<PAGE>
Registration No. 333-_____
As filed with the Securities and Exchange Commission on April 18, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8
Registration Statement Under The Securities Act of 1933
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HOLMES PROTECTION GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1070719
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
George V. Flagg
Holmes Protection Group, Inc.
440 Ninth Avenue
New York, NY 10001-1695
(212) 760-0650
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices and agent for service)
HOLMES PROTECTION GROUP, INC.
AMENDED AND RESTATED
SENIOR EXECUTIVES' OPTION PLAN
and
HOLMES PROTECTION GROUP, INC.
1996 STOCK INCENTIVE PLAN
(Full title of the Plans)
Copy to:
Jeffrey W. Rubin, Esq.
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
(212) 661-6500
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities To Be Offering Price Aggregate Registration
To Be Registered Registered(1) Per Share Offering Price Fee
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<S> <C> <C> <C> <C>
Common Stock, par
value $0.01 per share 31,431 shares(4) $7.28(2) $228,817.68 $69.34
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 175,000 shares(5) $5.50(2) $962,500.00 $291.67
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 125,000 shares $5.56 $695,000.00 $210.61
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 91,000 shares $6.00 $546,000.00 $165.45
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Common Stock, par
value $0.01 per share 91,000 shares $7.00 $637,000.00 $193.03
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 91,000 shares $8.00 $728,000.00 $220.61
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities To Be Offering Price Aggregate Registration
To Be Registered Registered(1) Per Share Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $0.01 per share 91,000 shares $9.00 $819,000.00 $248.18
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 91,000 shares $10.00 $910,000.00 $275.76
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 25,000 shares(5) $7.50(2) $187,500.00 $56.82
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par
value $0.01 per share 50,000 shares(5) $8.50(2) $425,000.00 $128.79
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Common Stock, par
value $0.01 per share 172,500 shares(5) $12.00(2) $2,070,000.00 $627.27
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Common stock, par
value $0.01 per share 997,500 shares(5) $14.88(3) $14,842,800.00 $4,497.82
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TOTALS $23,051,619.96 $6,985.35
=================================================================================================================================
</TABLE>
(1) Plus such indeterminate number of shares pursuant to Rule 416 as may be
issued in respect of stock splits, stock dividends and similar
transactions.
(2) Based upon the actual prices at which the 1,033,931 shares subject to
options currently outstanding under the Amended and Restated Senior
Executives' Option Plan (the "1994 Plan") and the 1996 Stock Incentive Plan
(the "1996 Plan") are exercisable.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(h) under the Securities Act of 1933, as amended, on
the average high and low prices for the Common Stock, as reported on the
Nasdaq National Market on April 14, 1997.
(4) The number of shares of Common Stock being registered represents the number
of shares of Common Stock that may be issued on the date hereof under the
1994 Plan pursuant to options issued under the 1994 Plan.
(5) The number of shares of Common Stock being registered represents the number
of shares of Common Stock that may be issued on the date hereof under the
1996 Plan pursuant to options issued or to be issued under the 1996 Plan.
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<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The document(s) containing information specified by Part I of this Form
S-8 Registration Statement (the "Registration Statement") has been or will be
sent or given to participants in the 1994 Plan and the 1996 Plan (collectively,
the "Plans") as specified in Rule 428(b)(1) promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933 (the
"Securities Act"). Such document(s) are not being filed with the Commission but
constitute (along with the documents incorporated by reference into the
Registration Statement pursuant to Item 3 of Part II hereof) a prospectus that
meets the requirements of Section 10(a) of the Securities Act.
EXPLANATORY NOTE
This Registration Statement includes a Prospectus, prepared in
accordance with the requirements of Form S-3, which, pursuant to General
Instruction C of Form S-8, may be used for (i) the offer and sale by certain
officers and directors of the Company who may be deemed to be "affiliates" of
the Company, as that term is defined in Rule 405 under the Securities Act, of
securities registered hereunder and (ii) reoffers and resales by certain
participants in the 1994 Plan and the 1996 Plan of shares of Common Stock, which
shares are "restricted securities" as defined in Rule 144 under the Securities
Act, issued upon the exercise of options granted pursuant to the 1994 Plan and
the 1996 Plan.
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<PAGE>
HOLMES PROTECTION GROUP, INC.
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COMMON STOCK (Par Value $0.01 Per Share)
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UP TO 31,431 SHARES OF COMMON STOCK UNDER HOLMES PROTECTION GROUP, INC.
AMENDED AND RESTATED SENIOR EXECUTIVES' PLAN
AND
UP TO 2,000,000 SHARES OF COMMON STOCK UNDER HOLMES PROTECTION GROUP, INC.
1996 STOCK INCENTIVE PLAN
This Prospectus relates to (i) offers and sales of shares of Common
Stock, par value $0.01 per share (the "Common Stock"), of Holmes Protection
Group, Inc., a Delaware corporation (the "Company" or "Holmes"), that have been
or will be acquired by certain officers and directors (the "Management Selling
Security Holders") who may be deemed to be "affiliates" of the Company, as
defined in Rule 405 under the Securities Act of 1933 (the "Securities Act"),
upon exercise of options (the "Options") granted pursuant to the Holmes
Protection Group, Inc. Amended and Restated Senior Executives' Plan (the "1994
Plan") and the Holmes Protection Group, Inc. 1996 Stock Incentive Plan (the
"1996 Plan") and (ii) reoffers and resales by certain participants (the "Plan
Selling Security Holders," and, together with the Management Selling Security
Holders, the "Selling Security Holders") in the 1994 Plan and the 1996 Plan of
shares of Common Stock, which shares are "restricted securities" as defined in
Rule 144 under the Securities Act, issued upon the exercise of Options granted
pursuant to the 1994 Plan and the 1996 Plan.
The Common Stock is quoted on the Nasdaq National Market(R) (the
"Nasdaq National Market") under the symbol "HLMS." The closing sales price for
the Common Stock on April 14, 1997 was $15.00 per share.
Shares of Common Stock covered by this Prospectus (the "Shares") may be
offered and sold from time to time directly by the Selling Security Holders or
through brokers on the Nasdaq National Market or otherwise at the prices
prevailing at the time of such sales. No specified brokers or dealers have been
designated by the Selling Security Holders, and no agreement has been entered
into in respect of brokerage commissions or for the exclusive or coordinated
sale of any securities which may be offered pursuant to this Prospectus. The net
proceeds to the Selling Security Holders will be the proceeds received by them
upon such sales, less brokerage commissions, if any. The Company will pay all
expenses of preparing and reproducing this Prospectus, but will not receive any
of the proceeds from sales by any of the Selling Security Holders. The Selling
Security Holders, and any broker-dealers, agents, or underwriters through whom
the Shares are sold, may be deemed "underwriters" within the meaning of the
Securities Act with respect to securities offered by them, and any profits
realized or commissions received by them may be deemed underwriting
compensation. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMON STOCK OFFERED HEREBY INVOLVES A SUBSTANTIAL DEGREE
OF RISK. SEE "RISK FACTORS."
No dealer, salesman, or any other person has been authorized to give
any information or to make any representation other than as contained or
incorporated by reference herein and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy securities by anyone in any jurisdiction in which such offering may
not lawfully be made. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or the information herein since the
date hereof. See "Risk Factors."
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The date of this Prospectus is April 18, 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement (the "Registration Statement") under the Securities Act with respect
to the offering and sale from time to time of the Shares. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto, as permitted by the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement and to
the exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed or incorporated
by reference as an exhibit to the Registration Statement are qualified in their
entirety by reference to such exhibits for a complete statement of their terms
and conditions. Additionally, the Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements, and other
information statements with the Commission. Copies of such materials may be
inspected without charge at the offices of the Commission, and copies of all or
any part thereof may be obtained from the Commission's public reference
facilities at 450 Fifth Street, N.W., Washington D.C. 20549 or at the regional
offices of the Commission located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon
payment of the fees prescribed by the Commission. The Registration Statement has
been filed electronically with the Commission. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov. In addition, the Common Stock is quoted on the Nasdaq
National Market. Reports and other information concerning the Company may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference and made a part of this Prospectus are
the following (1) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and (2) the description of the Common Stock, which is
registered under Section 12 of the Exchange Act, contained in the Company's
Registration Statement on Form 10, as amended, originally filed with the
Commission on July 12, 1994. All documents subsequently filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14, or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
the offering made hereby will be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the respective dates of filing of
such documents. Any statement contained in any document incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. All information appearing in this
Prospectus is qualified in its entirety by the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference, except to the extent set forth in the immediately preceding
statement.
The Company will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of the
information that is incorporated by reference herein (not including exhibits to
the information that is incorporated by reference herein). Requests for such
information should be directed to: Holmes Protection Group, Inc., 440 Ninth
Avenue, New York, NY 10001-1695; Attention: Secretary. The Company's telephone
number is: (212) 760-0650.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference into this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; cancellation rates of subscribers; competitive factors
in the industry, including additional competition from existing competitors or
future entrants to the industry; social and economic conditions; local, state
and federal regulations; changes in business strategy or development plans; the
Company's indebtedness; availability, terms and deployment of capital;
availability of qualified personnel; and other factors referenced in this
Prospectus and in the Company's filings with the Commission.
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<PAGE>
THE COMPANY
The following summary is qualified in its entirety by reference to the
more detailed information and the financial statements and the related notes
appearing elsewhere in this Prospectus or incorporated herein by reference. Each
prospective investor is urged to read this Prospectus in its entirety.
Investment in the securities offered hereby involves a high degree of risk. See
"Risk Factors."
Holmes Protection Group, Inc. (the "Company" or "Holmes") provides
security alarm monitoring services and designs, sells, installs and services
electronic security systems for commercial and mid- to high-end residential
subscribers. These systems include event detection devices, surveillance
equipment and access control devices which restrict access to specified areas.
The Company currently provides its services in New York, New Jersey,
Pennsylvania, Texas, Tennessee, California, Massachusetts and Florida, and
conducts its operations primarily through 16 branch offices, six central
monitoring station and 69 independent alarm service dealers and franchisees.
According to the latest available survey, published in May 1996, the Company was
the twelfth largest provider of electronic security services in the United
States in terms of total 1995 revenues.
Following an internal management transition and reorganization in 1995,
the Company, in 1996, engaged the services of several former senior executives
of The National Guardian Corporation, a large national electronic security alarm
services company which was acquired by Ameritech Monitoring Services, Inc., in
October 1995. Among the executives hired by the Company was George V. Flagg, the
Company's President and Chief Executive Officer, who served as the President and
Chief Executive Officer of National Guardian from 1986 to 1995. Under the
direction of the Company's new management team, the Company is implementing a
business strategy involving a combination of strategic acquisitions and internal
growth. In regard to strategic acquisitions, the Company intends to pursue both
(i) fold-in acquisitions, which consist of businesses or portfolios of alarm
monitoring accounts that can be readily combined with the Company's existing
branch offices and management structure and (ii) new market acquisitions, which
consist of companies in the electronic security services industry located
outside the Company's current geographic market. In regard to its internal
growth strategy, the Company intends to capitalize on public recognition of the
historic Holmes brand name (which has been utilized in the security services
industry since 1858) in connection with (i) expanding its security services
product offerings, including the HolmesNet system for wireless data
communications; (ii) strengthening its national accounts program; (iii)
increasing its sales and marketing efforts; and (iv) expanding its dealer
operations.
