or any authority or agency thereof, in respect of the
issue of the Combined Company Common Shares.
Our reservations are:
A. The power and authority of ADT to issue the Combined Company Common
Shares is dependent upon the adoption by the shareholders of ADT of resolutions
related to the Merger to be presented by the Board of Directors of ADT at the
Special Meeting and having the effect described in the Notice.
B. Any reference in this opinion to shares being "non-assessable" shall
mean, in relation to fully paid shares of the Combined Company and subject to
any contrary provision in any agreement in writing between such company and the
holder of such shares, that no shareholder shall be bound by an alteration to
the Memorandum of Association or Bye-laws of the Combined Company after the date
on which he became a shareholder, if and so far as the alteration requires him
to take, or subscribe for additional
<PAGE> 3
shares, or in any way increases his liability to contribute to the share capital
of, or otherwise to pay money to, the Combined Company.
C. We express no opinion as to any law other than Bermuda law and none of
the opinions expressed herein relates to compliance with or matters governed by
the laws of any jurisdiction except Bermuda.
This opinion is addressed to you in connection with the registration of the
Combined Company Common Shares with the Securities and Exchange Commission and
is not to be made available to any other person or entity, or for any other
purpose, without our prior written consent.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement. We also consent to the references to our Firm under the
captions "Legal Matters" and "Certain United States Federal Income, United
Kingdom and Bermuda Tax Consequences--Bermuda" in the Joint Proxy
Statement/Prospectus. In giving this consent we do not concede that we are an
"expert" for the purposes of the Securities Act of 1933.
This opinion is to be governed by and construed in accordance with the laws
of Bermuda and shall not give rise to legal proceedings in any jurisdiction
other than Bermuda.
Yours faithfully,
Appleby, Spurling & Kempe
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF KRAMER, LEVIN, NAFTALIS & FRANKEL]
June 3, 1997
Tyco International Ltd.
One Tyco Park
Exeter, New Hampshire 03833
Re: Registration Statement on Form S-4
Registration No. 333-24363
----------------------------------------------
Gentlemen:
We have acted as counsel to Tyco International Ltd., a Massachusetts
corporation ("Tyco"), in connection with the planned merger (the "Merger") of
Limited Apache, Inc. ("Merger Sub"), a Massachusetts corporation and a
wholly-owned subsidiary of ADT Limited, a Bermuda corporation ("ADT"), with and
into Tyco on the terms set forth in the Agreement and Plan of Merger dated as of
March 17, 1997 among Tyco, Merger Sub, and ADT (the "Merger Agreement").
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the final Joint Proxy Statement/Prospectus
included in Registration Statement No. 333-24363, as amended, filed by ADT and
Tyco with the Securities and Exchange Commission (the "Joint Proxy
Statement/Prospectus"), and (iii) such other documents, records, and instruments
as we have deemed necessary or appropriate as a basis for our opinion.
In addition, we have assumed that (i) the Merger will be consummated in
accordance with the Merger Agreement and as described in the Joint Proxy
Statement/Prospectus (including satisfaction of all covenants and conditions to
the obligations of the parties without amendment or waiver thereof); (ii) the
Merger will qualify as a merger under the applicable laws of Massachusetts; and
(iii) the Merger Agreement and all other documents and instruments referred to
therein or in the Joint Proxy Statement/Prospectus are valid and binding in
accordance with their terms.
Any inaccuracy in, or breach of, any of the aforementioned agreements,
documents, or assumptions or any change after the date hereof in applicable law
could adversely affect our opinion. No ruling has been (or will be) sought from
the Internal Revenue Service by Tyco, ADT, or Merger Sub as to the federal
income tax consequences of any aspect of the Merger.
Based upon and subject to the foregoing as well as the limitations set
forth below, it is our opinion, under presently applicable federal income tax
law, that:
(1) Upon the exchange of Tyco Common Shares for Combined Company
Common Shares pursuant to the Merger, each Tyco shareholder that is a
United States Holder will recognize gain in an amount equal to the excess,
if any, of (x) the fair market value of the Combined Company Common Shares
received over (y) the Tyco shareholder's adjusted tax basis in the Tyco
Common Shares which are exchanged therefor.
(2) Such gain will be capital gain if the Tyco shareholder holds the
Tyco Common Shares as a capital asset, and will be long-term gain if the
Tyco shareholder's holding period for the Tyco Common Shares is more than
one year.
(3) A Tyco shareholder that realizes a loss upon the exchange will not
recognize such loss for federal income tax purposes.
(4) A Tyco shareholder that recognizes gain for U.S. federal income
tax purposes upon the exchange will have a tax basis in the Combined
Company Common Shares received equal to their fair market value, and such
shareholder's holding period for the Combined Company Common Shares will
begin on the day following the date of the exchange.
