-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H8GOfUmIK4XgSA3RKQzfsXXUrU7cogoYxPAD5noY2MpqlyDgPCj7mYIVMU3Pbzv5 Gh9VYONxy4ZJllXkBmXuQg== 0000925328-97-000019.txt : 19970610 0000925328-97-000019.hdr.sgml : 19970610 ACCESSION NUMBER: 0000925328-97-000019 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970609 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURACOM INC CENTRAL INDEX KEY: 0001037453 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 222817302 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-26439 FILM NUMBER: 97620868 BUSINESS ADDRESS: STREET 1: 50 TICE BLVD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 BUSINESS PHONE: 2019309500 MAIL ADDRESS: STREET 1: 50 TICE BLVD STREET 2: 50 TICE BLVD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 S-1/A 1 AMENDMENT NO. 1 TO S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997 REGISTRATION NO. 333-26439 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ AMENDMENT NO. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ SECURACOM, INCORPORATED (Exact name of Registrant as specified in its charter) Delaware 7373 22-2817302 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
------------------ 50 TICE BOULEVARD WOODCLIFF LAKE, NEW JERSEY 07675 (201) 930-9500 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------ RONALD C. THOMAS PRESIDENT AND CHIEF EXECUTIVE OFFICER SECURACOM, INCORPORATED 50 TICE BOULEVARD WOODCLIFF LAKE, NEW JERSEY 07675 (201) 930-9500 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ COPIES TO: MICHAEL JOSEPH, ESQ. THOMAS R. DENISON, ESQ. DYER ELLIS & JOSEPH P.C. GIBSON, DUNN & CRUTCHER LLP 600 NEW HAMPSHIRE AVE., N.W. 1801 CALIFORNIA STREET SUITE 1000 SUITE 4100 WASHINGTON, D.C. 20037 DENVER, COLORADO 80202 (202) 944-3000 (303) 298-5700 ------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.|_| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| ------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Subject to Completion, Dated June 9, 1997 PROSPECTUS 2,000,000 SHARES [Securacom Logo] COMMON STOCK Of the 2,000,000 shares of Common Stock of the Company (the "Common Stock") offered hereby, 1,400,000 shares are being issued and sold by Securacom, Incorporated ("Securacom" or the "Company") and 600,000 are being sold by a stockholder of the Company (the "Selling Stockholder"). See "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholder. Prior to this offering (the "Offering"), there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $8.50 and $10.50 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made to list the Common Stock on the Nasdaq SmallCap Market under the proposed symbol "SECU." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 6. 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.
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO PUBLIC DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDER Per Share................................. $ $ $ $ Total (3)................................. $ $ $ $ - ------------------------------------------ ------------------- -------------------- -------------------- ------------------
(1) See "Underwriting" for information concerning the compensation and indemnification of the Underwriters and other information. (2) Before deducting expenses payable by the Company estimated at $520,000. (3) The Company and the Selling Stockholder have granted the Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an additional 210,000 and 90,000, respectively, shares of Common Stock solely to cover over-allotments, if any, at the Price to Public less the Underwriting Discount. If such option is exercised in full, the total Price to Public, Underwriting Discount, Proceeds to Company, and Proceeds to Selling Stockholder will be $ , $ , $ , and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the several Underwriters subject to receipt and acceptance of such shares by them. The Underwriters reserve the right to withdraw, cancel, or reject any order in whole or in part. It is expected that the shares will be available for delivery against payment in New York, New York on or about , 1997. HANIFEN, IMHOFF INC. SCOTT & STRINGFELLOW, INC. The date of this Prospectus is , 1997 Securacom, Incorporated [Diagram of Services Offered by Securacom] Single Source Security Through Technology CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 Securacom, Incorporated is a fully integrated single source security company. The Company provides consulting and planning, engineering and design, systems integration, and maintenance and technical support services to commercial and government clients worldwide. Securacom's capabilities enable it to provide clients with single source turn-key solutions for medium and large scale complex security projects. Securacom has completed security projects for airports, corporations, utilities, prisons, universities, and federal, state and local governments. [Picture of New York City's [Picture of Tennessee Valley World Trade Center] Authority Facility] Federal, State and Local Utilities Government [Picture of NationsBank [Picture of Processing Headquarters] Facility] Corporations Process and Manufacturing Facilities [Picture of Washington Dulles International Airport] Airports PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Except as otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY Securacom is a single-source provider of comprehensive technology-based security solutions for medium and large commercial and government facilities in the United States and abroad. The Company offers a broad range of services, consisting of: (i) consulting and planning; (ii) engineering and design; (iii) systems integration; and (iv) maintenance and technical support. The solutions provided by the Company include integrated security systems comprised of a command center managing one or more subsystems and components, primarily access control systems, intrusion detection systems, closed circuit television systems, critical condition monitoring systems and fire detection systems. The Company is not aware of any other company providing this comprehensive range of services on a national basis. The Company believes that the multi-billion dollar market for technology-based security solutions is growing rapidly due to the following factors: (i) many existing security systems are becoming technologically obsolete and inadequate or consist of internally incompatible subsystems, creating a need for re-engineering, upgrading and integration; (ii) technological advancements provide the opportunity to increase the scope and cost-efficiency of many routine security tasks, such as the replacement of guards with electronic surveillance; (iii) the proliferation of computers and advanced communications systems has created a new and growing security need for clients to prevent the misuse of proprietary information and other intellectual property; and (iv) a number of highly publicized acts of terrorism have heightened corporate and government officials' awareness of an increased need for physical safety. The security industry is highly fragmented and consists of a broad array of equipment manufacturers and distributors, consultants and engineers and systems integrators, each of which provides only a portion of the services required to deliver an integrated security solution. As a result, clients are frequently required to coordinate the planning, design and implementation of a project through multiple service providers and vendors. This approach causes client frustration with project delays, cost inefficiencies, lack of vendor accountability and incompatible subsystems. Securacom believes that as a single-source provider of security solutions it can expedite project completion and reduce its clients' manpower requirements and aggregate project costs. In addition, the Company has the flexibility to respond to each of its client's particular needs, whether the client requires only one of the services offered by the Company, various services on an ongoing basis, or a comprehensive turnkey security solution using all of the Company's areas of expertise and its national network of offices. Securacom's objective is to become the leading provider of comprehensive, high-value-added, technology-based security solutions for medium and large commercial and government facilities in the United States and abroad. The Company's strategy focuses on developing long-term client relationships. These relationships allow the Company to integrate itself into clients' decision-making processes by identifying solutions for new security systems upgrades and other ongoing security needs. Additional key elements of the Company's strategy include: (i) capitalizing on its position as a national single-source 3 provider of security solutions; (ii) continuing to expand its client base in targeted industries; (iii) maintaining its high level of technological sophistication; (iv) enhancing its ability to pursue bidding opportunities on larger projects; and (v) continuing to focus on providing high-value-added services. The Company began operations in 1987 in association with a large privately held engineering firm. In 1992, the Company became independent from the engineering firm in conjunction with a capital infusion from a private investment group. At the same time, the Company hired new management with extensive experience in the security industry. Since then, the Company has devoted a substantial amount of resources and capital to enhancing its technical capability and services offerings, hiring and training key personnel and expanding its client base. As part of this effort, the Company has opened four regional offices in the United States and one international office in Moscow, Russia. Securacom believes that it now has in place the infrastructure and capabilities to substantially increase revenues and profitability. As a result of these initiatives, revenues have grown from $2.4 million in 1994 to $3.2 million in 1995 and $5.8 million in 1996. The Company achieved its first profitable quarter of operations during the three months ended March 31, 1997, with net income of $206,000 on revenues of $3.3 million. Over the past three years, the Company has served more than 50 clients including airports, hospitals, prisons, corporations, utilities, universities and government facilities. Current clients include Washington Dulles International Airport, Hewlett-Packard Company, EDS, United Airlines, Gillette Corporation, MCI Telecommunications Corporation and New York City's World Trade Center. RECENT DEVELOPMENTS During the first quarter of 1997, the Company contracted to provide services to several new clients. The Company signed an agreement to provide a broad range of services in connection with the upgrading of Amtrak's access control systems at eight facilities in the northeast and California. Additionally, it contracted to prepare a security master plan for Xerox Corporation's manufacturing and engineering facilities in Rochester, New York. The Company also finalized an agreement to provide a comprehensive access control system upgrade at the headquarters of Rostelecom, the primary Russian long distance telephone service provider. This project expands Securacom's Moscow client base which also includes Moscow Local Telephone System and US WEST. In April, the Company signed a joint venture agreement with Ahmad N. AlBinali & Sons Co., a large Saudi Arabian engineering and construction company, to develop and conduct business in the Kingdom of Saudi Arabia. The Company's headquarters are located at 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675, and its telephone number is (201) 930-9500. 4 THE OFFERING Common Stock offered by the Company 1,400,000 shares Common Stock offered by the Selling Stockholder 600,000 shares Common Stock to be outstanding after the Offering 5,834,140 shares(1) Use of proceeds to the Company To repay certain indebtedness, to expand and upgrade the Company's management information systems, to further develop and document the Company's command center integration software and for working capital and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq SmallCap Market symbol SECU (1) Based upon the number of shares outstanding as of March 31, 1997. Does not include 1,557,962 shares issuable upon the exercise of warrants outstanding as of March 31, 1997, of which warrants to purchase 979,629 shares were exercisable as of that date. SUMMARY FINANCIAL DATA
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------------- ------------------------- 1992 1993 1994 1995 1996 1996 1997 ---------- ----------- ---------- ---------- ---------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Earned revenues............. $6,775,971 $3,245,145 $2,395,254 $3,176,523 $5,824,448 $ 656,022 $3,297,899 Gross profit............ 381,966 341,109 808,939 996,559 1,408,062 402,137 971,676 Selling, general and administrative expenses................ 1,884,316 2,122,715 2,670,092 2,870,570 3,700,698 739,907 645,656 Net income (loss)........... (1,502,350) (1,781,606) (1,887,717) (1,767,692) (2,512,833) (356,623) 206,143 Net income (loss) per share. $ (1.52) $ (0.57) $ (0.52) $ (0.43) $ (0.56) $ (0.08) $ 0.04 Weighted average number of common shares outstanding. 986,533 3,141,492 3,648,653 4,064,324 4,523,021 4,222,869 5,105,274
MARCH 31, 1997 ACTUAL AS ADJUSTED(1) BALANCE SHEET DATA: Cash and cash equivalents.................................................................... $ 130,741 $ 7,280,741 Working capital.............................................................................. 334,910 7,484,910 Total assets................................................................................. 6,116,761 15,266,761 Long-term debt, less current maturities...................................................... 3,300,548 111,048 Total stockholders' equity (deficiency)...................................................... (1,327,584) 11,011,916
(1) As adjusted to give effect to the sale of Common Stock in the Offering by the Company at an assumed offering price of $10.00 and the application of the net proceeds therefrom. Does not give effect to the potential issuance of 1,557,962 shares issuable upon the exercise of warrants outstanding as of March 31, 1997, of which warrants to purchase 979,629 shares were exercisable as of that date. 5 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be carefully considered in evaluating an investment in the Common Stock offered hereby. HISTORY OF LOSSES AND ACCUMULATED DEFICIT The Company has incurred net losses in each year since inception. The Company reported net losses of $1.9 million, $1.8 million and $2.5 million for the years ended December 31, 1994, 1995 and 1996, respectively. The Company's accumulated deficit through March 31, 1997 was $12.0 million. Although the Company reported net income of $206,000 for the three months ended March 31, 1997, its first quarter of profitable operations, there can be no assurance the Company will maintain profitable operations in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and the notes thereto. RISKS ASSOCIATED WITH GROWTH STRATEGY The Company's strategy envisions a period of rapid growth that may put a strain on its administrative and operational resources. While the Company believes that it has established a significant infrastructure to support growth, its ability to effectively manage growth will require it to continue to expand the capabilities of its operational and management systems and to attract, train, manage and retain qualified project managers, engineers and technicians. There can be no assurance that it will be able to do so. If the Company is unable to successfully manage its growth, the Company's business, operating results and financial condition could be adversely affected. DEPENDENCE UPON MANAGEMENT The Company is dependent upon the continued services of key members of its management, including its President and Chief Executive Officer, Ronald C. Thomas. The loss of one or more key members of management could have a material adverse effect on the Company. The Company does not maintain key-man life insurance policies on members of management. See "Management." DEPENDENCE ON LIMITED NUMBER OF CLIENTS For the year ended December 31, 1996 the Company's three largest clients, New York City's World Trade Center, the Metropolitan Washington Airport Authority and MCI Telecommunications Corporation, in the aggregate, accounted for 64% of its revenues, and three additional clients together accounted for an additional 18% of its revenues. The Company anticipates that its three largest clients will continue to account for the majority of its revenues during 1997. The loss of any of the Company's major clients could adversely affect the Company's business, operating results and financial condition. Several of the projects for the Company's major clients will be substantially completed in 1997, and the Company's future operating results will depend on its ability to develop future sales prospects and generate orders from new and existing clients. CANCELLATION OF CONTRACTS A majority of the Company's contracts are subject to cancellation by the Company's clients upon short notice. The Company's contracts with government entities are subject to modification or 6 termination for the convenience of the government. Although these government contracts generally extend over several years, such contracts are typically funded on an annual basis and may be terminated prior to completion because of lack of funding. Contracts with corporations also frequently permit the client to terminate the Company's services for any reason, with limited notice to the Company. Although to date none of the Company's contracts has been terminated prior to completion, there can be no assurance that this will not occur in the future, resulting in a loss of a significant portion of the Company's backlog with little warning. EXPOSURE TO PROFESSIONAL LIABILITY In the event of a breach of a security system designed, installed, maintained, or engineered by the Company, the Company may be subject to a claim that an error or omission on the part of the Company contributed to the damages resulting from such breach, which damages could be substantial. While the Company maintains insurance covering such risk, there can be no assurance that such coverage, currently limited to $1.0 million, will be adequate or that such insurance will cover all such risks associated with the Company's services. Any such claim, even if covered by insurance, could materially and adversely affect the Company. COMPETITION The security industry is highly competitive. The Company competes on a local, regional and national level with security equipment manufacturers, systems integrators, consulting firms and engineering and design firms. Many of its competitors have greater name recognition and financial resources than the Company. The Company may also face competition from potential new entrants into the security industry or increased competition from existing competitors that may attempt to develop the ability to offer the full range of services offered by the Company. The Company believes that competition is based primarily on the ability to deliver solutions that meet a client's requirements and, to a lesser extent, on price. While the Company believes its position as the only national, single-source provider of comprehensive, technology-based security solutions gives it a competitive advantage, there can be no assurance that the Company's competitors will not expand the scope of their services or that other participants in the security industry will not enter the markets served by the Company. There can be no assurance that the Company will be able to compete successfully in the future against existing or potential competitors. CONTROL BY CURRENT STOCKHOLDERS Upon completion of the Offering, approximately 34.7% of the outstanding shares of the Common Stock will be owned by two limited partnerships, the general partner of which is KuwAm Corporation ("KuwAm"). Wirt D. Walker, III, the Company's Chairman, is the Managing Director of KuwAm. Accordingly, Mr. Walker, acting through these partnerships, may have the ability to control the Company's Board of Directors and, therefore, the business, policies and affairs of the Company. Such control could preclude unsolicited acquisitions of the Company and, consequently, adversely affect the market price of the Common Stock. The individual limited partners of such partnerships, including Mr. Walker, will own an additional 24.9% of the outstanding Common Stock after the Offering. See "Principal and Selling Stockholders" and "Description of Capital Stock." 