The Company's revenues consist primarily of recurring payments under
written contracts for security alarm monitoring activities and associated
services, which represented approximately 70% of total revenues in 1996. The
Company monitors digital alarm signals arising from various activities,
including burglaries, fires and other events, through security systems installed
at subscribers' premises. These signals are received and processed at the
Company's relevant central monitoring station. In order to reduce overall
manpower requirements, achieve economies of scale and other cost efficiencies,
and enhance the quality of service being provided, the Company consolidated its
central monitoring stations in the Northeast into one facility located in
Edison, New Jersey, with monitoring capacity of approximately 60,000 accounts.
In addition, the Company has acquired several businesses with central monitoring
stations with the capacity to process approximately 60,000 additional accounts.
An additional 21% of the Company's total revenues in 1996 was comprised of
direct sales and installation of security equipment. The balance of the
Company's revenues in 1996 was derived from (i) jewelry vault rentals, (ii)
insured parcel delivery services for the jewelry trade and (iii) royalty fees
and product sales relating to its franchise and dealer operations.
Approximately 80% of the Company's business is derived from commercial
customers, including financial institutions, jewelry and fine art dealers,
corporate headquarters, manufacturers, distribution facilities and health care
and education facilities. The Company's residential business focuses principally
on mid- to high-end customers.
Electronic security services is a consolidating but still a highly
fragmented industry, consisting of a large number of local and regional
companies and several integrated national companies. The fragmented nature of
the industry can be attributed to the low capital requirements associated with
performing basic installation and maintenance of electronic security systems.
However, the business of a full service, integrated electronic security services
company providing central station monitoring services is capital intensive, and
the Company believes that the high fixed costs of establishing both central
monitoring stations and full service operations contribute to the small number
of national competitors. The low marginal cost of monitoring additional
customers has been one of the principal factors leading full service, integrated
electronic security services companies to seek acquisitions of other electronic
security businesses to consolidate into their existing operations. The principal
focus of the Company's business strategy is to pursue acquisitions in this
environment.
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<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those projected in the forward-looking statements
as a result of certain uncertainties set forth below and elsewhere in this
Prospectus. An investment in the Shares is highly speculative, involves a high
degree of risk. Prospective investors, prior to making an investment decision,
should carefully consider the following risk factors, in addition to the other
information set forth in this Prospectus, in connection with an investment in
the Common Stock offered hereby.
Recent Net Losses and Accumulated Deficit
The Company incurred a net loss in 1996 and 1995 of $2,452,000 and
$1,197,000, respectively. The losses reflect non-recurring charges of $700,000
and $2,074,000 in 1996 and 1995, respectively and the cumulative effect of the
change in the method of accounting for non-refundable payments received from
customers for company-owned systems resulting in a net credit after tax of
$2,477,000 in 1995. The Company had net income of $404,000 in 1994. At December
31, 1996, the Company had an accumulated deficit of $72,829,000 up from
$70,188,000 at December 31, 1995 and a working capital deficit of $2,171,000
down from $5,246,000 at December 31, 1995. For a further discussion of the
effect of the non-recurring charge and the cumulative effect of the change in
the method of accounting for non-refundable payments, see Notes 4 and 5 to Notes
to the Consolidated Financial Statements.
Geographic Concentration
The Company's existing subscriber base is geographically concentrated
predominantly in New York, New Jersey and Pennsylvania. Accordingly, the
performance of the Company may be adversely affected by regional or local
economic conditions.
The Company may from time to time make acquisitions in regions outside
of its current operating area. The acquisition of companies in other regions, or
in metropolitan areas in which the Company does not currently have subscribers,
requires an investment by the Company. In order for the Company to expand
successfully into a new area, the Company must acquire companies with a
sufficient number and density of subscriber accounts in such area to support the
investment. There can be no assurance that the Company will find such
opportunities or that an expansion into new geographic areas will generate
operating profits.
Risk Related to Growth Through Acquisitions
One of the Company's primary strategies is to increase its revenues and
the markets it serves through the acquisition of other companies in the
electronic security services industry and portfolios of alarm monitoring
accounts. There can be no assurance that the Company will be able to acquire or
profitably manage suitable acquisition candidates or successfully integrate such
businesses into its operations without substantial costs, delays or other
problems. In addition, there can be no assurance that any businesses acquired
will be profitable at the time of their acquisition or will achieve sales and
profitability that justify the investment therein or that the Company will be
able to realize expected operating and economic efficiencies following such
acquisitions. Acquisitions may involve a number of special risks, including
adverse effects on the Company's reported operating results, diversion of
management's attention, increased burdens on the Company's management resources
and financial controls, dependence on retention and hiring of key personnel,
risks associated with unanticipated problems or legal liabilities, and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's operations and financial performance.
Customer Cancellation Rates
The Company is heavily dependent on its recurring monitoring and
service revenues. Given the relatively fixed nature of monitoring and service
expenses, increases and decreases in monitoring and service revenues have a
significant impact on the Company's profitability. Substantially all of the
Company's monitoring and service revenues are derived from recurring charges to
subscribers for the provision of various services. Although no single subscriber
represents more than one-half of one percent of the Company's recurring revenue
base, the Company is vulnerable to subscribers canceling their contracts. In
recent years, lost recurring revenues from such cancellations have exceeded the
new recurring revenues added by the Company's sales efforts. However, the
Company's cancellation rate (as defined in detail below), representing lost
recurring revenues from cancellations as a percentage of gross recurring
revenues, decreased significantly from 15.2% in 1991 to 10.8% in 1996. Although
the Company's rate of subscriber cancellations has been
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<PAGE>
substantially reduced since 1991, there can be no assurance that this rate may
not increase in the future for a variety of reasons associated with general
economic conditions, market competition and the level of customer satisfaction
with the Company's services.
As described herein, the "cancellation rate" means the gross recurring
revenues lost through cancellation in a given period; less those recurring
revenues derived from subscribers who cancel their service with the Company in
order to move and then contract for the Company's services at their new
premises; and less those recurring revenues derived from new subscribers who
occupy a vacant premises where the Company has an existing company-owned system
and who contract for the Company's services using that equipment; divided by the
gross recurring revenues in force at the beginning of the period, annualized and
expressed as a percentage.
Competition
The electronic security services industry is highly competitive and
fragmented. The Company competes with national and regional companies, as well
as smaller local companies, in all of its operations. Furthermore, new
competitors are continuing to enter the industry and the Company may encounter
additional competition from such future industry entrants. Subject to regulatory
compliance, certain companies engaged in the telephone and cable business are
competing in the electronic security services industry and other such companies
may, in the future, enter the industry. Certain of the Company's current
competitors have, and new competitors may have, substantially greater financial
resources than the Company.
Significant Ownership of Common Stock by Certain Stockholders
The Company believes that at March 27, 1997, seven U.S. insurance
companies and other institutions (the "Institutions") owned approximately 26%
(28% including warrants to purchase an aggregate of 193,150 shares of Common
Stock at $10.68 per share (the "Institution Warrants")) of the Company's
outstanding shares of Common Stock. The Institution Warrants are in the process
of being adjusted in accordance with anti-dilution provisions contained therein
to increase the number of shares purchasable and to reduce the exercise price
thereof. Such adjustment will reflect the issuance of the New Bank Warrants (as
defined below) and the stock options granted under the 1996 Plan. The Company
does not believe that upon such adjustment the number of shares purchasable will
exceed 210,000 or the exercise price thereof will be reduced below $10.00 per
share. Pursuant to the Exchange Agreement, dated as of December 18, 1991, which
agreement was amended as of January 31, 1992, May 24, 1992 and June 30, 1992
(the "Exchange Agreement"), between the Institutions and the Company, the
Institutions are entitled to nominate two directors (the "Institution-Nominees")
to the Company's Board of Directors (the "Board") based on their ownership of
Common Stock. At March 27, 1997, HP Partners L.P., a Delaware limited
partnership (the "Investor"), owned approximately 26% (34% including warrants to
purchase 685,714 shares of Common Stock at an exercise price of $4.58 per share
(the "Investor Warrants")) of the Company's outstanding shares of Common Stock.
Pursuant to the Investment Agreement, dated as of June 29, 1994, between the
Investor and the Company (the "Investment Agreement"), the number of directors
the Investor is entitled to nominate to the Board (the "Investor-Nominees") is
three. The size of the Board is currently fixed at nine members; however, there
exists one vacant seat on the Board. As of a result of these separate agreements
with the Company, the Institution-Nominees and the Investor-Nominees constitute
a majority of the Company's directors and are therefore in a position to control
the Company.
Liability for Employee Acts and Defective Equipment
The nature of the security services provided by the Company potentially
exposes it to greater risk of liability claims for employee acts or omissions or
system failure than may be inherent in many other service businesses. Although
(i) substantially all of the Company's customers have subscriber agreements
which contain provisions for limited liability and predetermined liquidated
damages and (ii) the Company carries insurance which it believes provides
adequate coverage for businesses of the Company's type, there can be no
assurance that such existing arrangements will prevent the Company from being
adversely affected as a result of damages arising from the acts of its
employees, defective equipment or because some jurisdictions prohibit or
restrict limitations on liabilities and liquidated damages. In addition, certain
of the Company's insurance policies and the laws of some states may limit or
prohibit insurance coverage for punitive damages and for certain other kinds of
damages arising from employee misconduct.
Possible Adverse Effects of Government Regulations
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<PAGE>
The Company's operations are subject to a variety of federal, state,
county and municipal laws, regulations and licensing requirements. Many of the
states in which Holmes operates, as well as certain local authorities, require
Holmes to obtain licenses or permits to conduct a security alarm services
business. Certain governmental entities also require persons engaged in the
security alarm services business to be licensed and to meet certain standards in
the selection and training of employees and in the conduct of business. The loss
of such licenses, or the imposition of conditions on the granting or retention
of such licenses, could have a material adverse effect on the Company. The
Company believes that it holds the required licenses and is in substantial
compliance with all licensing and regulatory requirements in each jurisdiction
in which it operates.
Dependence upon Senior Management
The success of the Company's business is dependent upon the active
participation of the executive officers of the Company, most of whom have only
recently been employed by the Company. In the event that the services of certain
of such officers are lost for any reason, the Company's business may be
materially and adversely affected.
Possible Anti-takeover Effects of Delaware Law
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner or unless the interested
stockholder acquires at least 85% of the corporation's voting stock (excluding
shares held by certain designated stockholders) in the transaction in which it
becomes an interested stockholder. A "business combination" includes mergers,
asset sales, and other transactions resulting in a financial benefit to the
interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the previous three years did own, 15% or more of the corporation's voting
stock. This provision of the Delaware law could delay and make more difficult a
business combination even if the business combination could be beneficial, in
the short term, to the interests of the stockholders. This provision of the
Delaware law could also limit the price certain investors might be willing to
pay in the future for shares of Common Stock.