<PAGE> 2
(5) A Tyco shareholder that realizes but is unable to recognize a loss
for U.S. federal income tax purposes will have a tax basis in the Combined
Company Common Shares received equal to the shareholder's basis in the Tyco
Common Shares exchanged therefor, and the shareholder's holding period for
the Combined Company Common Shares will include the holding period of the
Tyco Common Shares which are exchanged therefor.
The tax consequences described above may not be applicable to Tyco
shareholders subject to special treatment under certain federal income tax laws,
such as dealers in securities, financial institutions, insurance companies,
tax-exempt organizations, non-United States persons, and shareholders who
acquired Tyco Common Shares pursuant to the exercise of Tyco options or similar
derivative securities or otherwise as compensation.
No opinion is expressed as to any matter not specifically addressed above.
Also, no opinion is expressed as to the tax consequences of any of the
transactions under any foreign, state, or local tax law. Furthermore, our
opinion is based on current federal income tax law and administrative practice,
and we do not undertake to advise you as to any changes after the Effective Time
(as defined in the Merger Agreement) in federal income tax law or administrative
practice that may affect our opinion unless we are specifically asked to do so.
We hereby consent to the filing of this opinion as an exhibit to the
aforementioned Registration Statement and to the references to this firm under
the captions "Legal Matters" and "Certain United States Federal Income, United
Kingdom and Bermuda Tax Consequences--United States--The Merger" in the
Registration Statement and the Joint Proxy Statement/Prospectus which is a part
thereof. The giving of this consent, however, does not constitute an admission
that we are "experts" within the meaning of Section 11 of the Securities Act of
1933, as amended, or within the category of persons whose consent is required by
Section 7 of said Act.
Very truly yours,
Kramer, Levin, Naftalis & Frankel
<PAGE> 1
EXHIBIT 8.2
[LETTERHEAD OF DAVIS POLK & WARDWELL]
JUNE 3, 1997
ADT Limited
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
Re: Registration Statement on Form S-4
Registration No. 333-24363
---------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel for ADT Limited, a Bermuda corporation
("ADT"), in connection with the proposed merger of Limited Apache, Inc., a
Massachusetts corporation and a wholly owned subsidiary of ADT ("Merger
Subsidiary"), with and into Tyco International Ltd. ("Tyco"), pursuant to the
Agreement and Plan of Merger dated as of March 17, 1997 among Tyco, ADT and
Merger Subsidiary (the "Merger Agreement"). In connection therewith, we have
prepared the discussion set forth in the two paragraphs under the caption
"Certain United States Federal Income, United Kingdom and Bermuda Tax
Consequences--United States" that are entitled "The Reverse Stock Split" and
"Holding Combined Company Common Shares," respectively, (the "Discussion") in
the Joint Proxy Statement/Prospectus (the "Joint Proxy Statement/Prospectus")
that is part of the Registration Statement on Form S-4 (Registration No.
333-24363) (the "Registration Statement") filed by ADT and Tyco with the
Securities and Exchange Commission.
In rendering our opinion, we have reviewed and relied upon originals or
copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed necessary
or appropriate in connection with this opinion. It is our opinion that the
material United States federal income tax consequences for shareholders of ADT
of the reverse stock split of ADT common shares contemplated by the Merger
Agreement and of the material United States federal income tax consequences of
holding combined company common shares are as set forth in the Discussion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the uses of our name under the captions "Legal
Matters" and "Certain United States Federal Income, United Kingdom and Bermuda
Tax Consequences--United States" in the Joint Proxy Statement/Prospectus. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
Davis Polk & Wardwell
<PAGE> 1
EXHIBIT 8.3
[LETTERHEAD OF ALLEN & OVERY]
JUNE 3, 1997
ADT LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12
BERMUDA
REGISTRATION STATEMENT ON FORM S-4
REGISTRATION NO. 333-24363
Dear Sirs,
We have acted as special legal advisers in England for ADT Limited, a
Bermuda company ("ADT"), in connection with the proposed merger of Tyco
International Ltd. ("Tyco") into Limited Apache, Inc., a Massachusetts
corporation and a wholly owned subsidiary of ADT ("Merger Subsidiary"), pursuant
to the Agreement and Plan of Merger dated as of March 17, 1997 among Tyco, ADT
and Merger Subsidiary (the "Merger Agreement"). In connection therewith, we have
prepared the discussion as to the position of shareholders of ADT set forth
under the caption "Certain United States Federal Income, United Kingdom and
Bermuda Tax Consequences--United Kingdom" (the "Discussion") in the Joint Proxy
Statement/Prospectus (the "Joint Proxy Statement/Prospectus") that is part of
the Registration Statement on Form S-4 (Registration No. 333-24363) (the
"Registration Statement") filed by ADT and Tyco with the Securities and Exchange
Commission.
In rendering our opinion, we have assumed that ADT is not managed and
controlled in the United Kingdom and that the reverse stock split of ADT common
shares contemplated by the Merger Agreement will be effected in the manner
described in the Joint Proxy Statement/Prospectus.