7 LENGTHY SALES CYCLE The sale of the Company's services frequently involves a substantial commitment of resources to evaluate a potential project and prepare a proposal. In addition, approval of proposals often involves a lengthy process due to clients' internal procedures and capital expenditure approval processes. Accordingly, the sales cycle associated with the Company's services is typically lengthy and subject to certain risks that are beyond the Company's control, including risks relating to client's budgetary constraints and internal priorities or procedures. FLUCTUATIONS IN QUARTERLY RESULTS The Company's quarterly results have varied significantly in the past and will likely continue to do so in the future due to a variety of factors, including the timing and nature of projects from which revenues are recognized during any particular quarter. Such fluctuations may contribute to volatility in the market price for the Common Stock. In particular, the Company has only had one profitable quarter to date. If the Company has one or more unprofitable quarters in the future, the market price for the Common Stock could be adversely affected. BROAD DISCRETION IN APPLICATION OF PROCEEDS Approximately $7.1 million, or 56.8%, of the estimated net proceeds of the Offering to the Company have been allocated to working capital and general corporate purposes. Accordingly, the Company will have broad discretion as to the application of such proceeds. See "Use of Proceeds." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF PRICE Prior to the Offering there has been no public market for the Common Stock. Accordingly, there can be no assurance that an active trading market will develop or be sustained upon completion of the Offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price of the Common Stock will be determined by negotiations among the Company and the Representatives of the Underwriters and may not be indicative of the prices that will prevail in the public market. The trading prices of the Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations in the Company's operating results, material announcements by the Company, general conditions in the security industry, or other events or factors, many of which are beyond the Company's control. In addition, the stock market as a whole and individual stocks have experienced extreme price and volume fluctuations, which have often been unrelated to the performance of the related corporations. The Company's operating results in future quarters may be below the expectations of securities analysts and investors. In such event, the price of the Common Stock will likely decline, perhaps substantially. See "Underwriting." ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Certificate of Incorporation and certain provisions of the Delaware General Corporation Law may make it difficult to change control of the Company and replace incumbent management. For example, the Certificate of Incorporation permits the Board of Directors, without stockholder approval, to issue additional shares of Common Stock or establish one or more classes or series of Preferred Stock having such number of shares, designations, relative voting rights, dividend rates, liquidation and other rights, preferences and limitations as the Board of Directors may 8 determine. In addition, the Company's Board of Directors has adopted a stockholder rights plan that could further discourage attempts to acquire control of the Company. See "Description of Capital Stock." The Company has also entered into employment and consulting agreements with certain officers which provide that upon the occurrence of certain events following certain changes in control of the Company, such officers may be entitled to receive two times their annual base salaries. See "Management--Employment and Consulting Agreements." The significant ownership position of certain stockholders may also have the effect of deterring a change of control. See "Principal and Selling Stockholders." SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Common Stock in the public market following the Offering, or the perception that such sales might occur, could adversely affect prevailing market prices of the Common Stock and could impair the future ability of the Company to raise capital through the sale of its equity securities. The Company is unable to make any prediction as to the effect, if any, that future sales of Common Stock or the availability of Common Stock for sale may have on the market price of the Common Stock prevailing from time to time. Subsequent to 180 days following the Offering, the limited partnerships that will own 2,022,127 shares of the Common Stock after the Offering will be able to sell their Common Stock and/or distribute it to their limited partners. Following such a distribution, the limited partners will be able to freely sell such shares. Certain existing stockholders, holding 3,597,251 shares of Common Stock, have the right to include their shares in future registrations of Common Stock and certain preferential rights that must be satisfied in connection with future financings. See "Description of Capital Stock" and "Shares Eligible for Future Sale." DILUTION Based on an assumed public offering price of $10.00 per share, purchasers of the Common Stock offered hereby will incur an immediate and substantial dilution of $8.11 per share in net tangible book value from the initial public offering price. The Company has issued and outstanding warrants to purchase up to 1,557,962 shares of Common Stock at exercise prices ranging from $1.00 to $7.00 with a weighted average exercise price of $5.92 per share. The existence of such warrants may hinder future financings by the Company and the exercise of such warrants may further dilute the interests of all other stockholders. The possible future resale of Common Stock issuable on the exercise of such warrants could adversely affect the prevailing market price of the Common Stock. Further, the holders of warrants may exercise them at a time when the Company would otherwise be able to obtain equity capital on terms more favorable to the Company. See "Dilution." DIVIDENDS The Company has never paid cash dividends on its Common Stock and does not currently intend to pay cash dividends. It is not likely that any cash dividends will be paid in the foreseeable future. See "Dividend Policy." FORWARD-LOOKING STATEMENTS This Prospectus contains certain information and trend statements that are forward-looking statements which involve risk and uncertainty, including those risks discussed in the "Prospectus Summary," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and 9 Results of Operations." Actual results may differ materially from the results described in such forward-looking statements. When used in this Prospectus, the words "anticipate," "believe," "estimate," "expect," "intend" and other similar expressions as they relate to the Company or its market, may be forward-looking statements. 10 USE OF PROCEEDS The net proceeds to the Company of the Offering, after deducting expenses payable by the Company and assuming an initial public offering price of $10.00 per share, will be approximately $12.5 million ($14.5 million if the Underwriters' over-allotment option is exercised in full). The Company anticipates that it will use the net proceeds as follows: (i) approximately $3.4 million will be used to repay outstanding debentures; (ii) approximately $1.0 million will be used to expand and upgrade the Company's management information systems; (iii) approximately $1.0 million will be used to further develop and document the Company's command center integration software; and (iv) the balance of approximately $7.1 million will be used for working capital and general corporate purposes including $0.4 million for the addition of two regional offices. The increase in working capital will enhance the Company's ability to obtain performance bonding and thus enable it to bid on larger contracts as a primary contractor. See "Business--Marketing." The proceeds from the debentures, which bear interest at 10% per annum and mature on December 31, 2000, were used for working capital, except for $700,000 thereof which was invested in a limited partnership interest in Special Situations Investment Holdings, Ltd. ("SSIH"), the Company's largest stockholder. See "Management--Certain Transactions" and "Principal and Selling Stockholders." The debentures to be repaid with proceeds of the Offering are held by certain limited partners of SSIH. Pending application of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, interest-bearing securities. The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholder. DIVIDEND POLICY The Company has never paid cash dividends on its Common Stock. The Company currently intends to retain any earnings to finance the growth and development of its business and does not anticipate paying cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon the financial condition, capital requirements and earnings of the Company, as well as other factors the Board of Directors may deem relevant. 11 DILUTION The Company's net tangible book value at March 31, 1997 was $(1,373,584) or approximately $(0.31) per share. Net tangible book value per share represents total assets, less intangible assets and total liabilities, divided by the number of shares outstanding. After giving effect to the sale of the shares of Common Stock offered by the Company hereby at an assumed initial offering price of $10.00 per share and the application by the Company of the estimated net proceeds therefrom as described in "Use of Proceeds," the net tangible book value of the Company would have been $11.0 million, or $1.89 per share of Common Stock. This represents an immediate increase in net tangible book value of $2.20 per share of Common Stock to existing stockholders and an immediate dilution in net tangible book value of $8.11 per share of Common Stock to purchasers of Common Stock in the Offering. The following table illustrates this per share dilution: Assumed initial public offering price per share....................................... $ 10.00 Net tangible book value per share before the Offering.............................. (0.31) Increase in net tangible book value attributable to new investors.................. $ 2.20 ----------- Net tangible book value per share after the Offering.................................. $ 1.89 ----------- Dilution per share to new investors................................................... $ 8.11 ===========
The following table summarizes, as of March 31, 1997, the total shares of Common Stock purchased and the total consideration and average price per share paid by existing stockholders, and paid by the new investors purchasing the shares offered hereby, assuming an initial public offering price of $10.00 per share.
Shares Purchased Total Consideration Average Price Number Percent Amount Percent Per Share Existing stockholders............ 4,434,140 76.0% $ 10,741,335 43.4% $ 2.42 New investors.................... 1,400,000 24.0 14,000,000 56.6 10.00 ----------- ---------- ------------ ------------ ------------- Total....................... 5,834,140 100.0% $ 24,741,335 100.0% $ 4.24 =========== ========== ============ ============ =============
The foregoing calculations do not give effect to the exercise of (i) outstanding warrants to purchase 1,557,962 shares of Common Stock at a weighted average exercise price of $5.92 per share outstanding at March 31, 1997, and (ii) options to purchase an additional 500,000 shares of Common Stock available for issuance under the Company's stock option plan, none of which are outstanding. 12 CAPITALIZATION The following table sets forth the capitalization of the Company at March 31, 1997 and as adjusted to reflect the sale by the Company of the Common Stock offered hereby, assuming an initial public offering price of $10.00 per share and after deducting the applicable underwriting discount and estimated expenses payable by the Company, and the application of the estimated net proceeds therefrom as described under "Use of Proceeds." This table should be read in conjunction with the Company's financial statements and the notes thereto included elsewhere in this Prospectus.
MARCH 31, 1997 ACTUAL AS ADJUSTED Current maturities of long-term debt and capital lease obligations.................................................... $ 21,454 $ 21,454 ------------- -------------- Long-term debt and capital lease obligations, less current maturities(1)................................................... 3,300,548 111,048 ------------- -------------- Stockholders' equity(2): Preferred Stock, par value of $0.01 per share, 5,000,000 shares authorized; no shares issued and outstanding....................................................... -- -- Common Stock, par value $0.01 per share, 20,000,000 shares authorized; 4,434,140 shares issued and outstanding; 5,834,140 shares issued and outstanding as adjusted.................................... 44,341 58,341 Additional paid-in capital................................................ 10,644,197 23,130,197 Accumulated deficit(1).................................................... (12,016,122) (12,176,622) ----------- -------------- Total stockholders' equity (deficiency)............................... (1,327,584) 11,011,916 ------------- -------------- Total capitalization.................................................. $ 1,994,418 $ 11,144,418 ============= --------------
(1) The as adjusted amount reflects the payment of $3,350,000 face value of subordinated debt. The difference between the face value and the recorded value of $3,189,500 represents $160,500 of unamortized discount, which is reflected as an adjustment to stockholders' deficiency. (2) Does not include 1,557,962 shares issuable upon the exercise of warrants outstanding as of March 31, 1997, of which warrants to purchase 979,629 shares were exercisable as of that date. 13 SELECTED FINANCIAL DATA The statement of operations data set forth below for the years ended December 31, 1994, 1995 and 1996, and the balance sheet data at December 31, 1995 and 1996 are derived from, and should be read in conjunction with, the audited financial statements of the Company, and the notes thereto, included elsewhere in this Prospectus. The statements of operations data set forth below for the three months ended March 31, 1996 and 1997 and the balance sheet data at March 31, 1997 are derived from, and should be read in conjunction with, the unaudited financial statements of the Company, and the notes thereto, included elsewhere in this Prospectus. The statement of operations data for the years ended December 31, 1992 and 1993, and the balance sheet data at December 31, 1992, 1993 and 1994 are derived from audited financial statements not included in this Prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------------------ ---------------------- 1992 1993 1994 1995 1996 1996 1997 ----------- ---------- ---------- ---------- ----------- --------- ---------- STATEMENT OF OPERATIONS DATA: Earned revenues....................... $6,775,971 $3,245,145 $2,395,254 $3,176,523 $ 5,824,448 $ 656,022 $3,297,899 Cost of earned revenues............... 6,394,005 2,904,036 1,586,315 2,179,964 4,416,386 253,885 2,326,223 ---------- ---------- ---------- ---------- ----------- --------- ---------- Gross profit....................... 381,966 341,109 808,939 996,559 1,408,062 402,137 971,676 Selling, general and administrative expenses........................... 1,884,316 2,122,715 2,670,092 2,870,570 3,700,698 739,907 645,656 ---------- ---------- ---------- ---------- ----------- --------- ---------- Operating income (loss)............ (1,502,350) (1,781,606) (1,861,153) (1,874,011) (2,292,636) (337,770) 326,020 Interest and financing fees........... (34,181) (101,707) (241,716) (21,851) (127,276) Interest and other income............. 7,617 208,026 21,519 2,998 7,399 ---------- ---------- ---------- ---------- ----------- --------- ---------- Net income (loss).................. (1,502,350) (1,781,606) (1,887,717) (1,767,692) (2,512,833) (356,623) 206,143 ========== ========== ========== ========== =========== ========= ========== Net income (loss) per share........ $ (1.52) $ (0.57) $ (0.52) $ (0.43) $ (0.56) $ (0.08) $ 0.04 ========== ========== ========== ========== =========== ========= ========== Weighted average number of shares outstanding.............. 986,533 3,141,492 3,648,653 4,064,324 4,523,021 4,222,869 5,105,274
DECEMBER 31, March 31, 1992 1993 1994 1995 1996 1997 ----------- ---------- ---------- ---------- ------------ -------------- BALANCE SHEET DATA: Cash and cash equivalents............ $ 232,219 $ 236,979 $ 265,692 $ 555,345 $ 609,342 $ 130,741 Working capital (deficit)............ 105,051 682,965 (30,676) 696,079 150,880 334,910 Total assets......................... 1,298,648 1,999,391 2,033,846 3,045,942 4,567,087 6,116,761 Long-term debt, less current maturities -- 25,359 6,289 597,000 2,657,399 3,300,548 Total stockholders' equity (deficiency) 42,583 702,447 315,673 554,106 (1,595,727) (1,327,584)
14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a single-source provider of comprehensive, technology-based security solutions for medium and large commercial and government facilities in the United States and abroad. The Company offers a broad range of services, including: (i) consulting and planning; (ii) engineering and design; (iii) systems integration; and (iv) maintenance and technical support. The Company began operations in 1987 in association with a large privately held engineering firm. As a start-up, the Company expended significant capital on the development of the Company's business and infrastructure, and it accumulated losses of approximately $2.8 million from 1987 through 1991 on aggregate revenues of approximately $17.2 million. The Company's revenues from 1990 through 1994 were generated primarily by a contract to design and integrate extensive security upgrades at three nuclear facilities for the Tennessee Valley Authority (the "TVA"). In 1992, the Company became independent from the engineering firm in conjunction with a capital infusion from a private investor group. At the same time, the Company hired new management with extensive expertise in the security industry. Since 1992, the Company has devoted a substantial amount of resources and capital to enhancing its technical capability and services offerings, hiring and training key personnel and expanding its client base. As part of this effort, the Company opened four regional offices in the United States and one international office in Moscow, Russia. The Company derives its revenues primarily from long-term, fixed-price contracts. Earnings are recognized based upon the Company's estimates of the cost and percentage of completion of individual contracts. Earned revenues equal the project's total contract amount multiplied by the proportion that direct project costs incurred on a project bear to estimated total project costs. Project costs include direct labor and benefits, direct material, subcontract costs, project related travel and other direct expenses. Clients are invoiced based upon negotiated payment terms for each individual contract. Terms usually include a 25% downpayment and the balance as stages of the work are completed. Maintenance contracts are billed either in advance, monthly, or quarterly. As a result, the Company records as an asset costs and estimated earnings in excess of billings and as a liability billings in excess of costs and estimated earnings. RESULTS OF OPERATIONS The following table sets forth the percentages of earned revenues represented by certain items reflected in the Company's statements of operations.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------- -------------------- 1994 1995 1996 1996 1997 ---------- ----------- ----------- --------- -------- Earned revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of earned revenues........................ 66.2 68.6 75.8 38.7 70.5 --------- --------- --------- --------- -------- Gross profit................................ 33.8 31.4 24.2 61.3 29.5 Selling, general and administrative expenses... 111.5 90.4 63.5 112.8 19.6 --------- --------- --------- --------- -------- Operating income (loss)..................... (77.7) (59.0) (39.3) (51.5) 9.9 Interest and financing fees.................... (1.4) (3.2) (4.2) (3.3) (3.9) Interest and other income...................... 0.3 6.5 0.4 0.5 0.2 --------- --------- --------- --------- -------- Net income (loss)........................... (78.8)% (55.7)% (43.1)% (54.3)% 6.2% ========= ========= ========= ========= =======