Classified Board of Directors; No Stockholder Action by Written Consent;
Supermajority Voting
Certain provisions of the Restated Certificate of Incorporation could
have an anti-takeover effect by making it more difficult to acquire the Company
by means of (i) a tender offer, a proxy contest or otherwise and (ii) the
removal of incumbent officers and directors. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of the Company to
negotiate first with the Company. However, these provisions could also delay,
deter or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by the Company's stockholders.
The Company's Restated Certificate of Incorporation and By-Laws provide
for the division of the Board into three classes of directors serving staggered
three-year terms. The By-Laws provide that the size of the Board shall be nine,
provided that the Board, by vote of three-quarters of the directors then in
office, may increase or decrease the number of directors in any class. The
classified board provision may prevent any party who acquires control of a
majority of the outstanding voting stock of the Company from obtaining control
of the Board until the second annual stockholders meeting following the date the
acquiror obtains the controlling interest.
The Restated Certificate of Incorporation of the Company also provides
that stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of meeting.
Additionally, the Restated Certificate of Incorporation requires an affirmative
vote of three-quarters of the Company's voting power (unless three-quarters of
the total number of directors then in office shall have approved the amendment)
to amend the provisions of the Restated Certificate of Incorporation with
respect to the number and classification of the Board, stockholder action
without written consent, director liability, indemnification and amendments to
the Restated Certificate of Incorporation.
- 6 -
<PAGE>
Possible Adverse Effect of "False Alarms" Ordinances
According to an article published in American City and Country Magazine
in 1996, police officers respond to more than 13.7 million alarm activations
annually. Approximately 94% to 98% of these activations are false. Concern has
arisen in certain municipalities about this high incidence of false alarms.
A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) imposing limitations
on the number of times the police will respond to alarms at a particular
location after a specified number of false alarms and (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations.
Possible Volatility of Stock Price
The stock market has from time to time experienced extreme price and
volume fluctuations that have been unrelated to the operating performance of
particular companies. The market price of the Company's Common Stock may be
significantly affected by quarterly variations in the Company's operating
results, changes in financial estimates by securities analysts or failure by the
Company to meet such estimates, litigation involving the Company, general trends
in the security alarm industry, actions by governmental agencies, national
economic and stock market conditions, industry reports and other factors, many
of which are beyond the control of the Company.
Shares Eligible for Future Sale; Registration Rights
As of March 27, 1997, the Company had 5,828,062 shares of Common Stock
outstanding. In addition, 878,864 shares of Common Stock are reserved for
issuance upon the exercise of outstanding Investor Warrants and Institution
Warrants (subject to adjustment as described above in "Significant Ownership of
Common Stock by Certain Stockholders"), 166,666 shares of Common Stock are
reserved for issuance upon exercise of outstanding warrants issued to Merita
Bank Ltd. and Bank of Boston Connecticut (the "New Bank Warrants"), 2,196,860
shares of Common Stock are reserved for issuance upon exercise of outstanding
options including 165,429 shares of Common Stock which are reserved for issuance
upon exercise of options which have been granted under the Company's 1992
Directors' Option Plan, 31,431 shares of Common Stock which are reserved for
issuance upon exercise of options which have been granted under the 1994 Plan,
1,002,500 shares of Common Stock which are reserved for issuance upon exercise
of options which have been granted under the 1996 Plan and 997,500 shares of
Common Stock which are reserved for issuance upon exercise of options which may
be granted pursuant to the 1996 Plan. Currently, substantially all of the shares
of Common Stock outstanding are freely tradeable, except for (i) any such shares
held at any time by an "affiliate" of the Company, as such term is defined under
Rule 144 promulgated under the Securities Act ("Rule 144") and (ii) certain
shares subject to the Registration Rights Agreements described below. The
possibility that substantial amounts of Common Stock may be sold in the public
market could have a material adverse effect on prevailing market prices of the
Common Stock and could impair the Company's ability to raise capital or make
acquisitions through the sale of its equity securities.
Pursuant to the terms of their respective registration rights
agreements, the Investor and each Institution have been granted certain
registration rights with respect to their shares of Common Stock presently held
or shares of Common Stock issuable upon exercise of their warrants. Similarly,
pursuant to the terms of their respective registration rights agreements, each
of Merita Bank Ltd. and Bank of Boston Connecticut have been granted certain
registration rights with respect to shares of Common Stock issuable upon
exercise of the New Bank Warrants. Finally, in connection with an acquisition
that the Company made in 1996, the Company issued restricted shares of Common
Stock and entered into substantially similar registration rights agreements with
each of the various parties that acquired such restricted shares of Common Stock
with respect thereto. The Company may experience added costs and complexity in
the event such registration rights are exercised. In addition, the exercise of
such rights could have an adverse effect on the market price of the Common
Stock.
- 7 -
<PAGE>
USE OF PROCEEDS
The Company is unable to predict the time, if ever, when the Options
will be exercised and, therefore, is unable to estimate the net proceeds from
the exercise of the Options. Accordingly, it is expected that the net proceeds
from the sale of the Common Stock underlying the Options will be used by the
Company for general corporate purposes. The Company will not receive any
proceeds from the sale of the Common Stock by the Selling Security Holders.
SELLING SECURITY HOLDERS
The following table sets forth (i) the name and principal position(s)
over the past three years with the Company of each of the Selling Security
Holders, (ii) the number of shares of Common Stock beneficially owned by each
Selling Security Holder as of April 14, 1997; and (iii) the number of shares of
Common Stock available to be acquired by each Selling Security Holder pursuant
to the Plans being registered hereby, some or all of which shares may be sold
pursuant to this Prospectus. Since any or all of the shares of Common Stock
listed below may be offered for sale by the Selling Security Holders from time
to time, no estimate can be given as to the number of shares of Common Stock (or
the percentage of the total class of Common Stock outstanding) that will be held
by the Selling Security Holders upon termination of this offering. Also included
among the Selling Security Holders may be certain unnamed non-affiliates of the
Company, each of whom holds less than the lesser of 1000 shares or 1% of the
shares issuable under each Plan. When and if further information becomes
available with respect to the names of additional Selling Security Holders or
the amounts of securities to be acquired pursuant to the Plans and sold by the
Selling Security Holders, such information will be included in a prospectus
supplement. Except as otherwise indicated, the Selling Security Holders listed
on the table have sole voting and investment power with respect to the shares of
Common Stock indicated.
- 8 -
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER
SHARES OF OF SHARES
COMMON OF
STOCK COMMON
SUBJECT TO STOCK
OPTIONS OWNED NUMBER
OWNED BEFORE OF
NAME OF SELLING POSITION WITH BEFORE THE THE SHARES
SECURITY HOLDER THE COMPANY OFFERING OFFERING OFFERED
==============================================================================================================
<S> <C> <C> <C> <C>
Pierre Besuchet Director 25,000 44,048(1)(2) 25,000
James L. Boehme Executive Vice President-Sales 195,000 78,000(2) 195,000(3)
and Marketing
Daniel T. Carroll Director 25,000 27,000(2) 25,000
George V. Flagg President, Chief Executive Officer 260,000 110,000(2) 260,000(3)
and Director
Lawrence R. Glenn Director 25,000 25,000(2) 25,000
Mark S. Hauser Director and Vice Chairman of the 40,000 2,241,600(2)(4) 40,000
Board
Lawrence R. Irving Vice President-Finance 25,000 10,000(2) 25,000(3)
William P. Lyons Director and Chairman of the 85,000 2,305,600(2)(4) 85,000
Board
David Jan Mitchell Director 55,000 2,259,600(2)(4) 55,000
Edward L. Palmer Director 25,000 26,464(2) 25,000
Glenn C. Riker Senior Vice President-Human 18,854 6,427(5)(6) 18,854(3)
Resources and Assistant Secretary
Dennis M. Stern Senior Vice President, General 25,000 5,000(2) 25,000(3)
Counsel and Secretary
William Spier see footnote 4 40,000 2,249,600(2) 40,000
</TABLE>
- ---------------------
(1) Excludes vested options to purchase 17,884 shares of Common Stock granted
to Mr. Besuchet under the Company's 1992 Directors' Option Plan (the
"Directors Plan"). Grants of stock options are no longer permitted under
the Directors Plan. Such options have a current exercise price of $13.97
per share, however, they become exercisable only if the price per share of
the Common Stock on the Nasdaq National Market is not less than $24.45 for
30 consecutive trading days. Such condition had not been met as of April
14, 1997.
(2) Includes options granted under the 1996 Plan to each of Messrs. Besuchet,
Carroll, Glenn, Hauser, Lyons, Mitchell, Palmer and Spier to purchase
25,000, 25,000, 25,000, 40,000, 85,000, 55,000, 25,000 and 40,000 shares of
Common Stock, respectively, at exercise prices ranging from $5.50 to $5.56
per share. Excludes options granted under the 1996 Plan which have not yet
vested to each of Messrs. Flagg, Boehme, Irving and Stern to purchase
156,000, 117,000, 15,000 and 20,000 shares of Common Stock, respectively,
in accordance with their respective employment agreements.
(3) Includes shares of Common Stock underlying options which have been granted
to such Selling Security Holder but which have not yet vested and are not
exercisable within 60 days of the date hereof. See footnote 2 above and 6
below.
(4) Includes 1,515,886 shares of Common Stock and warrants to purchase 685,714
shares of Common Stock owned by HP Partners L.P. Messrs. Hauser, Mitchell
and Spier (a former director of the Company who resigned on September 30,
1996) are stockholders and directors of the general partner of HP Partners
L.P. and Messrs. Mitchell and Spier are also limited partners of HP
Partners L.P. Messrs. Hauser, Mitchell and Spier are also the sole
stockholders of the special limited partner of HP Partners L.P. which is
entitled to various rights relating to 285,714 of the partnership's
warrants. Pursuant to HP Partners L.P.'s partnership agreement, Mr. Lyons
has an arrangement to participate in any economic benefit which Mr. Spier
obtains as a result of Mr. Spier's shareholding interest in such general
partner.
(5) Includes vested options granted under the 1994 Plan to Mr. Riker to
purchase 4,427 shares of Common Stock at an exercise price of $7.28 per
share. These options become exercisable only if the price per share of the
Common Stock on the Nasdaq National Market is not less than $13.30 for 30
consecutive trading days. Such condition had been met as of April 14, 1997.
Also includes vested options granted under the 1996 Plan to purchase 2,000
shares of Common Stock at an exercise price of $12.00 per share.
- 9 -
<PAGE>
(6) Excludes options which have not yet vested granted under the 1994 Plan to
purchase 4,427 shares of Common Stock at $7.28 per share, and options which
have not yet vested granted under the 1996 Plan to purchase 8,000 shares of
Common Stock at $12.00 per share.
DESCRIPTION OF CAPITAL STOCK
Description of Securities
The following summary of the terms of the Company's capital stock does
not purport to be complete and is qualified in its entirety by reference to the
applicable provisions of Delaware law, the Company's Restated Certificate of
Incorporation and the Company's By-Laws.
As set forth in the Restated Certificate of Incorporation of the
Company, the Company's authorized capital stock consists of 12,000,000 shares of
Common Stock, par value $.01 per share, of which 5,828,062 shares were
outstanding as of March 27, 1997, and 1,000,000 shares of undesignated Preferred
Stock, par value $1.00 per share, of which no shares are outstanding.