It is our opinion that the material United Kingdom tax consequences for
shareholders of ADT of the reverse stock split of ADT common shares contemplated
by the Merger Agreement and of the material United Kingdom tax consequences of
holding combined company common shares are as set forth in the Discussion. Our
opinion is confined to such matters. We express no opinion as to the laws of
Bermuda, the United States of America or any other territory or jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the uses of our name under the captions "Legal
Matters" and "Certain United States Federal Income, United Kingdom and Bermuda
Tax Consequences--United Kingdom" in the Joint Proxy Statement/Prospectus. In
giving this consent we do not concede that we are "experts" for the purposes of
the United States Securities Act of 1933.
Yours faithfully,
Allen & Overy
<PAGE> 1
EXHIBIT 8.4
[LETTERHEAD OF APPLEBY, SPURLING & KEMPE]
3 June 1997
ADT Limited
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
Dear Sirs:
Re: Registration Statement on Form S-4
Registration No. 333-24363
---------------------------------------------
We have acted as attorneys in Bermuda for ADT Limited, a Bermuda limited
liability company ("ADT"), in connection with the proposed merger of Tyco
International Ltd. ("Tyco") into Limited Apache, Inc., a Massachusetts
corporation and a wholly owned subsidiary of ADT ("Merger Subsidiary"), pursuant
to the Agreement and Plan of Merger dated as of March 17, 1997 among Tyco, ADT
and Merger Subsidiary (the "Merger Agreement"). In connection therewith, we have
prepared the discussion on the Bermuda tax consequences of the proposed merger
as to shareholders of ADT set forth under the caption "Certain United States
Federal Income, United Kingdom and Bermuda Tax Consequences-- Bermuda" (the
"Discussion") in the Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") that is part of the Registration Statement on Form S-4
(Registration No. 333-24363) (the "Registration Statement") filed by ADT and
Tyco with the Securities and Exchange Commission.
In rendering our opinion, we have examined and are familiar with originals
or copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed necessary
or appropriate in connection with this opinion. It is our opinion that the
material Bermuda tax consequences for shareholders of ADT of the reverse stock
split of ADT common shares contemplated by the Merger Agreement and of the
material Bermuda tax consequences of holding combined company common shares are
as set forth in the Discussion. Our opinion is limited to such matters. We
express no opinion as to the laws of the United Kingdom, the United States of
America or any other territory or jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm under the captions
"Legal Matters" and "Certain United States Federal Income, United Kingdom and
Bermuda Tax Consequence--Bermuda" in the Joint Proxy Statement/Prospectus. In
giving this consent we do not concede that we are an "expert" for the purposes
of the Securities Act of 1933.
Very truly yours,
Appleby, Spurling & Kempe
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of ADT Limited on Form S-4 (File No. 333-24363) of our report dated March 26,
1997, on our audits of the consolidated financial statements and the
consolidated financial statement schedules of ADT Limited as at December 31,
1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994, which
report is included in the Annual Report of ADT Limited on Form 10-K. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND
Hamilton, Bermuda
June 3, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 3 to the
Registration Statement on Form S-4 of our reports dated July 25, 1996 on our
audits of the consolidated financial statements and financial statement schedule
of Tyco International Ltd. as of June 30, 1996 and 1995 and for the three years
in the period ended June 30, 1996. We also consent to the reference to our firm
under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 3, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT
OF
CREDIT SUISSE FIRST BOSTON CORPORATION
Board of Directors
Tyco International Ltd.
One Tyco Park
Exeter, New Hampshire 03833-1108
Members of the Board:
We hereby consent to the inclusion of (i) our opinion letter, dated June 3,
1997, to the Board of Directors of Tyco International Ltd. (the "Company") as
Annex II to the Registration Statement of ADT Limited ("ADT") on Form S-4, as
amended (the "Registration Statement"), relating to the proposed merger
involving the Company and ADT, and (ii) references made to our firm and such
opinion in the Registration Statement under the captions entitled "SUMMARY--The
Merger--Opinions of Financial Advisors", "THE MERGER--Background of the Merger",
"THE MERGER--Recommendation of the Tyco Board--Information and Factors
Considered by the Tyco Board" and "ROLE OF FINANCIAL ADVISORS--Opinion of Tyco's
Financial Advisor". In giving such consent, we do not admit that we come within
the category of persons whose consent is required under, nor do we admit that we
are "experts" for the purposes of, the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ DAVID M. SULTAN
---------------------------------
Name: David M. Sultan
Title: Director
June 3, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
We hereby consent to the use of our opinion letter dated June 3, 1997 to
the Board of Directors of ADT Limited included as Annex III to the Joint Proxy
Statement/Prospectus that forms a part of the Registration Statement on Form S-4
relating to the proposed merger of Tyco International Ltd. with and into Apache
Limited, Inc., a wholly-owned subsidiary of ADT Limited, and to the references
to such opinion in such Joint Proxy Statement/Prospectus. In giving such
consent, we do not admit that we come within the category of persons the consent
of whom is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By:
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June 3, 1997