15 THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1996 Revenues increased by more than 400% from $0.7 million in the three months ended March 31, 1996 to $3.3 million in the three months ended March 31, 1997. The increase was due to work completed for new clients and an increase in work completed on existing projects. Revenues from the World Trade Center project, which commenced in October 1996, were $1.9 million in the first three months of 1997. In addition, revenues from the Metropolitan Washington Airport Authority increased from $0.3 million in the first three months of 1996 to $0.7 million in the first three months of 1997. In addition, $0.1 million of revenue was recognized in the first three months of 1997 on a project for which all of the costs were accrued during 1996. Cost of earned revenues increased from $0.3 million in the three months ended March 31, 1996 to $2.3 million in the three months ended March 31, 1997, primarily due to the increase in revenues. Gross margin declined from 61.3% in the first three months of 1996 to 29.5% in the first three months of 1997. The reason for the decline in gross margin is that in the first three months of 1996 there was a one-time adjustment of $0.2 million to the cost of earned revenues to reflect a reduction in a subcontractor's costs upon the final closeout of the TVA project. Net of this adjustment, gross margin was 25.0% in the first three months of 1996. Selling, general and administrative expenses decreased by 12.7% from $0.7 million in the three months ended March 31, 1996 to $0.6 million in the three months ended March 31, 1997, due to a $0.1 million reduction in legal fees relating to certain litigation. Interest expense and financing fees increased 482.5% from $0.02 million in the three months ended March 31, 1996 to $0.1 million in the three months ended March 31, 1997 due to an increase in outstanding indebtedness resulting from the issuance of $2.1 million of subordinated debentures during 1996 and $700,000 of subordinated debentures during the first three months of 1997. Net income increased from a net loss of $0.4 million in the three months ended March 31, 1996 to net income of $0.2 million in the three months ended March 31, 1997. This increase in net income was primarily due to the significant increase in revenues while selling, general and administrative expenses remained constant. YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995 Revenues increased by 83.4% from $3.2 million in 1995 to $5.8 million in 1996. In October 1996, the Company was awarded an $8.3 million contract as part of the security upgrade at the World Trade Center. Revenues of $1.6 million were recognized from this project in 1996. Work for the Metropolitan Washington Airport Authority increased by $1.0 million from $0.2 million in 1995 to $1.2 million in 1996. Work for MCI Telecommunications Corporation increased by $0.2 million from $0.6 million in 1995 to $0.8 million in 1996. Cost of earned revenues increased by 102.6% from $2.2 million in 1995 to $4.4 million in 1996 primarily due to the increase in revenues. Gross margin declined from 31.4% in 1995 to 24.2% in 1996 as a result of a change in the mix of work performed. In 1996, a greater proportion of the work performed involved system integration projects, which historically have had lower margins than the other services provided by the Company. The Company believes that its gross margin will be less sensitive to changes in the mix of work performed in the future because it recently has changed its pricing strategy to yield 16 margins on its systems integration projects consistent with its other work and has reduced its material costs through volume discounts as the Company has achieved a greater volume of sales. Selling, general and administrative expenses increased by 28.9% from $2.9 million in 1995 to $3.7 million in 1996. The increase was due to increases in legal fees of $0.4 million incurred in the successful defense of certain litigation, increased staffing expense of $0.3 million and increased office expenditures of $0.1 million. The increases in staffing and office expenditures were due to the Company's investment in infrastructure and capabilities to accommodate future growth in revenues. Interest expense and financing fees increased 137.7% from $0.1 million in 1995 to $0.2 million in 1996 as a result of the issuance of $2.1 million of 10% subordinated debentures during 1996. The net loss increased 42.2% from $1.8 million in 1995 to $2.5 million in 1996 as a result of lower project margins, higher selling, general and administrative expenses, increased financing fees, and proceeds from a litigation settlement of $0.2 million which was recognized in 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994 Revenues increased by 32.6% from $2.4 million in 1994 to $3.2 million in 1995. Contract revenue from the TVA project in 1994 was $1.6 million as compared with $1.3 million in 1995. Revenue from work completed for MCI was $0.1 million in 1994 as compared with $0.6 million in 1995. In 1995, the Company also initiated and completed work on the Baltimore Correctional Intake Facility, resulting in revenue of $0.4 million during that year. The Company's first major preventive maintenance contract for Dulles Airport (Metropolitan Washington Airport Authority) was also initiated in 1995 and generated revenue of $0.3 million. Cost of earned revenues increased by 37.4% from $1.6 million in 1994 to $2.2 million in 1995 due primarily to the increase in revenue. Gross margin on projects declined from 33.8% in 1994 to 31.4% in 1995 as a result of a change in the mix of work performed to include a greater proportion of system integration projects in 1995. Selling, general and administrative expenses increased 7.5% from $2.7 million in 1994 to $2.9 million in 1995. The increase was due to an increase in staffing and office rents. Interest expense and financing fees increased 197.6% from $0.03 million in 1994 to $0.1 million in 1995. The net loss of $1.8 million represents a $0.1 million improvement from the net loss of $1.9 million in 1994 as the higher volume of work and the proceeds of a litigation settlement more than offset the impact of lower margins and higher spending for selling, general and administrative expenses and interest expense. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash have been the proceeds from private placements of Common Stock and notes from 1992 through 1995 and of subordinated debentures and warrants during 1995 and 1996. During each of those years, the Company's operations had negative cash flows as the Company increased its marketing efforts, opened new offices and hired additional staff to support 17 anticipated growth. The net use of cash from operations in 1994, 1995 and 1996 was $1.9 million, $1.9 million and $1.6 million, respectively. From 1992 through 1995, members of the KuwAm private investor group purchased an aggregate of 3.6 million shares of Common Stock at a total purchase price of $8.3 million, generating net proceeds to the Company of $8.0 million, and $0.5 million aggregate principal amount of 10% demand notes, generating an equal amount of net proceeds to the Company. The demand notes were converted in 1995 into 103,000 shares of Common Stock. In addition, from 1995 through March 31, 1997, members of the same investor group purchased $3.4 million aggregate principal amount of 10% subordinated debentures, together with warrants to purchase 478,580 shares of Common Stock at an exercise price of $7.00 per share, generating net proceeds to the Company of $3.2 million. In 1996, an additional $0.2 million was raised through the exercise of warrants by members of the Board of Directors. The Company's anticipated capital requirements include approximately $0.4 million to open two new regional offices during 1997, $1.0 million to expand and upgrade its management information systems, $1.0 million to further develop and document its command center integration software and $3.4 million to repay outstanding subordinated debentures. The Company intends to fund these requirements with its net proceeds from the Offering and other available working capital. See "Use of Proceeds." The Company has in the past experienced cash flow shortages. The Company believes that the net proceeds of the Offering and cash generated from future operations will enable it to meet its cash requirements for the foreseeable future and enable it to pursue its current plans for expansion. 18 BUSINESS GENERAL Securacom is a single-source provider of comprehensive technology-based security solutions for medium and large commercial and government facilities in the United States and abroad. The Company offers a broad range of services, including: (i) consulting and planning; (ii) engineering and design; (iii) systems integration; and (iv) maintenance and technical support. This full range of capabilities enables the Company to provide its clients with any combination of these services or complete turnkey solutions for complex security projects. The solutions provided by the Company include integrated security systems comprised of a command center managing one or more subsystems or components, primarily access control systems, intrusion detection systems, closed circuit television systems, critical condition monitoring systems and fire detection systems. The Company is not aware of any other company providing this comprehensive range of services on a national basis. The Company began operations in 1987 in association with a large privately held engineering firm. In 1992, the Company became independent from the engineering firm in conjunction with a capital infusion from a private investment group. At that time, the Company also hired new management, including its current Chief Executive Officer, who was formerly Vice President, Integrated Systems of ADT Security Systems, Inc. and has over 20 years of experience in security system engineering and design and project planning. Since 1992, the Company has devoted a substantial amount of resources and capital to enhancing its technical capability and services offerings, hiring and training key personnel and expanding its client base. As part of this effort, the Company has opened four regional offices in the United States and one international office in Moscow, Russia. The Company currently plans to open additional regional offices in Boston and Chicago in 1997. INDUSTRY OVERVIEW The Company believes that the multi-billion dollar market for technology-based security solutions is growing rapidly due to the following factors: (i) many existing security systems are becoming technologically obsolete and inadequate or consist of internally incompatible subsystems, creating the need for their re-engineering, upgrading and integration; (ii) technological advancements provide the opportunity to increase the scope and cost-efficiency of many routine security tasks, such as the replacement of guards with electronic surveillance; (iii) the proliferation of computers and advanced communications systems has created a new and growing security need to prevent the misuse of proprietary information and other intellectual property; and (iv) a number of highly publicized acts of terrorism have heightened corporate and government officials' awareness of an increased need for physical safety. The security industry is highly fragmented and consists of a broad array of equipment manufacturers and distributors, consultants and engineers and systems integrators, each of which provides only a portion of the services required to deliver an integrated security solution. Due to the lack of single-source providers, the implementation of a medium or large scale security project has traditionally been performed by a number of different parties. A company interested in establishing or enhancing a security system typically retains a consulting firm to define objectives, analyze requirements, and prepare engineering and design specifications. The security specifications are then distributed to systems integrators to obtain proposals to implement the project. The systems integrator in turn, engages software and hardware manufacturers and installation contractors to perform the components of the project. In addition, companies seeking to implement security systems at multiple locations may have to purchase separate systems for each location from different vendors. This approach causes client frustration with project delays, cost inefficiencies, lack of vendor accountability and incompatible subsystems. In 19 addition, the Company believes that as security systems are becoming more technologically advanced, clients are recognizing that in-house personnel lack the skills and time necessary to coordinate security projects and that outsourcing such responsibilities offers significant cost and efficiency advantages. THE SECURACOM SOLUTION The Company believes that as a single-source provider of comprehensive technology-based security solutions it can expedite project completion and reduce its client's manpower requirements and aggregate project costs. The Company has the flexibility to respond to its clients' particular needs, whether the client requires only one of the services offered by the Company, various services on an ongoing basis, or a comprehensive turnkey security solution which capitalizes on all of the Company's expertise and its national network of offices. The continually evolving security requirements of commercial and government entities, together with rapidly advancing technology, provide numerous opportunities for the Company to assist its clients with their security needs. The services required throughout this process are generally divided into the following four phases: Consulting and Planning Maintenance and Technical Support Systems Integration Engineering and Design A client's security requirements at any particular time may involve services in only one phase of this cycle or may necessitate a complete solution. The Company is able to begin a new client relationship during any phase; however, new relationships typically begin with a consulting or maintenance contract. The following key attributes of Securacom enable it to provide comprehensive solutions: Experience and Expertise. The Company has a wide range of experience, having provided security solutions to airports, hospitals, prisons, corporations, utilities, universities and government facilities. The Company's senior managers have an average of 17 years experience in security systems and related industries, and its technical and engineering employees have an average of 11 years of security industry experience. The Company applies this specialized industry expertise to effectively manage the entire security solution process. Network of Regional Offices. The Company's network of regional offices enables it to provide a consistently high level of service to its national clients with geographically dispersed facilities. Securacom believes that clients value the access to company personnel and timely service made possible by the close proximity of its offices. Additionally, the Company believes that the regional offices allow it to capitalize on local marketing opportunities. 20 Technological Sophistication. Securacom and its personnel have expertise in the design, development and implementation of advanced security system technology. The Company emphasizes continuing education and training and recruits skilled engineers and technicians. The Company believes that its expertise enables it to offer its clients technologically advanced security solutions, which enhance system effectiveness and reduce operating costs. For example, the Company has developed its Engineered Maintenance System ("EMS"), a database system used by the Company to effectively manage a security system's components, maintenance planning and scheduling, and costs. Independence from Vendors. The Company has made a strategic decision not to represent any equipment manufacturer exclusively, thereby maintaining objectivity and flexibility in equipment selection. This independence allows the Company to offer solutions utilizing components that best meet its clients' needs. In addition, the Company believes that this objectivity generates trust because clients understand that equipment selection is based upon their needs and not the Company's relationship with any particular manufacturer. Quality Control. Securacom has implemented a company-wide system of quality control policies and procedures designed to ensure that all of its services are of consistently high quality. All engineering and design work is reviewed by senior members of the technical staff, and all work is subject to periodic review and inspection by senior management. STRATEGY Securacom's objective is to become the leading provider of comprehensive, high-value-added, technology-based security solutions for medium and large commercial and government facilities in the United States and abroad. The Company's strategy is focused on the following elements: Maintain and Develop Long-Term Relationships. The Company focuses on pursuing and maintaining long-term client relationships. These long-term relationships allow the Company to integrate itself into the client's decision-making process by identifying solutions for new security requirements, system upgrades and other ongoing security needs. The Company believes that the demand by large commercial or governmental clients for security services is growing. Demand is generated whenever a client identifies new security requirements, requires changes in existing systems to accommodate changes in its operations and facilities, upgrades its existing systems, or needs ongoing maintenance of such systems. The Company seeks to establish long-term relationships that provide such recurring revenue opportunities and has found that clients that initially retain the Company in a limited capacity frequently engage it to provide a broader range of services as the relationship develops. For example, the Company's relationship with MCI started with an initial consulting contract at a single location and has grown into a relationship in which the Company has provided design, project management and maintenance services to over 90 MCI facilities. Focus on High-Value-Added Services. The Company focuses on providing services that require a high degree of technical skill and expertise, such as engineering, design and project management. The Company subcontracts services requiring lower skill levels and intermittent use of personnel for short periods, such as wire installation and basic construction. By concentrating on high-value-added services, the Company believes that it will face less competition, improve its gross margin and be in a position to leverage its resources to effectively and efficiently manage a greater number of projects. 