On March 27, 1995, the Company effected a reverse stock split pursuant
to which one new share of Common Stock, $.01 par value, was exchanged for every
fourteen (14) whole shares of Common Stock, $.25 par value, then issued or
outstanding and shareholders received a cash payment in lieu of any fractional
shares. All share amounts and related share price information contained in this
Prospectus or incorporated by reference herein have been adjusted to give effect
to such reverse stock split.
Common Stock
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Subject to
the prior right of any holders of Preferred Stock with respect to dividends, the
holders of Common Stock are entitled to receive ratably such dividends as are
declared by the Board out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
have the right to a ratable portion of assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock. Except with respect to the Institutions pursuant to the
Exchange Agreement (as hereinbefore defined in "Risk Factors--Significant
Ownership of Common Stock by Certain Stockholders"), the holders of Common Stock
have no preemptive rights or rights to convert their Common Stock into any other
securities and are not subject to future calls or assessments by the Company.
All outstanding shares of Common Stock are fully paid and non-assessable.
Preferred Stock
The Board has the authority to issue the Preferred Stock in one or more
series and to determine the rights, preferences, privileges and restrictions,
including the dividend rights, dividend rate, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences and the number of shares constituting any series
or the designations of such series, without any further vote or action by the
stockholders, except that (i) any voting rights conferred on such Preferred
Stock require the consent of three-quarters of the entire Board and a majority
of the shares of Common Stock then outstanding and (ii) no regular dividends may
be paid with respect to the Preferred Stock without the consent of the holders
of a majority of the shares of Common Stock then outstanding. These rights and
privileges of the Preferred Stock could adversely affect the voting power of
holders of Common Stock or their rights to receive dividends or liquidation
proceeds. The Company has no present plans to issue any shares of Preferred
Stock. It should be noted, however, that pursuant to the terms of the
Institution Warrants and the Investor Warrants, the Company is prohibited from
issuing any capital stock of any class which has the right to more than one vote
per share or which is preferred as to dividends or as to the distribution of
assets upon voluntary or involuntary dissolution, liquidation or winding up of
the Company.
Warrants
Investor Warrants. The Investor Warrants entitle the holder thereof to
purchase 685,714 shares of Common Stock and are exercisable at an exercise price
of $4.58 per share at any time prior to expiration, subject to adjustment upon
certain dilutive events. The Investor Warrants expire on August 1, 2004.
Institution Warrants. The Institution Warrants initially entitled the
holders thereof to purchase an aggregate of 147,572 shares of Common Stock,
subject to adjustment upon certain dilutive events. The Institution Warrants
expire
- 10 -
<PAGE>
on August 13, 2002. The Institution Warrants are exercisable at any time prior
to expiration at an exercise price which is subject to adjustment upon certain
dilutive events.
As a result of the antidilution provisions contained in the Institution
Warrants, upon the issuance of the Investor Shares and Investor Warrants to the
Investor pursuant to the Investment Agreement, the Institution Warrants were
adjusted to provide for an increase in the number of shares purchasable to
193,150 and a reduction in the exercise price from $13.97 to $10.68.
Additionally, the Institution Warrants are in the process of being adjusted in
accordance with antidilution provisions contained therein to increase the number
of shares purchasable and to reduce the exercise price thereof. Such adjustment
will reflect the issuance of the New Bank Warrants and the stock options granted
under the 1996 Plan. The Company does not believe that upon such adjustment the
number of shares purchasable will exceed 210,000 or the exercise price thereof
will be reduced below $10.00 per share.
The material provisions of the Investor Warrants and the Institution
Warrants (collectively the "Warrants") are substantially similar. Each of the
Warrants provides that the exercise price and the number of shares of Common
Stock issuable upon exercise of the Warrants are subject to adjustment, from
time to time, upon issuance of shares of Common Stock below certain specified
prices, payment of dividends by the Company in shares of Common Stock or
extraordinary cash dividends, subdivision by the Company of its Common Stock,
combination by the Company of the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, issuance by the Company of certain
rights, options, warrants, evidences of its indebtedness or assets, or in case
of any consolidation, merger or sale of substantially all of the assets of the
Company. Also, as stated above, the terms of the Warrants prohibit the Company
from issuing preferred stock.
New Bank Warrants. The New Bank Warrants entitle the holders thereof to
purchase 166,666 shares of Common Stock and are exercisable at an exercise price
of $9.75 per share at any time prior to the expiration, subject to adjustment
upon certain dilutive events. The New Bank Warrants expire on the later of
August 30, 2002 or one year after the date on which repayment is made in full on
any indebtedness incurred pursuant to the Credit Facility.
Each of the New Bank Warrants provides that the exercise price and the
number of shares of Common Stock issuable upon exercise of the Warrants are
subject to adjustment, from time to time, upon issuance of shares of Common
Stock below certain specified prices, payment of dividends by the Company in
shares of Common Stock or extraordinary cash dividends, subdivision by the
Company of its Common Stock, combination by the Company of the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, issuance
by the Company of certain rights, options, warrants, evidences of its
indebtedness or assets, or in case of any consolidation, merger or sale of
substantially all of the assets of the Company.
Delaware Law and Certain Charter and By-Law Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) before such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person becomes an interested stockholder, the business
consummation is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock.
The Company's Amended and Restated By-Laws (the "By-Laws") and its
Restated Certificate of Incorporation were amended in 1994 to provide for the
division of the Board into three classes of directors serving staggered
three-year terms. The By-Laws provide that the Board, by vote of three-quarters
of the directors then in office, may increase or decrease the size of the Board
and the number of directors in any class. Currently, the size of the Board is
fixed at
- 11 -
<PAGE>
nine members; however, there exists one vacant seat on the Board. The Restated
Certificate of Incorporation also provides that stockholder action can be taken
only at an annual or special meeting of stockholders and cannot be taken by
written consent in lieu of a meeting.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation
requires an affirmative vote of three-quarters of the Company's voting power
(unless three-quarters of the total number of directors then in office shall
have approved the amendment) to amend the provisions of the Restated Certificate
of Incorporation with respect to the number and classification of the Board,
stockholder action without written consent, director liability, indemnification
and amendments to the Restated Certificate of Incorporation.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a Director's liability for
monetary damages for a breach of fiduciary duty, except in certain
circumstances, such as the breach of a Director's duty of loyalty or acts or
omissions not in good faith which involve intentional misconduct or a knowing
violation of law. Further, the Restated Certificate of Incorporation contains
provisions to indemnify the Company's Directors and officers. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as Directors.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C. serves as Transfer Agent and
Registrar for the Common Stock.
PLAN OF DISTRIBUTION
The Shares offered by this Prospectus may be sold from time to time by
the Selling Security Holders or by transferees thereof. No underwriting
arrangements have been entered into by the Selling Security Holders. The
distribution of the Shares by the Selling Security Holders may be effected in
one or more transactions that may take place in the over-the-counter market,
including ordinary broker's transactions, privately negotiated transactions, or
through sales to one or more dealers for resale of such shares as principals, at
prevailing market prices at the time of sale, prices related to prevailing
market prices, or negotiated prices. Underwriter's discounts and usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by a Selling Security-Holder in connection with sales of the Shares.
In order to comply with certain state securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Shares may not be sold
unless such Shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may not simultaneously engage in
market-making activities with respect to such Shares for a period of two or nine
business days prior to the commencement of such distribution. In addition to,
and without limiting, the foregoing, each of the Selling Security Holders and
any other person participating in a distribution will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-2, 10b-6, and 10b-7 (and,
upon its effectiveness, Regulation M, which has been promulgated by the
Commission to replace such rules), which provisions may limit the timing of
purchases and sales of any of the Shares by the Selling Security Holders or any
such other person. All of the foregoing may affect the marketability of the
Shares. The Company will bear all expenses of the offering, except that the
Selling Security Holders will pay any applicable brokerage fees or commissions
and transfer taxes.
LEGAL MATTERS
The validity of the Shares has been passed upon for the Company by
Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.
- 12 -
<PAGE>
EXPERTS
The consolidated financial statements and schedule incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
- 13 -
<PAGE>
================================================================================
No dealer, salesman, or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering made hereby, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to the dates as of which such information is furnished.
--------------------
TABLE OF CONTENTS
Page
----
Available Information.........................................2
Incorporation of Certain Documents by Reference...............2
Special Note Regarding Forward Looking Statements.............2
The Company...................................................3
Risk Factors..................................................4
Use of Proceeds...............................................8
Selling Security Holders......................................8
Description of Capital Stock.................................10
Plan of Distribution.........................................12
Legal Matters................................................12
Experts......................................................13
================================================================================
==============================
_________________
HOLMES
PROTECTION GROUP,
INC.
Common Stock
_________________
PROSPECTUS
_________________
April 18, 1997
==============================
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Certain Documents by Reference
Incorporated herein by reference and made a part of the Registration
Statement are the following documents filed by the Company with the Commission:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996; (2) the Company's Proxy Statement on Schedule 14A filed with the
Commission on November 13, 1996; and (3) the description of the Company's Common
Stock contained in the Company's Registration Statement on Form 8-A filed with
the Commission on July 12, 1994. All documents subsequently filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
the offering made hereby will be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of filing of such
documents.
A copy of any and all of the information included in documents (but not
exhibits thereto except to the extent exhibits have been incorporated in such
documents) that have been incorporated by reference in this Prospectus but which
are not delivered with this Prospectus will be provided by the Company without
charge to any person to whom this Prospectus is delivered, upon the oral or
written request of such person. Such requests should be directed to Holmes
Protection Group, Inc., 440 Ninth Avenue, New York, NY 10001-1695, Attention:
Secretary.
Item 4. Description of Securities
Not Applicable.
Item 5. Interests of Named Experts and Counsel
The validity of the Common Stock issuable upon the exercise of options
granted pursuant to the Plans will be passed upon by Squadron, Ellenoff, Plesent
& Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176.
Item 6. Indemnification of Directors and Officers
Delaware General Corporation Law (the "DGCL"), Section
102(b)(7), enables a corporation in its original certificate of incorporation,
or an amendment thereto validly approved by stockholders, to eliminate or limit
personal liability of members of its Board for violations of a director's
fiduciary duty of care. However, the elimination of limitation shall not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or a knowing violation of a law, the payment of a
dividend or approval of a stock repurchase which is deemed illegal or an
improper personal benefit is obtained. The Company's Restated Certificate of
Incorporation eliminates the liability of directors to the extent permitted by
Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgement, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative(other than
an action by or in the right of the corporation (a "derivative action")); if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provided that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise. The
Restated Certificate of Incorporation of the Company provides for such
indemnification of its directors and officers as permitted by Delaware law.
II-1
<PAGE>
Reference is made to Article Eleventh of the Restated Certificate of
Incorporation of the Company for certain indemnification rights of officers and
directors of the Company.
In addition, the Company maintains a directors' and officers' liability
insurance policy.
Item 7. Exemption from Registration Claimed
Not Applicable.
Item 8. Exhibits
3.1 Restated Certificate of Incorporation.(1)
3.2 Amended and Restated By-Laws.(1)
4.3 Holmes Protection Group, Inc. Amended and Restated Senior
Executives' Option Plan.(2)
4.4 Holmes Protection Group, Inc. 1996 Stock Incentive Plan. (*)
4.5 Employment Agreement between the Company and George V. Flagg,
dated January 8, 1996. (3)
4.6 Employment Agreement between the Company and James L. Boehme,
dated January 8, 1996. (3)
4.7 Amendment to Employment Agreement between the Company and James
L. Boehme, dated June 5, 1996. (4)
4.8 Employment Agreement between the Company and Lawrence R. Irving,
dated May 13, 1996. (4)
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP dated March
31, 1997.(*)
23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in
Exhibit 5).(*)
23.2 Consent of Arthur Andersen LLP.(*)
24.1 Power of Attorney (included on the signature page hereof).(*)
- --------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated October 13, 1994.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-1, dated July 26, 1996.
(*) Filed herewith.
II-2
<PAGE>
Item 9. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 17th day of
April, 1997.
HOLMES PROTECTION GROUP, INC.
By: /s/ George V. Flagg
-----------------------------------------------
George V. Flagg
President, Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George V. Flagg and Lawrence R. Irving, or any
one of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all pre- or post-effective amendments to
this Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ George V. Flagg President, Chief Executive April 17, 1997
------------------------- Officer and Director
George V. Flagg (Principal Executive Officer)
/s/ Lawrence R. Irving
------------------------- Vice President /Finance April 17, 1997
Lawrence R. Irving (Principal Financial Officer)
/s/ Daniel T. Carroll
------------------------- Director April 17, 1997
Daniel T. Carroll
/s/ Lawrence R. Glenn
------------------------- Director April 17, 1997
Lawrence R. Glenn
/s/ Mark S. Hauser
------------------------- Director, Vice Chairman April 17, 1997
Mark S. Hauser of the Board
/s/ William P. Lyons
-------------------------- Director, Chairman of April 17, 1997
William P. Lyons the Board
II-4
<PAGE>
/s/ David Jan Mitchell
-------------------------- Director April 17, 1997
David Jan Mitchell
/s/ Edward L. Palmer
-------------------------- Director April 17, 1997
Edward L. Palmer
II-5
<PAGE>
Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation.(1)
3.2 Amended and Restated By-Laws.(1)
4.3 Holmes Protection Group, Inc. Amended and Restated Senior Executives'
Option Plan.(2)
4.4 Holmes Protection Group, Inc. 1996 Stock Incentive Plan. (*)
4.5 Employment Agreement between the Company and George V. Flagg, dated
January 8, 1996. (3)
4.6 Employment Agreement between the Company and James L. Boehme, dated
January 8, 1996. (3)
4.7 Amendment to Employment Agreement between the Company and James L.
Boehme, dated June 5, 1996. (4)
4.8 Employment Agreement between the Company and Lawrence R. Irving, dated
May 13, 1996. (4)
5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP dated March
31, 1997.(*)
23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in
Exhibit 5.1).(*)
23.2 Consent of Arthur Andersen LLP.(*)
24.1 Power of Attorney (included on the signature page hereof).(*)
- --------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated October 13, 1994.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-1, dated July 26, 1996.
(*) Filed herewith.
<PAGE>
HOLMES PROTECTION GROUP, INC.
1996 STOCK INCENTIVE PLAN
1. Purpose:
The purpose of this Plan is to strengthen Holmes Protection Group, Inc. (the
"Company") by providing (i) an incentive to its key employees, consultants
and directors, and thereby encouraging them to devote their abilities and
industry to the success of the Company's business enterprise; and (ii) an
inducement essential to attracting, securing and retaining the services of
persons best qualified to serve as key employees, consultants and directors
of the Company. It is intended that this purpose be achieved by extending to
all such persons an added long-term incentive for high levels of performance
and unusual efforts through the grant of Incentive Stock Options,
Nonqualified Stock Options and Restricted Stock (as each term is hereinafter
defined).
2. Effect on Other Plans:
Upon approval of this Plan by the stockholders of the Company pursuant to
Section 19 hereof, no further stock options or other awards shall be granted
under the Company's 1994 Amended and Restated Senior Executives' Option Plan
(formerly the "1992 Senior Executives' Option Plan"), (the "1994 Plan") or
the Company's 1992 Directors' Stock Option (the "1992 Director Plan"). All
stock options outstanding under the 1994 Plan and the 1992 Director Plan
shall continue to be governed by the terms of the 1994 Plan and the 1992
Director Plan, and the relevant stock option agreement pertaining to each
such stock option.
3. Definitions:
For purposes of the Plan, unless otherwise specified, capitalized terms
shall have the following meanings:
3.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders
of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest
Fair Market Value of a Share during the ninety (90) day period ending
on the date of a Change in Control.
3.2 "Agreement" means the written agreement between the Company and an
Optionee or Awardee evidencing the grant of an Option or Award and
setting forth the terms and conditions thereof.
3.3 "Award" means a grant of Restricted Stock.
3.4 "Awardee" means a person to whom any Restricted Stock has been granted
under the Plan.
3.5 "Board" means the Board of Directors of the Company.
3.6 "Cause" means (a) for purposes of Sections 6.5 and 7.6 hereof, the
commission of an act of fraud or intentional misrepresentation or an
act of embezzlement, misappropriation or conversion of assets of the
Company or any Subsidiary, and (b) for all other purposes, the
commission of an act of fraud, dishonesty, unlawful or illegal conduct,
gross negligence, insubordination, failure to substantially perform
one's duties with the Company or any Subsidiary, or intentional
misrepresentation, or a violation of the Company's Code of Business
Ethics and Policies or similar set of standards of conduct and business
practices adopted by the Board, or an act of embezzlement,
1
<PAGE>
misappropriation or conversion of assets or opportunities of the
Company or any Subsidiary, or a determination by the Board that there
is a reasonable basis for concern that any governmental agency or
regulatory authority, or similar authority in any jurisdiction in which
the Company or any Subsidiary conducts or intends to conduct business,
seek licensing or submit a proposal to conduct business may find the
person unsuitable or unfit, or the failure of the person to provide
appropriate information to, or cooperate with any regulatory or other
governmental authority.
3.7 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a
change in value) in the Shares or exchange of Shares for a different
number or kind of shares or other securities of the Company, by reason
of a reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
3.8 A "Change in Control" shall mean the occurrence during the term of the
Plan of:
a. The "acquisition" by any "Person" (as the term "person" is used
for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of
"Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of any securities of the
Company which generally entitles the holder thereof to vote for
the election of directors of the Company (the "Voting
Securities") which, when added to the Voting Securities then
"Beneficially Owned" by such person, would result in such Person
"Beneficially Owning" forty percent (40%) or more of the
combined voting power of the Company's then outstanding Voting
Securities; provided, however, that for purposes of this
paragraph (a), a Person shall not be deemed to have made an
acquisition of Voting Securities if such Person: (i) acquires
Voting Securities as a result of a stock split, stock dividend
or other corporate restructuring in which all stockholders of
the class of such Voting Securities are treated on a pro rata
basis; (ii) acquires the Voting Securities directly from the
Company; (iii) becomes the Beneficial Owner of more than the
permitted percentage of Voting Securities solely as a result of
the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases
the proportional number of shares Beneficially Owned by such
Person; (iv) is the Company or any corporation or other Person
of which a majority of its voting power or its equity securities
or equity interest is owned directly or indirectly by the
Company (a "Controlled Entity") or (v) acquires Voting
Securities in connection with a "Non-Control Transaction" (as
defined in paragraph (c) below); or
b. The individuals who, as of April 1, 1996, are members of the
Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board; provided, however,
that if either the election of any new director or the
nomination for election of any new director by the Company's
stockholders was approved by a vote of at least two-thirds of
the Incumbent Board, such new director shall be considered as a
member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent
Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described
in Rule 14a-11 promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board of Directors (a
"Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
c. The consummation or effectiveness of:
2
<PAGE>
i. A merger, consolidation or reorganization involving the
Company (a "Business Combination"), unless
(1) the stockholders of the Company, immediately before the
Business Combination, own, directly or indirectly
immediately following the Business Combination, at
least fifty-one percent (51%) of the combined voting
power of the outstanding voting securities of the
corporation resulting from the Business Combination
(the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before the Business Combination, and
(2) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for the Business Combination constitute at
least a majority of the members of the Board of
Directors of the Surviving Corporation, and
(3) no Person (other than the Company or any Controlled
Entity, a trustee or other fiduciary holding securities
under one or more employee benefit plans or
arrangements (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or
any Controlled Entity, or any Person who, immediately
prior to the Business Combination, had Beneficial
Ownership of forty percent (40%) or more of the then
outstanding Voting Securities) has Beneficial Ownership
of forty percent (40%) or more of the combined voting
power of the Surviving Corporation's then outstanding
voting securities (a transaction described in this
subparagraph i shall be referred to as a "Non-Control
Transaction");
ii. a complete liquidation or dissolution of the Company; or
iii. the sale or other disposition of all or substantially all of
the assets of the Company to any Person (other than a
transfer to a Controlled Entity).
Notwithstanding the foregoing, (x) a Change in Control shall not be
deemed to occur solely because forty percent (40%) or more of the then
outstanding Voting Securities is Beneficially Owned by (A) a trustee or
other fiduciary holding securities under one or more employee benefit
plans or arrangements (or any trust forming a part thereof) maintained
by the Company or any Controlled Entity or (B)any corporation which,
immediately prior to its acquisition of such interest, is owned
directly or indirectly by the stockholders of the Company in the same
proportion as their ownership of stock in the Company immediately prior
to such acquisition; and (y) if an Eligible Employee's employment is.
terminated and the Eligible Employee reasonably demonstrates that such
termination (A) was at the request of a third party who has indicated
an intention or taken steps reasonably calculated to effect a Change in
Control and who effectuates a Change in Control or (B) otherwise
occurred in connection with, or in anticipation of, a Change in Control
which actually occurs, then for all purposes hereof, the date of a
Change in Control with respect to the Eligible Employee shall mean the
date immediately prior to the date of such termination of employment.
3.9 "Code" means the Internal Revenue Code of 1986, as amended.
3
<PAGE>
3.10 "Committee" means a committee consisting of at least two (2)
directors who are Disinterested Directors and Outside Directors
appointed by the Board to administer the Plan and to perform the
functions set forth herein.
3.11 "Company" means Holmes Protection Group, Inc.
3.12 "Director Option" means an Option granted pursuant to Section 6
hereof.
3.13 "Disability" means a physical or mental infirmity which impairs
the Optionee's or Awardee's ability to perform substantially his
or her duties for a period of one hundred eighty (180)
consecutive days.
3.14 "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule 16b-3 under the
Exchange Act.
3.15 "Division" means any of the operating units or divisions of the
Company designated as a Division by the Committee.
3.16 "Eligible Employee" means any officer or other employee or
consultant of the Company or a Subsidiary designated by the
Committee as eligible to receive Options or Awards subject to
the conditions set forth herein.
3.17 "Employee Option" means an Option granted pursuant to Section 7
hereof.
3.18 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3.19 "Fair Market Value" on any date means the average of the high
and low sales prices of the Shares on such date on the principal
national securities exchange on which such Shares are listed or
admitted to trading, or if such Shares are not so listed or
admitted to trading, the arithmetic mean of the per Share
closing bid price and per Share closing asked price on such date
as quoted on the National Association of Securities Dealers
Automated Quotation System or such other market in which such
prices are regularly quoted, or, if there have been no published
bid or asked quotations with respect to Shares on such date, the
Fair Market Value shall be the value established by the Board in
good faith and in accordance with Section 422 of the Code.