21 Capitalize on Position as a National Single-Source Provider of Security Solutions. To become a national provider of comprehensive security solutions, Securacom has expanded its capabilities and its geographic presence from two to five domestic locations since 1992. Each regional office has the capability to offer the full range of security services, either directly or by utilizing the resources of the Company's other offices. The Company's centralized financial management and design and engineering staffs support the regional operations. The Company believes that its national presence enables it to provide effective and timely service to large clients with multiple locations. The Company intends to utilize this national infrastructure to expand its client base. Continue to Expand Client Base in Targeted Industries. The Company intends to target several key industries and facility types that it believes have substantial and increasing requirements for security services. These include facilities for which security systems are required by regulation such as airports and nuclear power plants, as well as facilities of telecommunication and technology companies. The Company believes that the expertise it has developed in providing services to such facilities and industries will enable it to effectively compete for and service additional clients with similar requirements. Enhance Ability to Pursue Bidding Opportunities. Many large projects require prime contractors to furnish performance bonds in amounts that the Company has not had sufficient financial strength to obtain. As a result, the Company currently participates in such projects as a subcontractor or through joint ventures, which are generally less profitable than those in which it is the prime contractor. The proceeds of the Offering will enable the Company to obtain performance bonds necessary to pursue substantial new projects as a prime contractor. Maintain High Level of Technological Sophistication. Securacom maintains a high level of technological sophistication in an industry that is increasingly dependent upon advanced technology. The Company believes that it has been a leader in applying advanced technology to meet clients' needs in a cost-effective manner. The Company is developing proprietary command center integration software to effectively manage the various subsystems of a single site or the systems at multiple sites. The Company intends to maintain a high level of technical expertise in its employees by emphasizing continuing education and training and by recruiting additional highly skilled engineers and technicians. INTEGRATED SECURITY SYSTEMS Integrated security systems are comprised of one or more subsystems and components that perform a variety of security functions for a facility or group of facilities under the direction of a single command center. The command center consists of a central processor, a common database and software that enable various subsystems and components to communicate with each other and integrate the subsystems and components into a single system. Subsystems and components consist primarily of the following: Access control systems, which are designed to exclude unauthorized personnel from specified areas and provide access control that is typically card-activated. Entry and exit activity can be monitored or recorded and may be controlled on the basis of time and authority level. Intrusion detection systems, which incorporate ultrasonic, infrared, microwave and other sensors to detect unauthorized door and window openings, glass breakage, vibration, motion and noise, and alarms and other peripheral equipment. 22 Closed circuit television systems, which monitor and record entry and exit activity or provide surveillance of designated areas. These systems can deter theft and vandalism and support other access control systems. They can be monitored either by a video recorder or by a monitoring screen. Critical condition monitoring systems, which provide supervision of various systems and processes such as sprinkler systems, heating and refrigeration systems, power levels, water levels and general manufacturing processes. Fire detection systems, which incorporate heat, ionization, smoke and flame sensing devices, manual pull stations, evacuation sounders and systems, sprinkler systems and elevator controls. SERVICES The Company offers a full range of security services, consisting of: (i) consulting and planning; (ii) engineering and design; (iii) systems integration; and (iv) maintenance and technical support. At the beginning of each new client relationship, the Company designates one of its professional staff as the client service contact. This individual is the focal point for communications between the Company and the client and often acts as the client's project manager for all of its security needs. The Company's engagement may include one or more of the elements described below. Consulting and Planning. Security consulting and planning are the initial phases of determining a security solution for a project. The Company has developed a planning process that identifies all systems, policies and procedures that are required for the successful operation of a security system that will both meet a client's current needs and accommodate its projected future requirements. The Company's consulting and planning process includes the following steps: o Identify the client's objectives and security system requirements o Review the existing security system plan o Survey the site, including inventory of physical components and software and evaluation of client's existing infrastructure and security system o Identify and prioritize the client's vulnerabilities o Develop and evaluate system alternatives o Recommend a conceptual security plan design o Estimate the cost of implementing the conceptual plan o Develop a preliminary implementation schedule As a result of this process, the Company provides the client with a master plan for security services which recommends an effective security solution that addresses routine operating needs as well as emergency situations. The Company believes that its comprehensive planning process enables its clients to budget for their security requirements on a long-term basis, identify opportunities for cost reduction and prepare for future risks. Engineering and Design. The engineering and design process involves preparation of detailed project specifications and working drawings by a team of the Company's engineers, systems designers and computer-aided design system operators. These specifications and drawings detail the instrument sensitivity requirements, layout of the control center, placement of equipment and electrical requirements. Throughout the engineering and design process, the Company utilizes its expertise in advanced 23 technologies and its understanding of its client's operational preferences to design a system that is functional, cost-effective and accommodates the client's present and future requirements. In addition, the Company attempts to incorporate its client's existing personnel, equipment and other physical resources into the system design. When retained as a single-source provider for turnkey security solutions, the Company also selects the system components required under the specifications and drawings it has prepared. To the extent possible, the Company uses off-the-shelf equipment to minimize the cost of developing custom equipment. The Company has made a strategic decision not to represent any equipment manufacturer exclusively, thereby maintaining objectivity and flexibility in equipment selection. The Company believes that its technical proficiency with the products of a wide range of manufacturers enables it to select components that will best meet a project's requirements. Systems Integration. Systems integration involves (i) equipment procurement; (ii) custom systems modeling and fabrication; (iii) facility installation; (iv) hardware, software and network integration; and (v) system validation and testing. In addition to these basic integration services, the Company provides engineering services to enhance the compatibility of the client's subsystems. The Company prepares technical documentation of the system and operations manuals and provides on-site training to client personnel. Under the supervision of a project manager, the Company's technicians conduct hardware installation, hardware and software integration, system validation and testing. The aspects of systems integration that do not require a high level of technical expertise, such as wire installation and basic construction, are typically performed by the Company's subcontractors. Maintenance and Technical Support. The Company provides maintenance and technical support services on a scheduled, on-call, or emergency basis. These services include developing and implementing maintenance programs both for security systems designed, engineered, or integrated by the Company and for existing systems. Maintenance services offered by the Company include its EMS, a database used by the Company to effectively manage a security system's components, maintenance planning and scheduling, and costs. The system configuration function monitors system activity and capacity, and identifies the need to reconfigure or expand the system. The system maintenance function schedules and records maintenance activity, and identifies equipment replacement and upgrading requirements. MARKETING The Company's marketing activities are conducted on both national and regional levels. The Company obtains engagements through direct negotiation with clients, competitive bid processes and 24 referrals. At the national level, the Company conducts analyses of various industries and targets those with significant potential demand for security solutions. At a regional level, under the supervision of senior management, each office develops and implements a marketing plan for its region. The plan identifies prospective clients within the region and sets forth a strategy for developing relationships with them. Each regional office works with the headquarters office in expanding relationships with existing national clients to include facilities within the region. The Company has identified several key industries or facility types that it believes have substantial and increasing requirements for security services, including telecommunication and technology companies, corporate complexes and industries and facilities for which security systems are required by regulation. The Company has developed expertise in the security regulations applicable to airports, pharmaceutical companies, prisons and nuclear utilities. See "--Clients" and "Management." The Company's marketing strategy emphasizes developing long-term relationships with clients so that the Company can provide additional services as the clients' security requirements evolve. The Company undertakes significant pre-assessment of a prospective client's needs before an initial contact is made. A long-term relationship typically begins with an engagement to provide consulting and planning or maintenance and technical support services. Consulting and planning assignments place the Company in an advantageous position, often as the client's project manager, to be engaged to implement the plan ultimately adopted by the client. Engagements for maintenance and technical support enable the Company to identify new requirements as they arise and to offer its solutions to such requirements. The Company employs a variety of pricing strategies for its services. Proposals for consulting services are priced based on an estimate of hours multiplied by standard rates. Systems integration engagements are priced based upon the estimated cost of the components of the engagement, including subcontractors and equipment, plus a profit margin. Pricing for engineering and maintenance services vary widely depending on the scope of the specific project and the length of engagement. All proposals are reviewed by the Company's senior management. Many projects require that the primary contractor obtain a performance bond in the amount of the contract. The amount of bonding that the Company is able to obtain depends upon the level of its working capital and net worth. The Company believes that its ability to compete for larger projects as a primary or independent contractor, rather than through a joint venture or subcontract arrangement, has been constrained by its inability to obtain adequate bonding. The Company believes that the proceeds of the Offering will enable it to obtain bonding of between approximately $50 million and $75 million and thus enhance its ability to bid for larger projects as a primary contractor which is generally more profitable than participation as a subcontractor or through a joint venture. The Company currently conducts limited international operations from its Moscow office from which it has provided services to several clients in Moscow. In April 1997, the Company signed a joint venture agreement with Ahmad N. AlBinali & Sons Co., a Saudi Arabian engineering and consulting company, to develop and conduct business in the Kingdom of Saudi Arabia. The Company is evaluating several additional opportunities to expand its international operations, which it anticipates it will initially undertake through joint ventures or partnerships with local and international companies. 25 CLIENTS During the past three years the Company has provided services to approximately 50 clients, including airports, hospitals, prisons, corporations, utilities, universities and government facilities. The Company's clients have included the following: Airports and Aviation Corporations Fresno Airport EDS United Airlines Gillette Corporation Washington-Dulles International Airport Hewlett-Packard Company Washington National Airport Lazard Freres Yuma International Airport Mary Kay Cosmetics MCI Telecommunications Corporation Mobil Corporation NationsBank US WEST Government Other Los Alamos National Laboratory City of Baltimore Central Sandia National Laboratory Booking and Intake Facility Tennessee Valley Authority Moscow Local Telephone System U.S. Department of Energy New York City's World Trade Center U.S. Navy Rostelecom Rowan County (N.C.) Prison University of Texas Although in some cases the Company serves as a subcontractor and does not have a direct contractual relationship with its clients, it is typically selected or approved by the client and develops a close working relationship with the client. During 1996, the World Trade Center, the Metropolitan Washington Airport Authority (operator of both Washington National and Washington Dulles airports), and MCI accounted for 28%, 22% and 14% of the Company's earned revenues, respectively. The loss of any of these clients could have a material adverse effect upon the Company's business, operating results and financial condition. Although these clients each accounted for a substantial portion of the Company's revenues, work performed for them was comprised of multiple projects and, in the case of MCI, was performed for multiple facilities. COMPETITION The security industry is highly competitive. The Company competes on a local, regional and national basis with systems integrators, consulting firms and engineering and design firms. The Company believes that it is the only provider offering its comprehensive range of services on a national basis. As a result, the Company competes with different companies depending upon the nature of the project and the services being offered. For example, the Company has competed with Johnson Controls, Science Applications International Corporation and Sensormatic for systems integration work, and Lockwood Greene and Holmes & Narver for consulting and planning and engineering and design work. Many of its competitors have greater name recognition and financial resources than the Company. The Company's competitors also include equipment manufacturers and vendors that also provide security services. The 26 Company may face future competition from potential new entrants into the security industry and increased competition from existing competitors that may attempt to develop the ability to offer the full range of services offered by the Company. The Company believes that competition is based primarily on the ability to deliver solutions that effectively meet a client's requirements and, to a lesser extent and primarily in competitive bid situations, on price. There can be no assurance that the Company will be able to compete successfully in the future against existing or potential competitors. The Company's ability to compete for larger projects as a primary contractor has been constrained by its inability to obtain adequate bonding. The Company believes that the proceeds of the Offering will substantially improve its ability to obtain bonding and thus enhance its ability to compete for larger projects. See "--Marketing." BACKLOG The Company's backlog consists of confirmed orders, including the balance of projects in process. The backlog also includes projects for which the Company has been notified it is the successful bidder even though a binding agreement has not been executed. Projects for which a binding contract has not been executed may be canceled at any time. Binding contracts may also be subject to cancellation or postponement, although cancellation generally obligates the client to pay the costs incurred by the Company. During the last two years none of the Company's contracts were canceled prior to completion. Long-term maintenance contracts may be canceled without cause. As of December 31, 1995 and 1996, the Company's backlog was approximately $1.3 million and $8.3 million, respectively. Backlog as of December 31, 1996 includes projects having a value of approximately $0.5 million for which binding contracts have not been executed and includes $1.2 million in projects that are not expected to be completed during 1997. Backlog orders as of any particular date may not be indicative of actual operating results for any fiscal period. There can be no assurance that any amount of backlog will be realized. 27 EMPLOYEES As of March 1997, the Company had 56 employees, of which 17 were based in the Company's headquarters office in New Jersey and the balance in its four regional offices and its office in Moscow. Three of the Company's employees are engaged exclusively in marketing and sales, 45 in engineering, project management and technical functions and eight in administration. Most members of senior management, project managers and technical staff devote a portion of their time to marketing activities. Approximately 57% of the Company's employees have degrees in engineering or other technical fields. None of the Company's employees are represented by a labor union, and the Company believes that its employee relations are good. INTELLECTUAL PROPERTY In addition to the Engineered Maintenance System, the Company is developing command center software that permits the integration of multi-vendor security systems into a unified, integrated system. The Company intends to utilize a portion of the proceeds of the Offering to complete development and documentation of this software. The Company relies on a combination of various methods to establish and protect its proprietary rights. In addition, it limits access to and distribution of its proprietary information. These measures afford limited protection, and there can be no assurance that the steps the Company takes to protect its proprietary rights will be adequate to prevent misappropriation of its intellectual property or the independent development by others of similar technology. INSURANCE The Company maintains in force commercial umbrella liability insurance with coverage of $10 million per occurrence and $10 million in the aggregate, with a $10,000 deductible. The Company also maintains a $1.0 million insurance policy to cover any error or omission by the Company that may result in a breach of a security system designed, installed, maintained, or engineered by the Company. There is no assurance that the amount of insurance carried by the Company would be sufficient to protect it fully in the event of a significant liability claim; however the Company believes that the amounts and coverages of its insurance are reasonable and appropriate for its business operations. There is no assurance that such insurance will continue to be available on commercially reasonable terms, and the Company may elect not to retain liability insurance at any time. FACILITIES The Company's headquarters office is located in Woodcliff Lake, New Jersey, where the Company leases approximately 7,600 square feet of office space under a lease that expires in 2000. In addition, the Company leases between approximately 2,000 and 4,000 square feet of office space in each of the Atlanta, Dallas, San Francisco and Washington, D.C. metropolitan areas to support its regional operations. The Company believes that its facilities are adequate and suitable for its current operations, and that additional space is readily available if needed to support future growth. 28 LEGAL PROCEEDINGS Although the Company is a defendant in certain suits arising from the normal conduct of its business, management does not believe that the resolution of this litigation will have a material adverse effect on the Company's financial position, results of operations, or cash flows. This litigation includes a suit pending in the United States District Court for the District of New Jersey in which the plaintiff alleges, among other things, that the Company has infringed the plaintiff's claimed service mark. The Company believes the claim is without merit. Trial is set for September 1997. 29 MANAGEMENT The directors and executive officers of the Company are: NAME AGE POSITION Wirt D. Walker, III....................... 51 Chairman and Director Ronald C. Thomas.......................... 52 President, Chief Executive Officer and Director Larry M. Weaver........................... 47 Executive Vice President, Chief Operating Officer and Chief Financial Officer Charles C. Sander......................... 