3.20 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option.
3.21 "Nonemployee Director" means a director of the Company who is
not an employee of the Company or any Subsidiary and who is
first elected or appointed to serve as a director of the Company
after April 1, 1996.
3.22 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
3.23 "Option" means an Employee Option, a Director Option, or either
or both of them.
3.24 "Optionee" means a person to whom an Option has been granted
under the Plan.
4
<PAGE>
3.25 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the
Code and the Treasury Regulations promulgated thereunder.
3.26 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect
to the Company.
3.27 "Plan" means the Holmes Protection Group, Inc. 1996 Stock
Incentive Plan.
3.28 "Pooling Period" means, with respect to a Pooling Transaction,
the period ending on the day after the first date on which the
combined entity resulting from the Pooling Transaction publishes
thirty days of combined operating results or, if the Board makes
a determination, such other period following the Pooling
Transaction which the Board reasonably determines is appropriate
in connection with the Pooling Transaction as a means of
qualifying for and preserving "pooling of interests" accounting
treatment.
3.29 "Pooling Transaction" means an acquisition of or by the Company
in a transaction which is intended to be treated as a "pooling
of interests" under generally accepted accounting principles.
3.30 "Restricted Stock" means Shares issued or transferred to an
Eligible Employee pursuant to Section 9 hereof, which are
subject to restrictions which lapse over time without regard to
the performance of the Company, a Subsidiary or a Division.
3.31 "Retirement" shall mean the termination of employment with the
Company by reason of the attainment of the age which the
Company, by policy or otherwise, has established as the age at
which salaried employees may or shall be required to terminate
their employment and receive retirement benefits.
3.32 "Shares" means the common stock, par value $.01 per share, of
the Company.
3.33 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code)
with respect to the Company.
3.34 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the
Code, which issues or assumes a stock option in a transaction to
which Section 424(a) of the Code applies.
3.35 "Ten-Percent Stockholder" means an Eligible Employee, who, at
the time an Incentive Stock Option is to be granted to him or
her, owns (within the meaning of Section 422(b)(6) of the Code)
stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company, or
of a Parent or a Subsidiary.
4. Administration:
4.1 The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of
its meetings. A quorum shall consist of not less than two
members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to
writing and signed by a majority of all of the members of the
Committee shall be as fully effective as if made by a majority
vote at a meeting duly called
5
<PAGE>
and held. Each member of the Committee shall be a
Disinterested Director and an Outside Director. No member of
the Committee shall be liable for any action, failure to act,
determination or interpretation made in good faith with
respect to this Plan or any transaction hereunder, except for
liability arising from his or her own willful misfeasance,
gross negligence or reckless disregard of his or her duties.
The Company hereby agrees to indemnify each member of the
Committee for all costs and expenses and, to the extent
permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiating
for the settlement of or otherwise dealing with any claim,
cause of action or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing
or denying authorization to any transaction hereunder.
4.2 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
a. determine those individuals to whom Employee Options shall
be granted under the Plan and the number of Incentive Stock
Options and/or Non qualified Stock Options to be granted to
each Eligible Employee and to prescribe the terms and
conditions (which need not be identical) of each Employee
Option, including the purchase price per Share subject to
each Employee Option, and make any amendment or modification
to any Agreement consistent with the terms of the Plan; and
b. select those Eligible Employees to whom Awards shall be
granted under the Plan and to determine the number of Shares
of Restricted Stock to be granted pursuant to each Award and
the terms and conditions of each Award, and make any
amendment or modification to any Agreement consistent with
the terms of the Plan.
4.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time:
a. to construe and interpret the Plan and the Options and
Awards granted thereunder and to establish, amend and revoke
rules and regulations for the administration of the Plan,
including, but not limited to, correcting any defect or
supplying any omission, or reconciling any inconsistency in
the Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable to make the Plan
fully effective, and all decisions and determinations by the
Committee in the exercise of this power shall be final,
binding and conclusive upon the Company, its Subsidiaries,
the Optionees and Awardees and all other persons having any
interest therein;
b. to determine the duration and purposes for leaves of absence
which may be granted to an Optionee or Awardee on an
individual basis without constituting a termination of
employment or service for purposes of the Plan;
c. to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
d. generally, to exercise such powers and to perform such acts
as are deemed necessary or advisable to promote the best
interests of the Company with respect to the Plan.
6
<PAGE>
5. Stock Subject to the Plan:
5.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is 2,000,000. Upon a
Change in Capitalization, the maximum number of Shares shall be
adjusted in number and kind pursuant to Section 11 hereof;
provided, however, that the maximum number of Shares that any
Eligible Employee may receive pursuant to the Plan in respect of
Options and Awards may not exceed 500,000 Shares. The Company
shall reserve for the purposes of the Plan, out of its
authorized but unissued Shares or out of Shares held in the
Company's treasury, or partly out of each, such number of Shares
as shall be determined by the Board.
5.2 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason,
the Shares allocable to the canceled or otherwise terminated
portion of the Option or Award may again be the subject of
Options or Awards granted hereunder.
6. Option Grants for Nonemployee Directors:
6.1 Eligibility: The class of individuals eligible to receive grants
of options under this Section 6 of the Plan shall be directors
of the Company who are not employees of the Company or its
affiliates and who have not, within one (1) year immediately
preceding the determination of such director's eligibility,
received any award under any other plan of the Company or its
affiliates that entitles the participants therein to acquire
stock, stock options or stock appreciation rights of the Company
or its affiliates (other than options granted under any other
plan under which participants' entitlements are governed by
provisions meeting the requirements of Rule 16b-3(c)(2)(ii)
promulgated under the Exchange Act) ("Eligible Directors").
6.2 Grant:
a. Effective December 4, 1995, subject to approval of the Plan
by the stockholders of the Company and availability of an
adequate number of Shares designated under the Plan, each
Eligible Director then in office will be granted an option
to purchase 25,000 Shares.
b. Upon first election or appointment to the Board, each newly
elected or appointed Eligible Director will be granted an
option to purchase 25,000 Shares.
c. Immediately following each Annual Stockholders Meeting,
commencing with the meeting following the close of fiscal
year 1996, each Eligible Director, other than an Eligible
Director first elected to the Board within the twelve (12)
months immediately preceding and including such meeting,
will be granted an option to purchase 1,000 Shares (such
option together with the options referenced in paragraphs
(a) and (b) above, each a "Director Option").
6.3 Purchase Price: The purchase price for Shares under each
Director Option shall be equal to 100% of the Fair Market Value
of such Shares on the date of the grant.
6.4 Vesting: Subject to Sections 6.5 and 8.4 hereof, each Director
Option shall vest and become exercisable in whole or in part at
any time from the date of the grant.
7
<PAGE>
6.5 Duration: Each Director Option shall terminate on the date which
is the fifth anniversary of the grant date, unless terminated
earlier as follows:
a. If an Optionee's service as a Director terminates for any
reason other than Disability, death or Cause, the Optionee
may, for a period of three (3) months after such
termination, exercise his or her Option, after which time
the Option shall automatically terminate in full.
b. If an Optionee's service as a Director terminates by reason
of the Optionee's resignation or removal from the Board, in
either case, due to Disability, the Optionee may, for a
period of one (1) year after such termination, exercise his
or her Option, after which time the Option shall
automatically terminate in full.
c. If an Optionee's service as a Director terminates for Cause,
the Option granted to the Optionee hereunder shall
immediately terminate in full and no rights thereunder may
be exercised.
d. If an Optionee dies while a Director or within three (3)
months after termination of service as a Director as
described in clause (a) or (b) of this Section 6.5, the
Option granted to the Optionee may be exercised at any time
within twelve (12) months after the Optionee's death by the
person or person to whom such rights under the Option shall
pass by will, or by the laws of descent or distribution,
after which time the Option shall terminate in full;
provided, however, that an Option may be exercised to the
extent, and only to the extent, that the Option or portion
thereof was exercisable on the date of death or earlier
termination of the Optionee's services as a Director.
6.6 Formula Award Plan: For purposes of this Section 6, the Plan is
intended to be an ongoing formula award plan (as described in
Rule 16b-3(c) (2) (ii) under the Exchange Act), such that the
awards granted hereunder shall not affect the recipient's
disinterested status for purposes of administering any stock
related plans of the Company established pursuant to Rule 16b-3
under the Exchange Act.
7. Option Grants for Eligible Employees:
7.1 Authority of Committee: Subject to the provisions of the Plan
and to Section 5.1 hereof, the Committee shall have full and
final authority to select those Eligible Employees who will
receive Options (each, an "Employee Option"), the terms and
conditions of which shall be set forth in an Agreement;
provided, however, that no person shall receive any Incentive
Stock Options unless he or she is an employee of the Company, a
Parent or a Subsidiary at the time the Incentive Stock Option is
granted.
7.2 Purchase Price: The purchase price or the manner in which the
purchase price is to be determined for Shares under each
Employee Option shall be determined by the Committee and set
forth in the Agreement, provided that the purchase price per
Share under each Employee Option shall not be less than 100% of
the Fair Market Value of a Share on the date the Employee Option
is granted (110% in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder).
7.3 Maximum Duration: Employee Options granted hereunder shall be
for such term as the Committee shall determine, provided that an
Incentive Stock Option shall not be
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exercisable after the expiration of ten (10) years from the
date it is granted (five (5) years in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder) and a
Nonqualified Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted. The
Committee may, subsequent to the granting of any Employee
Option, extend the term thereof but in no event shall the term
as so extended exceed the maximum term provided for in the
preceding sentence.
7.4 Vesting: Subject to Section 8.4 hereof, each Employee Option
shall vest and become exercisable in such installments (which
need not be equal) and at such times as may be designated by the
Committee and set forth in the Agreement. To the extent not
exercised, installments shall accumulate and be exercisable, in
whole or in part, at any time after becoming exercisable, but
not later than the date the Employee Option expires. The
Committee may accelerate the exercisability of any Employee
Option or portion thereof at any time.
7.5 Termination of Employment Due to Death, Disability or
Retirement: In the event the employment of the Optionee is
terminated by reason of death, Disability or Retirement, the
Committee may provide in the Agreement that any outstanding
Options granted to the Optionee shall become immediately
exercisable and shall thereafter be fully exercisable at any
time prior to the expiration date of the Options or within
twelve (12) months after such date of termination of employment,
whichever period is the shorter. However, in the case of
Incentive Stock Options, the favorable tax treatment prescribed
under Section 422 of the Code shall not be available if such
Options granted to the Optionee are not exercised within three
(3) months after such date of termination due to Retirement.
7.6 Termination of Employment Other Than for Death, Disability or
Retirement: If the employment of the Optionee shall terminate
for any reason other than death, Disability or Retirement or, if
the Committee does not provide in the Option Agreement the
treatment described in Section 7.5 hereof upon the termination
of the employment of the Optionee by reason of death, Disability
or Retirement, the rights under any then outstanding Option
granted to the Optionee pursuant to the Plan shall, to the
extent not then exercisable, terminate immediately and, to the
extent then exercisable, terminate upon the expiration date of
the Option or three (3) months after such date of termination of
employment, whichever first occurs, subject to such exceptions
(which shall be set forth in the Agreement) as the Committee
may, in its sole discretion, approve. Notwithstanding the
foregoing, if the employment of the Optionee is involuntarily
terminated by the Company (other than by reason of death,
Disability or Retirement), any then outstanding Option granted
pursuant to the Plan to the Optionee shall terminate immediately
upon the termination of employment; provided, that the Committee
may, in its sole discretion, waive, in whole or in part, the
automatic forfeiture of such Employee Options or may condition
such forfeiture upon whether the termination of employment was
for Cause and may set forth such waiver or condition in the
Agreement or at any other time, including following the
termination of employment.
7.7 Modification or Substitution. The Committee may, in its
discretion, modify outstanding Employee Options or accept the
surrender of outstanding Employee Options (to the extent not
exercised) and grant new Options in substitution for them.
Notwithstanding the foregoing, no modification of an Employee
Option shall adversely alter or impair any rights or obligations
under the Employee Option without the Optionee's consent.
8. Terms and Conditions Applicable to All Options:
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8.1 Non-transferability: No Option granted hereunder shall be
transferable by the Optionee to whom granted otherwise than by
will or the laws of descent and distribution, and an Option may
be exercised during the lifetime of such Optionee only by the
Optionee or his or her guardian or legal representative. The
terms of such Option shall be final, binding and conclusive upon
the beneficiaries, executors, administrators, heirs and
successors of the Optionee.
8.2 Method of Exercise: The exercise of an Option shall be made only
by a written notice delivered in person or by mail to the
Secretary of the Company at the Company's principal executive
office, specifying the number of Shares to be purchased and
accompanied by payment therefor and otherwise in accordance with
the Agreement pursuant to which the Option was granted. The
purchase price for any Shares purchased pursuant to the exercise
of an Option shall be paid in full upon such exercise by any one
or a combination of the following: (i) cash or (ii) transferring
Shares to the Company upon such terms and conditions as
determined by the Committee. Until such person has been issued
the Shares subject to such exercise, he or she shall possess no
rights as a stockholder with respect to such Shares.
Notwithstanding the foregoing, the Committee shall have
discretion to determine at the time of grant of each Employee
Option or at any later date (up to and including the date of
exercise) the form of payment acceptable in respect of the
exercise of such Employee Option and may establish cashless
exercise procedures which provide for the exercise of the Option
and sale of the underlying Share by a designated broker or
dealer. In that connection, the written notice pursuant to this
Section 8.2 may also provide instructions from the Optionee to
the Company that upon receipt of appropriate instructions from
the Optionee's broker or dealer, designated as such on the
written notice, the Company shall issue such Shares directly to
the designated broker or dealer. Any Shares transferred to the
Company as payment of the purchase price under an Option shall
be valued at their Fair Market Value on the day preceding the
date of exercise of such Option. If requested by the Committee,
the Optionee shall deliver the Agreement evidencing the Option
to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreement to the
Optionee. No fractional Shares (or cash in lieu thereof) shall
be issued upon exercise of an Option and the number of Shares
that may be purchased upon exercise shall be rounded to the
nearest number of whole Shares.
8.3 Rights of Optionees: No Optionee shall be deemed for any purpose
to be the owner of any Shares subject to any Option unless and
until (i) the Option shall have been exercised pursuant to the
terms thereof, (ii) the Company shall have issued and delivered
the Shares to the Optionee and (iii) the Optionee's name shall
have been entered as a stockholder of record on the books of the
Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such Shares.
8.4 Effect of Change in Control: Notwithstanding anything contained
in the Plan or an Agreement to the contrary (other than the last
sentence of this Section 8.4), in the event of a Change in
Control, (i) all Options outstanding on the date of such Change
in Control shall become immediately and fully exercisable, (ii)
the termination of an Optionee's employment following the Change
in Control shall not affect his rights under this Section 8.4,
and (iii) an Optionee will be permitted to surrender for
cancellation within sixty (60) days after such Change in
Control, any Option or portion of an Option to the extent not
yet exercised and the Optionee will be entitled to receive a
cash payment in an amount equal to the excess, if any, of (x)
(A) in the case of a Nonqualified Stock Option, the greater of
(1) the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject
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to the Option or portion thereof surrendered or (2) the
Adjusted Fair Market Value of the Shares subject to the Option
or portion thereof surrendered or (B) in the case of an
Incentive Stock Option, the Fair Market Value, on the date
preceding the date of surrender, of the Shares subject to the
Option or portion thereof surrendered, over (y) the aggregate
purchase price for such Shares under the Option or portion
thereof surrendered; provided, however, that in the case of an
Option granted within six (6) months prior to the Change in
Control to any Optionee who may be subject to liability under
Section 16(b) of the Exchange Act, such Optionee shall be
entitled-to surrender for cancellation his or her Option
during the sixty (60) day period commencing upon the
expiration of six (6) months from the date of grant of any
such Option. In the case of a Change in Control which also
constitutes a Pooling Transaction and notwithstanding anything
contained in the Plan or an Agreement to the contrary, the
Committee may, and with respect to Director Options shall,
take such actions which are specifically recommended by an
independent accounting firm retained by the Company, to the
extent reasonably necessary in order to assure that the
Pooling Transaction will qualify as such, including, but not
limited to, providing that (i) all Options or, in the
alternative, such Options held by Optionees specifically
identified by the Committee, shall not become immediately and
fully exercisable on the date of the Change in Control but
rather shall become immediately and fully exercisable on the
date following the last day on which the Pooling Period
expires (whether or not the Optionee is then an employee or
director of the Company) and the holders of such Options shall
only have the right to surrender for cancellation Options or
portion thereof for the cash payment specified in clause (ii)
of the first sentence of this Section 8.4 after the day
following the expiration of the Pooling Period and for a
period of sixty (60) days thereafter (in which case, whether
or not the Optionee holding any such Options remains an
employee or director of the Company, any such Option shall not
terminate and shall remain exercisable for the greater of
sixty (60) days after the expiration of the Pooling Period and
the date such Option would otherwise terminate in accordance
with the Plan and the relevant Agreement), and/or (ii) the
payment specified in this Section 8.4 shall be paid in the
form of cash, Shares or securities of a successor or acquirer
of the Company, or a combination of the foregoing, as
designated by the Committee.
9. Restricted Stock:
9.1 Grant: The Committee may grant to Eligible Employees Awards of
Restricted Stock, which shall be evidenced by an Agreement
between the Company and the Awardee. Each Agreement shall
contain such restrictions, terms and conditions as the Committee
may, in its discretion, determine and (without limiting the
generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share certificates. Awards of
Restricted Stock shall be subject to the terms and provisions
set forth below in this Section 9.
9.2 Rights of Awardee: Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Awardee
as soon as reasonably practicable after the Award is granted,
provided that the Awardee has executed an Agreement evidencing
the Award, the appropriate blank stock powers and, in the
discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the
issuance of such Shares. If an Awardee shall fail to execute the
Agreement evidencing a Restricted Stock Award, the appropriate
blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may
require within the time period prescribed by the Committee at
the time the Award is granted, the Award shall be null and void.
At the discretion of the Committee,
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Shares issued in connection with a Restricted Stock Award
shall be deposited together with the stock powers with an
escrow agent (which may be the Company) designated by the
Committee. Unless the Committee determines otherwise and as
set forth in the Agreement, upon delivery of the Shares to the
escrow agent, the Awardee shall have all of the rights of a
stockholder with respect to such Shares, including the right
to vote the Shares and to receive all dividends or other
distributions paid or made with respect to the Shares.
9.3 Non-transferability: Until any restrictions upon the Shares of
Restricted Stock awarded to an Awardee shall have lapsed in the
manner set forth in Section 9.4 hereof, such Shares shall not be
sold, transferred or otherwise disposed of and shall not be
pledged or otherwise hypothecated, nor shall they be delivered
to the Awardee.
9.4 Lapse of Restrictions:
a. Generally: Subject to Section 14 hereof, restrictions upon
Shares of Restricted Stock awarded hereunder shall lapse at
such time or times and on such terms and conditions as the
Committee may determine, which restrictions shall be set
forth in the Agreement evidencing the Award.
b. Effect of Change in Control: Notwithstanding anything
contained in the Plan, unless the Agreement evidencing the
Award provides to the contrary, in the event of a Change in
Control, all restrictions upon any Shares of Restricted
Stock shall lapse immediately and all such Shares shall
become fully vested in the Awardee.
9.5 Modification or Substitution: Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Restricted Stock
or accept the surrender of outstanding Awards of Restricted
Stock (to the extent not exercised) and grant new Awards in
substitution for them. Notwithstanding the foregoing, no
modification of an Award shall adversely alter or impair any
rights or obligations under the Agreement without the Awardee's
consent.
9.6 Treatment of Dividends: At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its
discretion, determine that the payment to the Awardee of
dividends, or a specified portion thereof, declared or paid on
such Shares by the Company shall be (i) deferred until the
lapsing of the restrictions imposed upon such Shares and (ii)
held by the Company for the account of the Awardee until such
time. If dividends are to be deferred, the Committee shall
determine whether such dividends are to be reinvested in Shares
(which shall be held as additional shares of Restricted Stock)
or held in cash. If deferred dividends are to be held in cash,
there may be credited at the end of each year (or portion
thereof) interest on the amount of the account at the beginning
of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends,
together with interest accrued thereon, shall be made upon the
lapsing of restrictions imposed on such Shares, and any
dividends deferred (together with any interest accrued thereon)
in respect of any Shares of Restricted Stock shall be forfeited
upon the forfeiture of such Shares.
9.7 Delivery of Shares: Upon the lapse of the restrictions on Shares
of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Awardee with respect to such
Shares, free of all restrictions hereunder.
10. Effect of a Termination of Employment:
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The Agreement evidencing the grant of each Employee Option and each
Award shall set forth the terms and conditions applicable to such
Employee Option or Award upon a termination or change in the status of
the employment of the Optionee or Grantee by the Company, a Subsidiary
or a Division (including a termination or change by reason of the sale
of a Subsidiary or a Division), as the Committee may, in its
discretion, determine at the time the Employee Option or Award is
granted or thereafter.
11. Adjustment Upon Changes in Capitalization:
a. In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to
the (i) maximum number and class of Shares or other stock or
securities with respect to which Options or Awards may be granted
under the Plan, (ii) the maximum number of Shares with respect to
which Options or Awards may be granted to any Eligible Employee
during the term of the Plan, (iii) the number and class of Shares
or other stock or securities which are subject to Director
Options issuable under Section 6 hereof; (iv) the number and
class of Shares or other stock or securities which are subject to
outstanding Options or Awards granted under the Plan, and the
purchase price therefor, if applicable; and (v) the Performance
Objectives.
b. Any such adjustment in the Shares or other-stock or securities
subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner
as not to constitute a modification as defined by Section
424(h)(3) of the Code and only to the extent otherwise permitted
by Sections 422 and 424 of the Code.
c. Any stock adjustment in the Shares or other stock or securities
subject to outstanding Director Options (including any
adjustments in the purchase price) shall be made only to the
extent necessary to maintain the proportionate interest of the
Optionee and preserve, without exceeding, the value of such
Director Option.
d. If, by reason of a Change in Capitalization, a Grantee of an
Award shall be entitled to, or an Optionee shall be entitled to
exercise an Option with respect to, new, additional or different
shares of stock or securities, such new additional or different
shares shall thereupon be subject to all of the conditions,
restrictions and performance criteria which were applicable to
the Shares subject to the Award or Option, as the case may be,
prior to such Change in Capitalization.