48 Senior Vice President Franklin M. Sterling...................... 64 Senior Vice President Albert A. Weinstein....................... 66 Vice President Matthew V. Wharton........................ 35 Vice President Michael V. Toto........................... 52 Vice President Jon W. Balakian........................... 39 Vice President R. Michael Lagow.......................... 39 Vice President Mishal Yousef Saud Al Sabah............... 36 Director Marvin P. Bush(1)......................... 40 Director Robert B. Smith, Jr.(1)................... 60 Director (1) Member of Compensation Committee and Audit Committee. WIRT D. WALKER, III has served as a director of the Company since 1987, and as Chairman since 1992. Mr. Walker is a director and the Managing Director of KuwAm, a private investment firm founded in 1982. He has also served as Chairman of Commander Aircraft Company and Advanced Laser Graphics, Inc. since 1991. RONALD C. THOMAS has served as President, Chief Executive Officer and director since 1992. Prior to joining the Company, Mr. Thomas was employed for 16 years by ADT Security Systems Inc., a subsidiary of ADT Ltd., the world's largest electronic security protection company. During his tenure at ADT, he held a variety of management positions involving systems engineering and design, project planning and marketing and business unit management, and was Vice President, Integrated Systems from 1988 to 1992. Mr. Thomas is Chairman of the Standing Committee on Physical Security of the American Society for Industrial Security ("ASIS"), a member of the Board of Directors of the Closed Circuit Television Manufacturers Association, a member of the Institute of Electrical and Electronic Engineers ("IEEE"), a member of the National Society of Professional Engineers and a member of the National Fire Protection Association ("NFPA"). He is a past member of the Nuclear Standards Subcommittee of the IEEE, the Proprietary Fire Systems Subcommittee of NFPA and the Architect/Engineer Subcommittee of ASIS. LARRY M. WEAVER has served as Executive Vice President, Chief Operating Officer and Chief Financial Officer since June 1996. Prior to joining the Company, Mr. Weaver was employed by The Conduit and Foundation Corporation, most recently as its Chief Financial Officer from July 1995 to June 1996. Previously, Mr. Weaver was employed, from 1988 to 1995, as Group Vice President of Finance at William Bowman Associates, Inc., a residential real estate site development company, and from 1980 to 1988, as Partner and Finance Manager at Skelly and Loy, an energy and environmental consulting and 30 engineering firm. Mr. Weaver has also served as Assistant Controller at Buell Division of Envirotech and was a Senior Accountant at Price Waterhouse. CHARLES C. SANDER has served as Senior Vice President for the Mid-Atlantic Region since 1993. From 1988 to 1992 Mr. Sander was president of his own aviation consulting firm which he sold to Ogden Services Corporation in 1992. From 1992 to 1993 Mr. Sander was employed as President of the Technical and Maintenance Services Division of Ogden. Prior to starting his own company, Mr. Sander had been employed since 1972 by Baltimore/Washington International Airport, where he served in a variety of positions, most recently as Deputy Chief, Airport Operations. FRANKLIN M. STERLING has served as Senior Vice President for the Western Region since August 1995. Prior to joining the Company, Mr. Sterling served as President of Franklin M. Sterling and Assoc., Inc., an engineering consulting firm specialized in integrated building control systems, which he founded in 1987. Previously, Mr. Sterling was employed by the Bechtel Corporation for sixteen years, most recently as a project manager for a Bechtel subsidiary, and has held positions with ITT Data Services and the RCA Corporation. Mr. Sterling presently serves as Chairman of the Airport Consultants Council Security System Standards Committee and is a member of the Federal Aviation Administration's Advisory Committee on Security System Standards. He is a senior member of the IEEE, the IEEE Control System Society, the American Society for Industrial Security, the National Fire Protection Association, the Construction Specification Institute and the National and California Societies of Professional Engineers. ALBERT M. WEINSTEIN has served as Vice President overseeing corporate engineering and design since 1989. Prior to joining the Company, Mr. Weinstein was Vice President and General Manager of the Electronic Security Systems Division of Stoller Company, a nuclear consulting company, for 17 years. MATTHEW V. WHARTON has served as Vice President for the Southwest Region since 1994. From 1993 to 1994 he served as Manager of Consulting Engineering for the Company. Prior to joining the Company, Mr. Wharton worked from 1992 to 1993 as Director of Sales and Marketing for Integrated Security Control Systems, a California security company. MICHAEL V. TOTO has served as Vice President for the Northeast Region since 1994. Prior to joining the Company, Mr. Toto served as a communications engineer with ADT Security Systems, Inc. for two years. JON W. BALAKIAN has served as Vice President for the Southeast Region since 1996. Prior to joining the Company, Mr. Balakian was a senior manager of the national physical security program for MCI Telecommunications since 1990. R. MICHAEL LAGOW has served as Vice President for Business Development since August 1993. Prior to joining the Company, Mr. Lagow was employed as National Sales Manager of Control Systems International, a security systems company, since 1991. MISHAL YOUSEF SAUD AL SABAH has served as a director of the Company since 1987. Since 1982, Mr. Al Sabah has been the Chairman of the Board of Directors of KuwAm. He has also served as a director of Advanced Laser Graphics, Inc. and Commander Aircraft Company since 1991. 31 MARVIN P. BUSH has served as a director of the Company since 1993. Mr. Bush is a director of the Winston Partners Group, Inc., a private investment firm he founded in 1994, and has been a member of the Board of Directors of Kerrco Inc., an oil and gas company, since 1989. Prior to founding the Winston Group, Mr. Bush was a partner at John Stewart Darrell & Company, an investment advisory firm, and was employed by Shearson Lehman Brothers as a Vice President/Financial Consultant. ROBERT B. SMITH, JR. has served as a director of the Company since 1995. Mr. Smith has been a private investor since 1984, and has been a director of Sunshine Mining Company, a New York Stock Exchange listed silver mining company, since 1993. He has been a trustee for the Dalkon Shield Claimants Trust, a public interest trust created to compensate those damaged by the Dalkon Shield, since 1989. Mr. Smith was formerly Chief Counsel and Staff Director of the Senate Government Operations Committee. The Company's Certificate of Incorporation and By-Laws provide that members of the Company's Board of Directors are elected annually and hold office until their successors are elected. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established a Compensation Committee and an Audit Committee. The Compensation Committee reviews on behalf of, and makes recommendations to, the Board of Directors with respect to the compensation of executive officers and administers the Company's option plans and makes recommendations to the Board of Directors with respect to the plans and the grant of options to persons eligible under the plans. The Audit Committee's functions include recommending to the Board of Directors the engagement of the Company's independent public accountants, reviewing with such accountants the plans for and the results and scope of their auditing engagement and certain other matters relating to their services provided to the Company, including the independence of such accountants. DIRECTOR COMPENSATION All members of the Board of Directors, including the Company's officers who are also Board members, receive a fee of $10,000 per year. In addition, each director is granted options annually to purchase 15,000 shares of Common Stock at an exercise price equal to the fair market value of such stock on the date of grant, which vest in annual increments of one-third. All directors are reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Directors or committees thereof and for other expenses incurred in their capacities as directors. EMPLOYMENT AND CONSULTING AGREEMENTS The Company has entered into employment agreements with Messrs. Thomas and Weaver, to serve in their respective current positions until March 31, 2002 and 2000, respectively, at annual base salaries of $165,000 and $125,000, respectively. Both agreements provide for annual bonuses, periodic salary increases and grants of stock options in the sole discretion of the Board of Directors. In the event either executive's employment is terminated without cause, he is entitled to continue to receive the salary and certain other benefits provided for in such agreement for the remainder of its term. If such termination occurs following a "change in control" of the Company, he is entitled to receive an additional payment equal to two times his annual base salary in effect at the time of such change in control. For purposes of the employment agreements, a change in control occurs upon certain changes in the stock 32 ownership of the Company or upon certain changes in the membership of the Board of Directors of the Company. A termination following a change in control of the Company includes certain reductions of the executive's duties and responsibilities, reductions in the salary paid to the executive, changes in the location of the executive's office or a failure by the Company to obtain the written assumption of the employment agreements by any successor of the Company. The Company has also entered into a consulting agreement with Mr. Walker, to provide strategic and corporate development services through March 31, 2002 for an annual fee of $140,000. The consulting agreement also contains provisions parallel to those of the executive employment agreements. EXECUTIVE COMPENSATION The following table sets forth the compensation earned in the year ended December 31, 1996 by the Chief Executive Officer and each of the most highly compensated executive officers whose individual remuneration exceeded $100,000 for the fiscal year (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Annual Compensation Other Name and Principal Annual All Other Position Salary Bonuses Compensation Compensation Ronald C. Thomas President and CEO.............. $ 136,078 $ 35,000 $ 10,000(1) $ 28,000(2) Charles C. Sander Senior Vice President.......... $ 131,090 $ 25,000 $ 10,000(1) $ --
(1) Consists of director fees. (2) In May 1996 Mr. Thomas acquired 53,320 shares of Common Stock upon the exercise of options, for which the Company waived the exercise price of $0.53 per share. This amount equals the aggregate exercise price of such options. OPTION GRANTS IN FISCAL YEAR 1996
Individual Grants Potential Realizable Percent of Value at Assumed Number of Total Options Annual Rates of Shares Granted to Stock Price Underlying Employees Exercise Appreciation for Options in Fiscal Year Price Expiration Option Term(1) Name Granted 1996 Per Share Date 5% 10% ---- ------------ ------------- ---------- --------- -------- ------------- Ronald C. Thomas 25,000 7.9 $ 7.00 2/5/99 $ 27,584 $ 57,925 Charles C. Sander 25,000 7.9 $ 7.00 2/5/99 $ 27,584 $ 57,925
(1) Based upon an estimated initial public offering price of $10.00 per share and on annual appreciation of such value, through the expiration date of such options, at the stated rates. These amounts represent assumed rates of appreciation only and may not necessarily be achieved. Actual gains, if any, depend on the future performance of the Common Stock, as well as the continued employment of the Named Executive Officers for the full term of the options. 33 AGGREGATED OPTION EXERCISES IN 1996 AND OPTION VALUES AS OF DECEMBER 31, 1996
Number of Number of Value of Unexercised Shares Underlying Unexercised In-the-Money Acquired Warrants/Options at Warrants/Options at on Value December 31, 1996 December 31, 1996(1) Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable Ronald C. Thomas 53,320 $ 533,200 159,382 25,000 $1,434,438 $ 75,000 Charles C. Sander -- -- 58,333 41,667 $ 291,665 $ 158,335
(1) Represents an amount equal to the difference between an estimated initial public offering price of $10.00 per share of the Company's Common Stock minus the option exercise price, multiplied by the number of unexercised options at December 31, 1996. 1997 STOCK OPTION PLAN The Company has reserved 500,000 shares of Common Stock for issuance upon the exercise of options under its 1997 Stock Option Plan (the "Stock Option Plan"). The Stock Option Plan provides for the granting to eligible participants of options to purchase Common Stock of two types: those that qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and those that do not qualify as incentive stock options, or "non-qualified options." Key employees, officers, directors and consultants of the Company are eligible to participate in the Stock Option Plan. The Stock Option Plan is administered by the Board of Directors, which determines the persons who are to receive options, the terms and number of shares subject to each option and whether the option is an incentive stock option or a non-qualified option. Incentive stock options and non-qualified options may not be granted at a purchase price less than the fair market value of the Common Stock on the date of the grant or, for an incentive stock option granted to a person holding more than 10% of the Company's voting stock, at less than 110% of fair market value. Aside from the maximum number of shares of Common Stock reserved under the Stock Option Plan, there is no minimum or maximum number of shares that may be subject to options. However, the aggregate fair market value of the stock subject to incentive stock options granted to any optionee that are exercisable for the first time by an optionee during any calendar year may not exceed $100,000. Options generally expire three months after the optionee is no longer an employee of the Company. Options may not be transferred other than by will or the laws of descent and distribution, and during the lifetime of an optionee may be exercised only by the optionee. The term of each option, which is fixed by the Board of Directors at the time of grant, may not exceed ten years from the date the option is granted (except that according to Section 422(a) of the Code an incentive stock option granted to a person holding more than 10% of the Company's voting stock may be exercisable only for five years). As of March 31, 1997, the Company had granted no options under the Stock Option Plan. 34 CERTAIN TRANSACTIONS The following information relates to certain transactions since January 1, 1994 in which executive officers, directors, stockholders and other related persons had an interest. All of such transactions were on terms approved by the members of the Board of Directors who did not have an interest in such transactions. In 1996, the Company purchased a 114B aircraft from Commander Aircraft Company ("Commander") for $335,000, the list price of the aircraft, which is the price at which Commander typically sells to retail customers. KuwAm is the general partner of two stockholders of the Company that currently own in the aggregate approximately 59% of the outstanding common stock of Commander, and Wirt Walker, III, the Chairman of the Company, is the Chairman of Commander and the Managing Director of KuwAm. During the years 1993 through 1996, the Company paid investment banking fees to KuwAm of 5% of the capital raised from the private sale of Common Stock and subordinated debentures to SSIH and affiliated entities. The Company paid approximately $79,000, $77,000, $103,000 and $35,000 of investment banking fees under the agreements during 1994, 1995, 1996 and 1997 respectively, which have been recorded as a reduction of proceeds from sales of equity securities and interest and financing fees for sales of subordinated debentures. From time to time, the Company has issued securities to certain of its officers and directors in private transactions. During 1994, the Company sold an aggregate of 316,000 shares of Common Stock to SSIH and certain of its limited partners at a purchase price of $5.00 per share. Also during 1994, the Company issued promissory notes having an aggregate principal amount of $515,000 to SSIH for an equal amount of cash proceeds. The notes, which bore interest at an annual rate of 10% per year, were converted into 103,000 shares of Common Stock in June 1995. In 1995, the Company issued an aggregate of 247,500 shares of Common Stock to KuwAm, SSIH, Special Situations Investment Holdings, L.P. II ("SSIH II") and certain of their limited partners at a purchase price of $5.00 per share and an aggregate of 35,294 shares to such entities and persons at a purchase price of $8.50 per share. In March 1996, KuwAm, Fifth Floor Company for General Trading and Contracting, a stockholder of the Company, and Mr. Walker acquired 53,320, 186,620 and 133,300 shares of Common Stock, respectively, upon exercise of previously outstanding warrants at an exercise price of $0.53 per share. In May 1996, Ronald C. Thomas acquired 53,320 shares of Common Stock upon the exercise of options, for which the Company waived the $0.53 per share exercise price, and Marvin P. Bush, through Andrews-Bush, Inc., of which he is president, acquired 53,897 shares of Common Stock upon exercise of previously outstanding warrants at an exercise price of $0.52 per share. The Company borrowed $75,000 from SSIH II in September 1995 and $125,000 from KuwAm in October 1995 evidenced by 10% demand notes that were repaid in 1996. During 1995, 1996 and 1997 the Company sold $3.4 million aggregate principal amount of subordinated debentures (the "Debentures") together with warrants to purchase 478,580 shares of Common Stock at an exercise price of $7.00 per share to certain limited partners of SSIH. The net proceeds from the sale of the Debentures, after deduction of the 5% investment banking fee payable to KuwAm and other expenses, were $3.2 million. The Debentures, all of which will be repaid with proceeds from the Offering, bear interest at 10% per annum and provide for repayment of the principal 35 as follows: $837,500 on December 31, 1998, $837,500 on December 31, 1999 and the balance on December 31, 2000. Between January 1 and March 10, 1997, an aggregate of $700,000 of the proceeds from the Debentures was invested in limited partnership interests of SSIH. At the end of each year, the Company has the option of requiring SSIH to redeem the limited partnership interests at their then fair market value less a liquidation fee of up to 1%. The proceeds of such redemption are payable, at SSIH's option, in cash or portfolio securities of SSIH. Because the assets of SSIH include both publicly traded and privately held securities, the value of the SSIH portfolio may be materially different than the cost of the Company's investment. KuwAm, of which Mr. Walker is the Managing Director and Mr. Al Sabah is Chairman, is the general partner of SSIH. Under the terms of the limited partnership subscription agreement, KuwAm received 3% of the amount of the Company's investment as reimbursement for accounting, legal and administrative expenses related to the organization and operation of the partnership. In addition, pursuant to SSIH's limited partnership agreement, KuwAm receives (i) an annual administration fee equal to 2% of SSIH's assets and (ii) an annual capital appreciation fee equal to 10% of the increase in the value of SSIH's assets in each year. The Company does not intend to make such investments in related parties in the future. 36 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Common Stock as of the date hereof, and as adjusted to reflect the sale of the shares offered hereby, by (i) each person who is known by the Company to be the beneficial owner of 5% or more of the outstanding Common Stock, (ii) each director, (iii) each named executive officer and (iv) all directors and executive officers as a group. The Company believes that the individuals listed below each have sole voting and investment power with respect to such shares, except as otherwise indicated in the footnotes to the table. Unless otherwise indicated below, the business address of each person listed is: c/o Securacom, Incorporated, 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675.
Shares Beneficially Owned Shares to be Shares Beneficially Name and Address Prior to Offering(1) Sold in Owned After Offering(1) of Beneficial Owner Number Percent Offering Number Percent KuwAm Corporation 2600 Virginia Avenue, N.W. Washington, DC 20037(2)........... 2,622,127 59.1% -- 2,022,127 34.7% Special Situation Investment Holdings, Ltd. c/o KuwAm Corporation 2600 Virginia Avenue, N.W. Washington, D.C. 20037(2)......... 2,464,333 55.6% 600,000 1,864,333 32.0% Special Situation Investment Holdings, L.P. II c/o KuwAm Corporation 2600 Virginia Avenue, N.W. Washington, DC. 20037(2).......... 157,794 3.6% -- 157,794 2.7% Fifth Floor Company for General Trading and Contracting........... 366,707 8.3% -- 366,707 6.3% Wirt D. Walker, III(2)(3)............. 2,941,822 66.2% -- 2,341,822 40.1% Ronald C. Thomas...................... 246,035 5.3% -- 246,035 4.1% Marvin P. Bush(4)..................... 62,230 1.4% -- 62,230 1.1% Mishal Yousef Saud Al Sabah(2)(5)..... 3,000,227 67.5% -- 2,400,227 41.1% Franklin M. Sterling.................. 63,333 1.4% -- 63,333 1.1% Charles C. Sander..................... 75,000 1.7% -- 75,000 1.3% Larry M. Weaver....................... -- * -- -- * Robert B. Smith, Jr................... 16,667 * -- 16,667 * All officers and directors as a group (8 persons)................. 3,783,187 79.5 -- 3,183,187 51.7
* Represents beneficial ownership of less than one percent of the outstanding Common Stock. (1) Beneficial ownership is determined in accordance with the rules of the Commission, and includes voting power and investment power with respect to shares. Shares issuable upon the exercise of outstanding stock options that are currently exercisable or become exercisable within 60 days from the date hereof are considered outstanding for the purpose of calculating the percentage of Common Stock owned by such person but not for the purpose of calculating the percentage of Common Stock owned by any other person. The number of stock options that are exercisable within 60 days of the date hereof is as follows: Mr. Walker, 8,333; Mr. Thomas, 167,715; Mr. Bush, 8,333; Mr. Smith, 16,667; Mr. Al Sabah, 8,333; Mr. Sterling, 38,333; and Mr. Sander, 75,000. (2) KuwAm is the general partner of SSIH and SSIH II. The stockholders of KuwAm include Wirt D. Walker, III and Mishal Yousef Saud Al Sabah. Mr. Walker is also the Managing Director and Mr. Al Sabah is the Chairman of KuwAm. Shares beneficially owned by KuwAm consist of 2,464,333 shares held by SSIH (1,864,333 shares after the Offering) and 157,794 shares held by SSIH II. (3) Consists of 2,464,333 shares held by SSIH (1,864,333 shares after the Offering), 157,794 shares held by SSIH II, 248,302 shares held by Mr. Walker, 13,060 shares held by Mr. Walker's son, 50,000 shares held by a trust for the benefit of Mr. Walker's son and options to purchase 8,333 shares held by Mr. Walker. (4) Consists of 53,897 shares held by Andrews-Bush, Inc., and options to purchase 8,333 shares held by Mr. Bush. (5) Consists of 2,464,333 shares held by SSIH (1,864,333 shares after the Offering), 157,794 shares held by SSIH II, 366,707 shares held by Fifth Floor Company for General Trading and Contracting, of which Mr. Al Sabah is Chairman, 3,060 shares held by Mr. Al Sabah's son and options to purchase 8,333 shares held by Mr. Al Sabah. 37 DESCRIPTION OF CAPITAL STOCK Upon consummation of the Offering, the authorized capital stock of the Company will consist of 20,000,000 shares of Common Stock, $0.01 par value per share, of which 5,834,140 shares will be issued and outstanding, and 5,000,000 shares of Preferred Stock, $0.01 par value per share, none of which will be issued and outstanding. COMMON STOCK Holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by the stockholders. There is no cumulative voting with respect to the election of Directors, with the result that the holders of a majority of the shares of Common Stock voting for the election of Directors can elect all of the Directors then up for election. The holders of Common Stock are entitled to receive dividends when, as, and if declared by the Board of Directors out of funds legally available therefor. In the event of liquidation, dissolution, or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining which are available for distribution to them after payment of liabilities and after provision has been made for each class of stock having preference over the Common Stock. Holders of shares of Common Stock, as such, have no conversion, preemptive, or other subscription rights, and there are no redemption provisions applicable to the Common Stock. All of the outstanding shares of Common Stock are fully paid and nonassessable. PREFERRED STOCK The Board of Directors is authorized, without further approval or action by the stockholders, to issue shares of Preferred Stock in one or more series and to determine the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and number of shares constituting any series of Preferred Stock or the designation of such series. The rights of the holders of Common Stock will generally be subject to the prior rights of the holders of any outstanding shares of Preferred Stock with respect to dividends, liquidation preferences and other matters. Among other things, the Preferred Stock could be issued by the Company to raise capital or finance acquisitions. The Preferred Stock could have certain anti-takeover effects under certain circumstances. The issuance of shares of Preferred Stock could enable the Board of Directors to render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, or other business combination transaction directed at the Company by, among other things, placing shares of Preferred Stock with investors who might align themselves with the Board of Directors, issuing new shares to dilute stock ownership of a person or entity seeking control of the Company, or creating a class or series of Preferred Stock with class voting rights. The Company has no current plans to issue any shares of its Preferred Stock. 38 DELAWARE ANTI-TAKEOVER LAW The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law. Section 203 provides, with certain exceptions, that a Delaware corporation may not engage in certain business combinations with a person or affiliate or associate of such person who is an "interested stockholder" for a period of three years from the date such person became an interested stockholder unless: (i) the transaction resulting in the acquiring person's becoming an interested stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder; (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder (excluding shares owned by directors who are also officers, and excluding certain employee stock option plans); and (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by the holders of at least two-thirds of the corporation's outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. Except as otherwise specified in Section 203, an "interested stockholder" is defined as (a) any person that is the owner of 15% or more of the outstanding voting stock of the corporation, (b) any person that is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder, or (c) the affiliates and associates of any such person. By restricting the ability of the Company to engage in business combinations with an interested person, the application of Section 203 to the Company may provide a barrier to hostile or unwanted takeovers. Under Delaware law, the Company could have opted out of Section 203 but elected to be subject to its provisions. CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS Requirements for Advance Notification of Stockholder Nomination and Proposals. The Company's By-Laws require 60 to 90 days' notice to the Company with regard to stockholder proposals and the nomination, other than by or at the direction of the Board of Directors or a committee thereof, of candidates for election as directors. Such notice must provide specified information, including information regarding the ownership of Common Stock by the person giving the notice, information regarding the proposal or the nominees and information regarding the interest of the proponent in the proposal or the nominations. Special Meetings of Stockholders; Actions by Written Consent. The Company's Certificate of Incorporation and By-Laws provide that special meetings of stockholders of the Company may only be called by the Chairman of the Board, the President, or a majority of the then authorized number of Directors. This provision precludes stockholders from calling a special meeting and taking actions opposed by the Board of Directors. The Certificate of Incorporation also provides that stockholder action cannot be taken by written consent in lieu of a meeting. Limitation of Director Liability. The Company's Certificate of Incorporation limits the liability of Directors to the Company and its stockholders to the fullest extent permitted by Delaware law. Specifically, under current Delaware law, a director will not be personally liable for monetary damages for breach of the director's fiduciary duty as a director, except liability (i) for a breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions by a director not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for liability arising under Section 174 of the Delaware General Corporation Law (relating to the declaration of dividends and 39 purchase or redemption of shares in violation of the Delaware General Corporation Law), or (iv) for any transaction from which the director derived an improper personal benefit. The inclusion of this provision in the Company's Certificate of Incorporation may have the effect of reducing the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breach of their duty of care. Supermajority Provisions. The Company's Certificate of Incorporation provides that the vote of the Board of Directors or the affirmative vote of at least two-thirds of the then outstanding shares of capital stock entitled to vote generally in the election of Directors, voting as a single class, is required to amend, repeal, or alter any of the Company's By-Laws or the foregoing provisions contained in the Company's Certificate of Incorporation. RIGHTS PLAN Prior to the consummation of the Offering, there will be a dividend distribution of one right (a "Right") for each outstanding share of Common Stock of the Company to stockholders of record at the close of business on the date that the Offering is completed (the "Record Date"). The Board of Directors will further authorize the issuance of one right for each share of Common Stock that shall become outstanding between the Record Date and the earlier of the Final Expiration Date (as defined herein) and the date the Rights are redeemed. Except as described below, each Right, when exercisable, entitles the registered holder thereof to purchase from the Company one one-thousandth of a share of Special Preferred Stock, par value $0.01 per share (the "Special Preferred Shares"), at a price of $80.00 (the "Purchase Price"), subject to adjustment. Therefore, the dividend will have no significant initial value and no significant impact on the financial statements of the Company. The description and terms of the Rights are set forth in the Rights Agreement (the "Rights Agreement") between the Company and American Securities Transfer & Trust, Inc., as Rights Agent. A copy of a form of the Rights Agreement has been filed with the Commission as an exhibit to the registration statement of which this Prospectus is a part. This summary of certain provisions of the Rights Agreement and the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement. Initially, the Rights will be evidenced by Common Stock certificates representing shares then outstanding, and no separate certificates evidencing the Rights will be distributed. Until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons, with certain limited exceptions (an "Acquiring Person"), has acquired, or obtained the right to acquire, beneficial ownership of capital stock of the Company representing 15% or more of the voting power of the Company (the "Shares Acquisition Date") or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to the time that any person becomes an Acquiring Person) following the commencement of (or a public announcement of an intention to make) a tender or exchange offer if, upon consummation thereof, such person or group would be the beneficial owner of capital stock of the Company representing 15% or more of the voting power of the Company (such date being called the "Distribution Date"), the Rights will be evidenced by the Common Stock certificates and not by separate certificates. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with, and only with, the Common Stock. Until the Distribution Date (or earlier redemption, expiration, or termination of the Rights), the transfer of any Common Stock certificates will also constitute the transfer of the Rights associated with the Common Stock represented by such certificates. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right 40 Certificates") will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date and, thereafter, such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date, and will expire upon the earliest of (i) the close of business on the tenth anniversary of the date of the Rights Agreement (the "Final Expiration Date"), (ii) the redemption of the Rights by the Company as described below, or (iii) the exchange of all Rights for Special Preferred Shares as described below. A person will not become an Acquiring Person under the Rights Agreement if such person is the Company or an affiliate of the Company or obtained 15% or more of the voting power of the Company through (i) an issuance of Common Stock by the Company directly to such person (for example, in a private placement or an acquisition by the Company in which Common Stock is used as consideration) or (ii) a repurchase by the Company of Common Stock. In the event that any person or group becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon exercise at the then current exercise price of the Right, shares of Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. In the event that, at any time following a Shares Acquisition Date, the Company is acquired by the Acquiring Person in a merger or other business combination transaction or 50% or more of the Company's assets or earning power are sold to the Acquiring Person, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon exercise at the then current exercise price of the Right, common stock of the acquiring or surviving company having a value equal to two times the exercise price of the Right. Notwithstanding the foregoing, following the occurrence of any of the events set forth in the preceding two paragraphs (the "Triggering Events"), any Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will immediately become null and void. The Purchase Price payable, the number of Special Preferred Shares, shares of Common Stock or other securities or property issuable upon exercise of the Rights and the number of Rights outstanding, are subject to adjustment from time to time to prevent dilution, among other circumstances, in the event of a stock dividend on, or a subdivision, split, reverse split, combination, consolidation or reclassification of, the Special Preferred Shares or the Common Stock. With certain exceptions, no adjustment to the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% to the Purchase Price. Upon the exercise of a Right, the Company will not be required to issue fractional Special Preferred Shares or fractional shares of Common Stock (other than fractions in multiples of one one-hundredth of a Special Preferred Share) and, in lieu thereof, an adjustment in cash may be made based on the market price of the Special Preferred Shares or Common Stock on the last trading date prior to the date of exercise. At any time after a person or group becomes an Acquiring Person and prior to the acquisition by such person or group of capital stock of the Company representing 50% or more of the voting power of the Company, the Board of Directors may exchange the Rights (other than Rights owned by such 41 person or group, which will become void), in whole or in part, at an exchange ratio of one share of Common Stock per Right (subject to adjustment). At any time after the date of the Rights Agreement until the earlier of the time that a person becomes an Acquiring Person or the Final Expiration Date, the Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.01 per Right (the "Redemption Price"), which may (at the option of the Company) be paid in cash, shares of Common Stock, or other consideration deemed appropriate by the Board of Directors. Upon the effectiveness of any action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. The provisions of the Rights Agreement may be amended by the Company, except that any amendment adopted after the time that a person becomes an Acquiring Person may not adversely affect the interests of holders of Rights. Upon consummation of the Offering, each outstanding share of Common Stock will receive one Right. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company without conditioning the offer on the Rights being redeemed or a substantial number of Rights being acquired by the Acquiring Person. Under certain circumstances the Rights beneficially owned by such a person or group may become void. The Rights should not interfere with any merger or other business combination approved by the Board of Directors because, if the Rights would become exercisable as a result of such merger or business combination, the Board of Directors may, at its option, at any time prior to the time that any person or entity becomes an Acquiring Person, redeem all (but not less than all) of the then outstanding Rights at the Redemption Price. CERTAIN AGREEMENTS WITH STOCKHOLDERS The Company and certain stockholders who will hold 3,597,251 shares of Common Stock following the offering are parties to stock purchase agreements which give them certain rights of refusal, "tagalong" rights and registration rights. The rights of refusal give the stockholders certain first rights to purchase securities of the Company that the Company proposes to issue and sell. The tagalong rights require a stockholder who proposes to sell a majority of the shares of capital stock of the Company to arrange for the purchase of all the remaining shares of the Company's capital stock held by the remaining shareholders at a price and on terms as favorable as those applicable to the sale of the offeror's shares. For a description of the registration rights, see "Shares Eligible for Future Sale." TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is American Securities Transfer & Trust, Inc. 42 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has been no public market for the Common Stock. Sales of substantial amounts of shares of Common Stock in the public market could adversely affect market prices of the shares and make it more difficult for the Company to sell equity securities in the future at a time and price that it deems appropriate. The 2,000,000 shares sold in this Offering (2,300,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for shares purchased by "affiliates" of the Company, which will be subject to the resale limitations of Rule 144 under the Securities Act. As defined in Rule 144, an affiliate of an issuer is a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with, such issuer, and generally includes members of the Board of Directors and senior management. The remaining 3,834,140 shares of Common Stock that will be outstanding immediately following this Offering (the "Restricted Shares") were shares issued in private transactions. The Restricted Shares, together with 1,557,962 shares of Common Stock that may be acquired upon exercise of presently outstanding options and warrants, may not be sold except in compliance with the registration requirements of the Securities Act or pursuant to an exemption from registration, such as the exemption provided by Rule 144. The Restricted Shares held by current stockholders will become eligible for sale, subject to the restrictions of Rule 144, commencing in 90 days following completion of the Offering. In general, Rule 144 allows a stockholder (including persons who may be deemed "affiliates" of the Company under Rule 144) who has beneficially owned Restricted Shares for at least one year to sell a number of shares within any three-month period that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately 58,341 shares after giving effect to this Offering); or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks immediately preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner and notice of sale and the availability of public information concerning the Company. A stockholder who is not an "affiliate" of the Company at any time during the 90 days immediately preceding a sale, and who has beneficially owned his or her shares for at least two years as computed under Rule 144, is entitled to sell such shares under Rule 144 without regard to the volume and manner of sale limitations described above. The Company and its Directors, officers and certain stockholders have agreed not to offer, sell or otherwise dispose of any of their Restricted Shares for a period of 180 days after the date of this Prospectus without prior written consent of Hanifen, Imhoff Inc. See "Underwriting." Upon completion of the Offering, certain holders will have "piggyback" registration rights with respect to 3,597,251 shares of Common Stock held by them or issuable to them, which rights allow them to require the Company, subject to certain conditions, to include their shares in certain future registration statements filed by the Company. In addition, the Company intends to file a registration statement covering 500,000 shares of Common Stock reserved for issuance under the Company's stock option plans. 