12. Effect of Certain Transactions:
Subject to Sections 8.4 and 9.4(b) hereof, in the event of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Plan and the Options and Awards
issued hereunder shall continue in effect in accordance with their
respective terms and each Optionee and Awardee shall be entitled to receive
in respect of each Share subject to any outstanding Options or Awards, as
the case may be, upon exercise of any Option or payment or transfer in
respect of any Award, the same number and kind of stock, securities, cash,
property, or other consideration that each holder of a Share was entitled
to receive in the Transaction.
13. Termination and Amendment of the Plan:
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The Plan shall terminate on the day preceding the tenth anniversary of the
date of its adoption by the Board and no Option or Award may be granted
thereafter. The Board may sooner terminate the Plan and the Board may at
any time and from time to time amend, modify or suspend the Plan; provided,
however, that:
a. No such amendment, modification, suspension or termination shall
impair or adversely alter any Options or Awards theretofore
granted under the Plan, except with the consent of the Optionee
or Awardee, nor shall any amendment, modification, suspension or
termination deprive any Optionee or Awardee of any Shares which
he or she may have acquired through or as a result of the Plan;
b. To the extent necessary under Section 16(b) of the Exchange Act
and the rules and regulations promulgated thereunder or other
applicable law, no amendment shall be effective unless approved
by the stockholders of the Company in accordance with applicable
law and regulations; and
c. The provisions of Section 6 hereof shall not be amended more
often than once every six (6) months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act
of 1974, as amended, or the rules and regulations promulgated
thereunder.
14. Certain Limitations:
Notwithstanding any other provision of the Plan to the contrary:
a. stockholder approval shall be required for any material amendment
of the Plan to become effective (with materiality as determined
for purposes of Section 16(b) of the Exchange Act, the rules and
regulations promulgated thereunder, and the interpretations of
the Securities and Exchange Commission and its staff in
connection therewith);
b. no amendment or adjustment of the exercise price of an Option
(whether through amendment, cancellation or replacement grants,
or other means of repricing of such Options), in respect of an
Option having an exercise price greater than the Fair Market
Value of a Share as of the date of such amendment or adjustment,
shall be authorized under the Plan unless stockholder approval of
such repricing is obtained;
c. stockholder approval shall be required for any lapse or waiver of
restrictions on Shares of Restricted Stock not expressly
specified in the Agreement evidencing the Award; and
d. an Award of Shares of Restricted Stock shall provide for the
lapse of restrictions in no less than three years after the date
of the Award in respect of at least 50% of the Shares subject to
that Award.
However, the Committee shall have the discretion to act in respect of
Options or Awards in a manner not in compliance with the requirements of
this Section 14, provided that the number of Shares which are the subject
of such Options or Awards does not exceed in the aggregate three percent
(3%) of the maximum number of Shares that may be made the subject of
Options and Awards under the Plan as set forth in Section 5.1 hereof.
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15. Non-Exclusivity of the Plan:
Except as provided in Section 2 hereof, the adoption of the Plan by the
Board shall not be construed as amending, modifying or rescinding any
previously approved incentive arrangement or as creating any limitations on
the power of the Board to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock
options otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
16. Limitation of Liability:
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed
to:
a. give any person any right to be granted an Option or Award other
than at the sole discretion of the Committee;
b. give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
c. limit in any way the right of the Company to terminate the
employment of any person at any time; or
d. be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any
particular rate of compensation or for any particular period of
time.
17. Regulations and Other Approvals; Governing Law:
17.1 Except as to matters of federal law, this Plan and the rights of all
persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving
effect to conflicts-of-law principles.
17.2 The obligation of the Company to sell or deliver Shares with respect
to Options and Awards granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
17.3 The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
17.4 The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority, or
to obtain for Eligible Employees granted Incentive Stock Options the
tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
17.5 Each Option and Award is subject to the requirement that, if at any
time the' Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan
is required by any securities exchange or under any state or federal
law,
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<PAGE>
or the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in connection
with, the grant of an Option or Award or the issuance of
Shares, no Options or Awards shall be granted or payment made
or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been
effected or obtained free of any conditions as acceptable to
the Committee.
17.6 Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event that the disposition of Shares acquired
pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1933, as amended, and is not
otherwise exempt from such registration, such Shares shall be
restricted against transfer to the extent required by the Securities
Act of 1933, as amended, and Rule 144 or other regulations thereunder.
The Committee may require any individual receiving Shares pursuant to
an Option or Award granted under the Plan, as a condition precedent to
receipt of such Shares, to represent and warrant to the Company in
writing that the Shares acquired by such individual are acquired
without a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration thereof
under said Act or pursuant to an exemption applicable under the
Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder. The certificates evidencing any of such Shares
shall be appropriately amended to reflect their status as restricted
securities as aforesaid.
18. Miscellaneous:
18.1 Multiple Agreements: The terms of each Option or Award may differ from
other Options or Awards granted under the Plan at the same time, or at
some other time. The Committee may also grant more than one Option or
Award to a given Eligible Employee during the term of the Plan, either
in addition to, or in substitution for, one or more Options or Awards
previously granted to that Eligible Employee.
18.2 Withholding of Taxes:
a. The Company shall have the right to deduct from any distribution
of cash to any Optionee or Awardee, an amount equal to the
federal, state and local income taxes and other amounts as may be
required by law to be withheld (the "Withholding Taxes") with
respect to any Option or Award. If an Optionee or Awardee is to
experience a taxable event in connection with the receipt of
Shares pursuant to an Option exercise or payment of an Award (a
"Taxable Event"), the Optionee or Awardee shall pay the
Withholding Taxes to the Company prior to the issuance, or
release from escrow, of such Shares. In satisfaction of the
obligation to pay Withholding Taxes to the Company, the Optionee
or Awardee may make a written election (the "Tax Election"),
which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the Shares then issuable
to him or her having an aggregate Fair Market Value, on the date
preceding the date of such issuance, equal to the Withholding
Taxes, provided that in respect of an Optionee or Awardee who may
be subject to liability under Section 16(b) of the Exchange Act
either: (i) in the case of a Taxable Event involving an Option or
an Award (A) the Tax Election is made at least six (6) months
prior to the date of the Taxable Event and (B) the Tax Election
is irrevocable with respect to all Taxable Events of a similar
nature occurring prior to the expiration of six (6) months
following a revocation of the Tax Election; or (ii) in the case
of the exercise of an Option (A) the Optionee makes the Tax
Election at least six (6) months after the date the
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<PAGE>
Option was granted, (B) the Option is exercised during the ten
(10) day period beginning on the third business day and ending on
the twelfth business day following the release for publication of
the Company's quarterly or annual statement of sales and earnings
(a "Window Period") and (C) the Tax Election is made during the
Window Period in which the related Option is exercised or prior
to such Window Period and subsequent to the immediately preceding
Window Period; or (iii) in the case of a Taxable Event relating
to the payment of an Award (A) the Awardee makes the Tax Election
at least six (6) months after the date the Award was granted and
(B) the Tax Election is made (x) in the case of a Taxable Event
occurring within a Window Period, during the Window Period in
which the Taxable Event occurs, or (y) in the case of a Taxable
Event not occurring within a Window Period, during the Window
Period immediately preceding the Taxable Event relating to the
Award. Notwithstanding the foregoing, the Committee may, by the
adoption of rules or otherwise, (i) modify the provisions of this
Section 18.2 (other than as regards Director Options) or impose
such other restrictions or limitations on Tax Elections as may be
necessary to ensure that the Tax Elections will be exempt
transactions under Section 16(b) of the Exchange Act, and (ii)
permit Tax Elections to be made at such other times and subject
to such other conditions as the Committee determines will
constitute exempt transactions under Section 16(b) of the
Exchange Act.
b. If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any
Share or Shares issued to such Optionee pursuant to the exercise
of an Incentive Stock Option within the two-year period
commencing on the day after the date of the grant or within the
one-year period commencing on the day after the date of transfer
of such Share or Shares to the Optionee pursuant to such
exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written
notice to the Company at its principal executive office.
c. The Committee shall have the authority, at the time of grant of
an Employee Option under the Plan or at any time thereafter, to
award tax bonuses to designated Optionees, to be paid upon their
exercise of Employee Options granted hereunder. The amount of any
such payments shall be determined by the Committee. The Committee
shall have full authority in its absolute discretion to determine
the amount of any such tax bonus and the terms and conditions
affecting the vesting and payment thereof.
18.3 Interpretation: Unless otherwise expressly stated in the relevant
Agreement, any grant of Options or an Award is intended to be
performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code. The Committee shall not be entitled to
exercise any discretion otherwise authorized hereunder with respect to
such Options or Awards if the ability to exercise such discretion or
the exercise of such discretion itself would cause the compensation
attributable to such Options or Awards to fail to qualify as
performance-based compensation.
19. Effective Date:
The effective date of the Plan shall be the date of its adoption by the
Board, subject only to the approval by the affirmative vote of the holders
of a majority of the securities of the Company
17
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present, or represented, and entitled to vote at a meeting of stockholders
duly held in accordance with the applicable laws of the State of Delaware
within twelve (12) months of such adoption.
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Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
April 17, 1997
Holmes Protection Group, Inc.
440 Ninth Avenue
New York, NY 10001-1695
Re: Registration Statement on Form S-8
----------------------------------
Ladies and Gentlemen:
You have requested our opinion, as counsel for Holmes Protection Group,
Inc., a Delaware corporation (the "Company"), in connection with the
registration statement on Form S-8 (the "Registration Statement"), filed with
the Securities and Exchange Commission under the Securities Act of 1933 (the
"Act"). The Registration Statement relates to, among other things, an offering
by the Company of an aggregate of 31,431 shares of common stock, par value $.01
per share, of the Company (the "Common Stock") pursuant to the Holmes Protection
Group, Inc. Amended and Restated Senior Executives' Option Plan and 2,000,000
shares of Common Stock pursuant to the Holmes Protection Group, Inc. 1996 Stock
Incentive Plan.
We have examined such records and documents and made such examinations
of law as we have deemed relevant in connection with this opinion. It is our
opinion that when there has been compliance with the Act and the applicable
state securities laws, the shares of Common Stock to be sold by the Company,
when issued, delivered, and paid for in the manner described in the Registration
Statement, will be legally issued, and the shares of Common Stock, when so
issued, delivered and paid for, will also be fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Squadron, Ellenoff, Plesent & Sheinfeld, LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 28, 1997
(except with respect to the matter discussed in Note 15, as to which the date is
March 12, 1997) included in the Holmes Protection Group, Inc.'s Form 10-K for
the year ended December 31, 1996 and to all references to our Firm included in
this registration statement on Form S-8.
/s/ ARTHUR ANDERSEN, LLP
New York, New York
April 16, 1997