43 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement, dated as of the date of this Prospectus, each of the underwriters of this Offering (the "Underwriters") for whom Hanifen, Imhoff Inc. ("Hanifen") and Scott & Stringfellow, Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase the aggregate number of shares of Common Stock set forth opposite their respective names below: NUMBER UNDERWRITERS OF SHARES Hanifen, Imhoff Inc........................................... Scott & Stringfellow, Inc..................................... Total.................................................. 2,000,000 The Underwriting Agreement provides that the obligations of the Underwriters to purchase shares of Common Stock are subject to the approval of certain legal matters by counsel and to certain conditions and that if any shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement all shares of Common Stock agreed to be purchased by the Underwriters must so be purchased. The Company has been advised that the Underwriters propose to offer shares of Common Stock offered hereby to the public initially at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the Underwriters) at such public offering price less a concession not to exceed $ per share. The Underwriters or such selected dealers may reallow a concession to certain other dealers not to exceed $ per share. The Representatives have advised the Company that they do not expect the Underwriters to make sales to accounts over which any Underwriters exercise discretionary authority. The Company and the Selling Stockholder have granted to the Underwriters an option to purchase up to an additional 300,000 shares of Common Stock at the initial public offering price, less the same underwriting discount as set forth on the cover of this Prospectus, solely to cover over-allotments. The option may be exercised at any time up to 30 days after the date of this Prospectus. To the extent the Underwriters exercise such option, each such Underwriter will be committed, subject to certain conditions to purchase a number of option shares proportionate to such Underwriters initial commitment. The Representatives will receive stock purchase warrants to purchase an aggregate of 166,667 shares of Common Stock (191,667 shares if the underwriters exercise their option), with an exercise price equal to 120% of the initial public offering price set forth on the cover page of this Prospectus. The warrants 44 issued to the Representatives may be exercised only during the period beginning one year from the date of this Prospectus and continuing for two years thereafter. The Company, its directors and executive officers and certain security holders of the Company have agreed that they will not offer to sell, sell or otherwise dispose of any shares of Common Stock not sold in this offering for a period of 180 days from the date of this Prospectus without the prior written consent of Hanifen, on behalf of the Underwriters. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect of such liabilities. The Company has agreed to pay up to $75,000 to Hanifen for expenses, $50,000 of which has already been paid. Of the shares of Common Stock offered hereby, up to 200,000 have been reserved (the "Reserved Shares") for sale to stockholders, directors, officers and employees of the Company. The Reserved Shares will be sold at a price per share equal to the public offering price. Prior to this offering, there has been no public market for the Company's Common Stock. The initial public offering price for the Common Stock was determined by negotiations among the Company and the Representatives. The factors considered by the Representatives in determining the initial public offering price include the history of and prospects for the industry in which the Company competes, the ability of the Company's management, the proprietary interests of the Company in its products, the past and present operations of the Company, the historical results of the Company, the prospects for future earnings of the Company, the general condition of the securities market at the time of the offering and the market prices of similar securities of comparable companies in recent periods. There can be no assurance, however, that the price at which the Common Stock will sell in the public market after this offering will not be lower than the price at which the Common Stock is sold by the Underwriters. In order to facilitate the Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot in connection with the Offering, creating a short position in the Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the Common Stock in the Offering, if the syndicate purchases previously distributed Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. LEGAL MATTERS Certain legal matters will be passed upon for the Company by Dyer Ellis & Joseph PC, Washington, D.C. Certain legal matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP, Denver, Colorado. 45 EXPERTS The financial statements and schedule of the Company as of December 31, 1996, included in this Prospectus and elsewhere in the Registration Statement have been audited by Grant Thornton LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The financial statements and schedule of the Company as of December 31, 1994 and 1995 included in this Prospectus have been audited by Amper, Politziner & Mattia, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. On January 30, 1997, the Company engaged Grant Thornton LLP as its principal accountants, and dismissed its former accountants, Amper Politziner & Mattia. The Company decided to change accountants in anticipation of the Offering. The decision to change accountants was ratified by the Company's Board of Directors. In connection with the audits for the years ended December 31, 1994 and 1995 and through January 30, 1997, there were no disagreements with Amper, Politziner & Mattia on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure which disagreements if not resolved to the satisfaction of Amper, Politziner & Mattia would have caused them to make reference thereto in their report on the financial statements for such years. During the years ended December 31, 1994 and 1995 and through January 30, 1997 there were no reportable events (as defined in Item 304 (A)(1)(v) of Regulation S-K) with Amper, Politziner & Mattia. Amper, Politziner & Mattia rendered unqualified opinions with respect to the Company's financial statements for the years ended December 31, 1994 and 1995. ADDITIONAL INFORMATION A Registration Statement on Form S-1 including amendments thereto relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission, Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement, exhibits, and schedules. A copy of the Registration Statement may be inspected without charge at the Securities and Exchange Commission's principal office located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, the New York Regional Office located at 7 World Trade Center, Suite 1300, New York, New York 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and copies of all or any part thereof may be obtained from the Public Reference Section of the Securities and Exchange Commission upon the payment of certain fees prescribed by the Securities and Exchange Commission. The Registration Statement may also be obtained from the Web site that the Commission maintains at http:\\www.sec.gov. The Company intends to furnish its stockholders with annual reports containing audited financial statements certified by an independent public accounting firm and quarterly reports for each of the first three quarters of each fiscal year containing unaudited financial information. 46 INDEX TO FINANCIAL STATEMENTS
Page Report of independent certified public accountants - Grant Thornton LLP................................... F-2 Report of independent certified public accountants - Amper, Politziner & Mattia........................... F-3 Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997........................................ F-4 Statements of Operations for the years ended December 31, 1994, 1995, and 1996 and the three months ended March 31, 1996 and 1997.................................... F-5 Statement of Stockholders' Equity (Deficiency) for the years ended December 31, 1994, 1995, and 1996 and the three months ended March 31, 1997....................................... F-6 Statements of Cash Flows for the years ended December 31, 1994, 1995, and 1996 and the three months ended March 31, 1996 and 1997.................................... F-7 Notes to Financial Statements............................................................................. F-8
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders SECURACOM, INCORPORATED We have audited the accompanying balance sheet of Securacom, Incorporated as of December 31, 1996, and the related statements of operations, stockholders' equity (deficiency), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Securacom, Incorporated as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. We have also audited Schedule II of Securacom, Incorporated for the year ended December 31, 1996. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Parsippany, New Jersey March 12, 1997 F-2 REPORT OF INDEPENDENT AUDITORS Board of Directors SECURACOM, INCORPORATED We have audited the accompanying balance sheet of Securacom, Incorporated at December 31, 1995, and the related statements of operations, stockholders' equity and cash flows for each of the two years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant accounting estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Securacom, Incorporated at December 31, 1995 and the results of its operations and its cash flows for each of the two years then ended in conformity with generally accepted accounting principles. We have also audited Schedule II of Securacom, Incorporated for the years ended December 31, 1995 and 1994. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. AMPER, POLITZINER & MATTIA June 3, 1996 Edison, New Jersey F-3 SECURACOM, INCORPORATED BALANCE SHEETS
DECEMBER 31, MARCH 31, ASSETS 1995 1996 1997 ----------- -------------- ----------- (UNAUDITED) Current assets: Cash and cash equivalents................................ $ 555,345 $ 609,342 $ 130,741 Accounts receivable, net of allowance for doubtful accounts of $120,000 in 1995 and $42,000 in 1996 and 1997................................................ 1,155,173 1,777,456 2,310,856 Costs and estimated earnings in excess of billings on uncompleted contracts.................................. 780,391 1,148,560 1,925,667 Prepaid expenses and other............................... 100,006 120,937 111,443 ------------ ----------- ----------- Total current assets.................................. 2,590,915 3,656,295 4,478,707 Plant and equipment, net.................................... 261,139 714,989 684,300 Investment in SSIH, Ltd..................................... 700,000 Other assets................................................ 193,888 195,803 253,754 ------------ ----------- ----------- $ 3,045,942 $ 4,567,087 $ 6,116,761 ============ =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Notes payable-stockholder............................... $ 200,000 $ -- $ -- Current maturities of capital lease obligations......... 6,290 21,454 21,454 Accounts payable........................................ 817,980 2,739,271 2,922,400 Billings in excess of costs and estimated earnings on uncompleted contracts................................. 442,059 103,184 503,913 Accrued expenses and other.............................. 428,507 641,506 696,030 ------------ ----------- ----------- Total current liabilities............................. 1,894,836 3,505,415 4,143,797 Long-term liabilities: Notes payable........................................... 597,000 2,541,000 3,189,500 Capital lease obligations, less current maturities...... -- 116,399 111,048 Stockholders' equity (deficiency): Common stock, $0.01 par value per share; authorized; 10,000,000 shares; issued and outstanding, 3,953,683 shares in 1995 and 4,434,140 shares in 1996 and 1997................................................ 39,536 44,341 44,341 Additional paid-in capital.............................. 10,224,002 10,582,197 10,644,197 Accumulated deficit..................................... (9,709,432) (12,222,265) (12,016,122) ------------ ----------- ----------- 554,106 (1,595,727) (1,327,584) ------------ ----------- ----------- $ 3,045,942 $ 4,567,087 $ 6,116,761 ============ =========== ===========
The accompanying notes are an integral part of these statements. F-4 SECURACOM, INCORPORATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------ ----------------------------- 1994 1995 1996 1996 1997 ------------- ------------- ------------- ------------ ------------ (UNAUDITED) Earned revenues............................... $ 2,395,254 $ 3,176,523 $ 5,824,448 $ 656,022 $ 3,297,899 Cost of earned revenues....................... 1,586,315 2,179,964 4,416,386 253,885 2,326,223 ------------- ------------- ------------- ------------ ----------- Gross profit............................... 808,939 996,559 1,408,062 402,137 971,676 Selling, general and administrative expenses.. 2,670,092 2,870,570 3,700,698 739,907 645,656 ------------- ------------- ------------- ------------ ----------- Operating income (loss)....................... (1,861,153) (1,874,011) (2,292,636) (337,770) 326,020 Interest and financing fees................... (34,181) (101,707) (241,716) (21,851) (127,276) Interest and other income..................... 7,617 208,026 21,519 2,998 7,399 ------------- ------------- ------------- ------------ ----------- Net income (loss).......................... $ (1,887,717) $ (1,767,692) $ (2,512,833) $ (356,623) $ 206,143 ============= ============= ============= ============ =========== Net income (loss) per share................... $ (0.52) $ (0.43) $ (0.56) $ (0.08) $ 0.04 ============= ============= ============= ============ =========== Weighted average shares outstanding........... 3,649,000 4,064,000 4,523,000 4,223,000 5,105,000 ============= ============= ============= ============ ===========
The accompanying notes are an integral part of these statements. F-5 SECURACOM, INCORPORATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
TOTAL ADDITIONAL STOCKHOLDERS' COMMON STOCK PAID-IN ACCUMULATED EQUITY SHARES AMOUNT CAPITAL DEFICIT (DEFICIENCY) Balance at January 1, 1994.................. 3,226,889 $ 32,269 $ 6,724,201 $ (6,054,023) $ 702,447 Net loss.................................... (1,887,717) (1,887,717) Proceeds from issuance of common stock...... 316,000 3,160 1,576,780 1,579,940 Common stock issuance costs................. (78,997) (78,997) ------------ ------------ ------------- --------------- -------------- Balance at December 31, 1994................ 3,542,889 35,429 8,221,984 (7,941,740) 315,673 Net loss.................................... (1,767,692) (1,767,692) Proceeds from issuance of common stock...... 410,794 4,107 2,075,818 2,079,925 Common stock issuance costs................. (76,800) (76,800) Issuance of warrants........................ 3,000 3,000 ------------ ------------ ------------- --------------- -------------- Balance at December 31, 1995................ 3,953,683 39,536 10,224,002 (9,709,432) 554,106 Net loss.................................... (2,512,833) (2,512,833) Exercise of warrants........................ 480,457 4,805 247,195 252,000 Issuance of warrants........................ 111,000 111,000 ------------ ------------ ------------- --------------- -------------- Balance at December 31, 1996................ 4,434,140 44,341 10,582,197 (12,222,265) (1,595,727) Net income (unaudited)...................... 206,143 206,143 Issuance of warrants (unaudited)............ 62,000 62,000 ------------ ------------ ------------- --------------- -------------- Balance at March 31, 1997 (unaudited)....... 4,434,140 $ 44,341 $ 10,644,197 $ (12,016,122) $ (1,327,584) ============ ============ ============= =============== ==============
The accompanying notes are an integral part of this statement. F-6 SECURACOM, INCORPORATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------------------------------- -------------------------- 1994 1995 1996 1996 1997 -------------- --------------- -------------- ----------- ------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................. $ (1,887,717) $ (1,767,692) $ (2,512,833) $ (356,623) $ 206,143 ------------- --------------- ------------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization............. 47,503 62,457 91,859 15,031 30,689 Noncash compensation...................... 27,500 28,000 Amortization of debt discount............. 5,000 1,000 10,500 Changes in operating assets and liabilities: Accounts receivable....................... 183,225 (767,135) (622,283) 264,378 (533,400) Costs and estimated earnings in excess of billings on uncompleted contracts....... (700,481) 177,124 (368,169) 120,275 (777,107) Prepaid expenses and other................ 209,311 (30,043) (20,931) 23,669 9,494 Other assets.............................. 13,361 (146,978) (1,915) 1,220 (57,951) Accounts payable.......................... 153,897 115,265 1,921,291 (263,114) 183,129 Billings in excess of costs and estimated earnings on uncompleted contracts....... 192,213 249,846 (338,875) (3) 400,729 Accrued expenses and other................ (119,646) 145,620 212,999 (179,194) 54,524 ------------- --------------- ------------- ----------- ----------- Total adjustments......................... (20,617) (166,344) 906,976 (16,738) (679,393) ------------- --------------- ------------- ----------- ----------- Net cash used in operating activities..... (1,908,334) (1,934,036) (1,605,857) (373,361) (473,250) ------------- --------------- ------------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in SSIH, Ltd....................... (700,000) Acquisition of plant and equipment............ (63,661) (17,868) (396,460) (6,161) -- ------------- --------------- ------------- ----------- ----------- Net cash used by investing activities......... (63,661) (17,868) (396,460) (6,161) (700,000) ------------- --------------- ------------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable................... 515,000 800,000 2,050,000 700,000 Principal payments on notes payable - stockholder................................. (200,000) (125,000) Principal payments of capital lease obligations................................. (15,235) (19,068) (17,686) (7,390) (5,351) Proceeds from issuance of common stock and exercise of warrants........................ 1,579,940 1,537,425 224,000 196,000 Common stock issuance costs................... (78,997) (76,800) ------------- --------------- Net cash provided by financing activities..... 2,000,708 2,241,557 2,056,314 63,610 694,649 ------------- --------------- ------------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 28,713 289,653 53,997 (315,912) (478,601) Cash and cash equivalents at beginning of period.. 236,979 265,692 555,345 555,345 609,342 ------------- --------------- ------------- ----------- ----------- Cash and cash equivalents at end of period........ $ 265,692 $ 555,345 $ 609,342 $ 239,433 $ 130,741 ============= =============== ============= =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period Interest and financing fees............... $ 23,000 $ 97,000 $ 165,000 $ 22,000 $ 140,000 Income taxes.............................. 2,000 2,000 7,000 5,000 5,000
During 1996, the Company acquired equipment totaling approximately $149,000 through capital lease transactions. During 1995, the Company issued 103,000 shares of common stock in payment of notes payable totaling $515,000. The accompanying notes are an integral part of these statements. F-7 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS December 31, 1995 and 1996 NOTE A - BUSINESS AND SUMMARY OF ACCOUNTING POLICIES Securacom, Incorporated (the "Company") is a single-source provider of comprehensive technology-based security solutions primarily for medium and large commercial and government facilities in the United States and abroad. At December 31, 1996, the Company was approximately 90% owned by KuwAm Corporation, two private investment partnerships of which KuwAm serves as general partner, Special Situations Investment Holdings, Ltd. and Special Situations Investment Holdings L.P. II, and certain individual limited partners of the investment partnerships (the "KuwAm Group"). A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows: 1. REVENUE RECOGNITION The Company derives its revenues principally from long-term contracts which are generally on a fixed price basis. Earnings are recognized on the basis of the Company's estimates of the percentage of completion of individual contracts, whereby total estimated income is earned based upon the proportion that costs incurred bear to the Company's estimate of total contract costs. The percentage of completion of individual contracts includes management's best estimates of the amounts expected to be realized on these contracts. It is at least reasonably possible that the amounts the Company will ultimately realize could differ materially in the near term from the amounts estimated in arriving at the earned revenue and costs and earnings in excess of billings on uncompleted contracts. Contract costs include all direct material, direct labor and subcontract costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract revisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The asset "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed to clients. The liability "Billings in excess of costs and estimated earnings on uncompleted contracts" represents billings in excess of revenues recognized. F-8 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 2. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 3. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. 4. PLANT AND EQUIPMENT Plant and equipment are stated at cost. Depreciation is provided using the straight-line method based on the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the economic life of the improvements or the lease term. 5. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In addition to the estimates of revenues earned on contracts as described in Note A-1, the Company estimates an allowance for doubtful accounts based on the creditworthiness of its clients, as well as general economic conditions. Consequently, an adverse change in those factors could affect the Company's estimate. 6. CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash, money market funds and trade accounts receivable. The Company places its cash and money market funds with high credit quality institutions. In general, such investments exceed the FDIC insurance limit. F-9 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 The Company provides credit to its clients in the normal course of business. The Company routinely assesses the financial strength of its clients and, as a consequence, believes that its trade accounts receivable exposure is limited. The carrying value of financial instruments potentially subject to valuation risk (principally consisting of cash, accounts receivable, long-term debt and accounts payable) approximates fair market value due to their short-term nature or market interest rates. 7. INCOME (LOSS) PER SHARE Net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding. Except as noted in the following paragraph, stock warrants have not been included in the calculation as their inclusion would be antidilutive. Warrants issued for the purchase of shares of Common Stock at an exercise price below the estimated initial public offering price of $10.00 per share during the 12 months preceding the date of the Company's initial filing of a registration statement with the Securities and Exchange Commission have been included in the number of weighted average shares outstanding for all periods presented calculated based on the treasury stock method. The Company believes that the implementation of Statement of Financial Accounting Standards 128, Earnings Per Share, will not have a material impact on the calculation of earnings per share. 8. INTERIM FINANCIAL STATEMENTS (UNAUDITED) The unaudited balance sheet as of March 31, 1997 and the unaudited statements of operations, stockholders' equity and statements of cash flows for the three months ended March 31, 1996 and 1997 are condensed financial statements in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they omit certain information included in complete financial statements and should be read in connection with the information for the years ended December 31, 1994, 1995 and 1996. In the opinion of the Company, the unaudited financial statements at March 31, 1997 and for the three months ended March 31, 1996 and 1997, include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for such periods. Results of operations for the three months ended March 31, 1997 are not necessarily indicative of results to be expected for the full year. F-10 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 Per share data for the three months ended March 31, 1997 is based on the weighted average number of common shares and common share equivalents (warrants) outstanding during the period using the modified treasury stock method. In April 1997, the Board of Directors approved an increase in the number of shares of Common Stock authorized to 20,000,000 shares. NOTE B - LIQUIDITY As shown in the accompanying financial statements, Securacom, Incorporated has incurred recurring operating losses and has an accumulated deficit of $12,222,265 at December 31, 1996. In addition, the Company has been dependent on its principal stockholders for the financing of ongoing operations. In these circumstances, the Company's continued existence is dependent upon its ability to generate profitable operations and secure financing to fund future operations. Management is addressing these matters by implementing a comprehensive business strategy. The Company anticipates that it will generate sufficient cash flow from 1997 operations to meet its working capital needs. The Company has, in the past, been able to secure additional financing to meet its operating requirements, although there can be no assurance that it will be able to continue to do so. NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings on uncompleted contracts at December 31, 1995 and 1996 and March 31, 1997 which are expected to be collected within one year are as follows:
MARCH 31, 1997 1995 1996 (UNAUDITED) ---------------- --------------- -------------- Costs incurred on contracts.................... $ 28,205,341 $ 32,222,489 $ 6,740,259 Estimated earnings............................. 2,701,352 3,889,963 2,127,625 ---------------- --------------- --------------- 30,906,693 36,112,452 8,867,884 Less billings to date.......................... 30,568,361 35,067,076 7,446,130 ---------------- --------------- --------------- $ 338,332 $ 1,045,376 $ 1,421,754 ================ =============== ===============
In addition, included in accounts receivable and accounts payable at December 31, 1996 were retainages of $76,983 and $111,278, respectively. At March 31, 1997 retainages included in accounts receivable were $199,905 and in accounts payable $174,865 (unaudited). The Company anticipates that retainages will be collected and paid within one year. There were no such amounts at December 31, 1995. F-11 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 In February 1996, the Company negotiated a final settlement on a major contract with the Tennessee Valley Authority. As a result, the Company wrote off approximately $238,000 of amounts owed to a subcontractor and reduced cost of earned revenues. NOTE D - PLANT AND EQUIPMENT Plant and equipment are summarized as follows:
USEFUL 1995 1996 LIFE Computer equipment....................................... $ 232,599 $ 275,110 5 years Equipment and fixtures................................... 214,158 328,885 10 years Aircraft (a)............................................. 335,000 10 years Leasehold improvements................................... 53,471 5 years ---------- ----------- 446,757 992,466 Accumulated depreciation and amortization............................................ 185,618 277,477 ---------- ----------- $ 261,139 $ 714,989 ========== ===========
(a) The aircraft was purchased from a firm whose principal stockholders are the same as those of the Company. F-12 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 NOTE E - NOTES PAYABLE During the years ended December 31, 1995 and 1996, the Company issued subordinated debentures to the KuwAm Group totaling $600,000 and $2,050,000, respectively, and 85,716 and 292,862, respectively, of warrants to purchase common stock of the Company at $7.00 per share. The debentures bear interest at 10% and the principal is payable as follows: $663,000 on December 31, 1998, $663,000 on December 31, 1999 and the balance on December 31, 2000. The value of the warrants, $3,000 and $111,000 at December 31, 1995 and 1996, respectively, was determined based upon an appraisal of the securities by an independent firm and was recorded as additional paid-in capital and reduction of notes payable. All 378,578 warrants are outstanding at December 31, 1996. Interest expense on these notes amounted to approximately $37,000 and $125,000 (including $5,000 of amortization of debt discount) for the years ended December 31, 1995 and 1996, respectively. At December 31, 1995, the Company had $200,000 of notes payable to stockholders which were repaid in 1996. NOTE F - ACCRUED EXPENSES Accrued expenses and other are summarized as follows: DECEMBER 31, 1995 1996 Payroll...................................... $ 225,979 $ 237,515 Employee expense reimbursements.............. 16,735 107,236 Professional fees............................ 73,656 87,875 Deferred rent obligation..................... 81,915 74,295 Other........................................ 30,222 134,585 ----------- ----------- $ 428,507 $ 641,506 =========== =========== F-13 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 NOTE G - OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS The Company has entered into various capital lease agreements for equipment with a cost of $48,646 and $197,895 at December 31, 1995 and 1996, respectively. The leases expire at various times through 2001. Accumulated amortization amounted to $10,372 and $29,447 at December 31, 1995 and 1996, respectively. The related future minimum lease payments, as of December 31, 1996, are as follows: FISCAL CAPITAL YEAR LEASES ------ ----------- 1997..................................................... $ 48,713 1998..................................................... 48,713 1999..................................................... 45,144 2000..................................................... 46,544 2001..................................................... 28,531 ----------- Net minimum lease payments............................... 217,645 Amount representing interest............................. (79,792) ----------- $ 137,853 NOTE H - RELATED PARTY TRANSACTIONS The Company had agreements (the "Agreements") with KuwAm Corporation whereby the Company paid a fee of five percent of the capital raised from the private sale of common stock and subordinated debentures under the Agreements. The Company incurred approximately $79,000, $77,000 and $103,000, of investment banking fees under the Agreements during 1994, 1995 and 1996, respectively, which have been recorded as a reduction of proceeds from sales of equity securities and interest and financing fees for sales of subordinated debentures. NOTE I - EMPLOYEE STOCK WARRANTS From time to time the Company has granted warrants for the purchase of its common stock to employees and directors. The Company has elected to follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in measuring compensation expense for its stock warrants. Under APB No. 25, because the exercise price of the Company's employee stock warrants is not less than the fair market value of the underlying stock on the date of grant, no compensation expense is recognized. However, SFAS No. 123, "Accounting for Stock-Based Compensation," requires presentation of pro forma net income and earnings per share as if the Company had accounted for its employee stock warrants granted subsequent to December 31, 1994, under the fair value method of that statement. For purposes of pro forma disclosure, the estimated fair value of the warrants is amortized to expense over the vesting period. Under the fair value method, the Company's net loss and loss per share would not have had a material change. F-14 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 Because SFAS No. 123 is applicable only to options and warrants granted subsequent to December 31, 1994, and the warrants have a three-year vesting period, its pro forma effect will not be fully reflected until 1998. The weighted average fair value of the individual warrants granted during both 1995 and 1996 is estimated as $0.04 on the date of grant. The fair values were determined using a Black-Scholes option-pricing model with the following assumptions: 1995 1996 Dividend yield...................... -- -- Volatility.......................... 50% 50% Risk-free interest rate............. 6.70 6.06 Forfeiture rate..................... -- -- Expected life....................... 3 years 3 years Stock warrant activity during 1994-1996 is summarized below:
SHARES OF WEIGHTED COMMON STOCK AVERAGE ATTRIBUTABLE EXERCISE PRICE TO WARRANTS OF WARRANTS Unexercised at December 31, 1993............................ 785,634 $ 1.91 Granted...................................................... 33,260 0.53 Expired...................................................... 16,667 5.00 -------------- Unexercised at December 31, 1994............................. 802,227 1.78 Granted...................................................... 245,148 4.63 Exercised.................................................... -- -- Expired...................................................... 35,000 5.00 -------------- Unexercised at December 31, 1995............................. 1,012,375 2.36 Granted...................................................... 400,797 6.58 Exercised.................................................... 480,457 0.53 Expired...................................................... 48,333 5.41 -------------- Unexercised at December 31, 1996............................. 884,382 5.10 ==============
F-15 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 The following table summarizes information concerning outstanding and exercisable warrants at December 31, 1996: WARRANTS OUTSTANDING WEIGHTED-AVERAGE EXERCISE NUMBER REMAINING WARRANTS PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE $1 159,382 0.7 159,382 5 360,000 1.1 209,998 7 365,000 2.2 -- Warrants exercisable at December 31, 1994, 1995 and 1996, were 562,639, 689,248 and 369,382, respectively. Reference is made to Note E relating to outstanding warrants issued relating to notes payable. During the year ended December 31, 1996, the President of the Company exercised warrants for the purchase of 53,320 shares of common stock at an exercise price of $0.53 per share. Since no amount was paid upon exercise of the warrants, the Company recorded compensation expense of $28,000. NOTE J - INCOME TAXES Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities at December 31, 1995 and 1996 follow:
1995 1996 ------------ ------------- Current assets and liabilities Allowance for doubtful accounts............................... $ 29,000 $ 17,000 Accrued vacation pay.......................................... 15,000 38,000 Deferred rent obligation...................................... 19,000 -- ------------- ------------- 63,000 55,000 Valuation allowance............................................. (63,000) (55,000) ------------- ------------- Net current deferred tax asset (liability)...................... $ -- $ -- ============= ============= Noncurrent assets and liabilities: Depreciation.................................................. $ (26,000) $ (58,000) Net operating loss carryforward............................... 2,250,000 4,744,000 ------------- ------------- 2,224,000 4,686,000 Valuation allowance............................................. (2,224,000) (4,686,000) ------------- ------------- Noncurrent deferred tax asset (liability)....................... $ -- $ -- ============= =============
F-16 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 The valuation allowance has been established for those loss carryforwards and deductible temporary differences which are not presently considered more likely than not to be realized. The provision for income taxes differs from the effective tax rate used in the financial statements as a result of current year net operating losses, the benefit of which has not been recognized in the current year. As of December 31, 1996, the Company had net operating loss carryforwards of approximately $12,200,000, which expire in 2002 through 2011. In 1992, a major stockholder of the Company significantly increased its ownership of the Company. As a result of a complex set of rules limiting the utilization of net operating loss carryforwards in tax years following a corporate ownership change (enacted in the Tax Reform Act of 1986), the ability of the Company to utilize net operating losses of approximately $3.5 million may be limited. Also, the shares issued in connection with the Offering are expected to create an ownership change. However, based on the expected value of the Company immediately before such ownership change and the resulting limitation as defined, the Company expects to be able to utilize its net operating losses of approximately $8.7 million incurred after August 1992. NOTE K - EMPLOYEE BENEFIT ARRANGEMENTS The Company established a contributory employee savings plan under Section 401(k) of the Internal Revenue Code. The Company contributes amounts to individual participant accounts based on specific provisions of the plan. The cost to the Company for the employer match under the plan was $8,111, $8,238 and $12,728, for the years ended December 31, 1994, 1995 and 1996, respectively. The Company had an employee profit-sharing plan providing for the provision of an amount equal to 10% of the Company's income before income taxes. The Company did not make a contribution to the plan for the years ended December 31, 1994, 1995 or 1996. NOTE L - COMMITMENTS AND CONTINGENCIES Leases The Company conducts all of its operations from leased facilities consisting of its corporate headquarters and branch office locations. All facility leases are classified as operating leases with terms ranging from one to five years. F-17 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 The following is a schedule by years of approximate future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1996: YEAR ENDING DECEMBER 31, AMOUNT ----------------------- --------- 1997................................................. $ 269,000 1998................................................. 260,000 1999................................................. 253,000 2000................................................. 152,000 2001................................................. 32,000 ----------- $ 966,000 Rent expense for the years ended December 31, 1994, 1995 and 1996 was $279,000, $236,000 and $286,000, respectively. Contingencies The Company is a party in certain legal actions arising from the normal conduct of its business. While the outcome of such actions is not presently determinable, in the opinion of management, based on discussions with legal counsel, the resolution of these actions will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. NOTE M - INTEREST AND OTHER INCOME Included in interest and other income for the year ended December 31, 1995 is a gain on settlement of litigation, net of expenses and fees of $205,179. NOTE N - ACQUISITION Effective August 1, 1995, Securacom, Incorporated acquired the assets and certain liabilities of Franklin M. Sterling & Associates, Inc. in exchange for issuing 25,000 shares of common stock to, and employment of, Franklin M. Sterling, P.E. as Senior Vice President in charge of Securacom's West Coast offices. The Company recorded compensation expense of $27,500 in 1995 relating to the issuance of these shares of common stock. NOTE O - SIGNIFICANT CLIENTS During the year ended December 31, 1994, one client accounted for approximately 67% of earned revenue. F-18 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 During the year ended December 31, 1995 contracts with three clients accounted for approximately 41%, 18% and 13% of earned revenue. During the year ended December 31, 1996, contracts with four clients accounted for approximately 28%, 22%, 14% and 11% of earned revenue. NOTE P - SUBSEQUENT EVENTS Proposed Initial Public Offering The Company entered into an agreement with an underwriter pursuant to which the Company intends to prepare and file with the Securities and Exchange Commission a registration statement for the initial public offering of 1,400,000 shares to be issued by the Company and 600,000 shares by existing stockholders. Issuance of Notes Payable Through March 10, 1997, the Company issued $700,000 of subordinated debentures to the KuwAm Group with warrants to purchase 100,002 shares of the Company's common stock at an exercise price of $7.00 per share. The debentures bear interest at 10% and the principal is payable as follows: $175,000 on December 31, 1998, $175,000 on December 31, 1999 and the balance on December 31, 2000. The warrants were valued at $62,000 based upon an appraisal of the securities by an independent firm and were recorded as additional paid-in capital and a reduction of notes payable. Investment Of the total $3,350,000 proceeds received from the issuance of notes payable, the Company invested $700,000 in a limited partnership interest of Special Situations Investment Holdings, Ltd. ("SSIH") recorded at cost which is deemed to be equivalent to fair market value. (Reference is made to Note A). At the end of each year, the Company has the option of requiring SSIH to redeem the limited partnership interest at their then fair market value less a liquidation fee of up to 1%. The proceeds of such redemption are payable, at SSIH's option, in cash or portfolio securities of SSIH. Because the assets of SSIH include both publicly traded and privately held securities, the value of the SSIH portfolio may be materially different than the cost of the Company's investment. Under the terms of the governing agreements KuwAm receives 3% of the amount of the Company's investment as reimbursement for accounting, legal and administrative expenses, an annual fee equal to 2% of the assets and an annual capital appreciation fee equal to 10% of the increases in the value of SSIH's assets each year. Common Stock and Warrants In January and February 1997, the Company issued to employees and directors 195,000 warrants to purchase shares of the Company's common stock at $7.00 per share. F-19 SECURACOM, INCORPORATED NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1996 Employment and Consulting Agreements In 1997, the Company entered into employment agreements with its President and Chief Financial Officer that provide for annual base salaries of $165,000 and $125,000, respectively, through March 31, 2002 and 2000, respectively. The agreements provide for an additional payment equal to two times the annual base salary if the executive is terminated without cause following a change in control as defined in the agreement. The Company also entered into a consulting agreement with the Chairman of the Company (and managing partner of KuwAm Corporation) that provides for an annual consulting fee of $140,000 through March 31, 2002. Stock Option Plan In 1997, the Board of Directors approved the adoption of the 1997 Stock Option Plan. The 1997 Stock Option Plan provides for the grant of options to purchase up to 500,000 shares of the Company's Common Stock. Options may be granted to employees, officers, directors and consultants of the Company for the purchase of Common Stock of the Company at a price not less than the fair market value of the Common Stock on the date of the grant. F-20 SECURACOM, INCORPORATED SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E ------------- -------------- ------------- -------------- ---------- Additions (1) (2) Charged to Balance at Charged to other Balance at beginning costs and accounts - Deductions - end of Description of period expenses describe describe period Year ended December 31, 1994 Allowance for doubtful accounts $ 97,000 $ 97,000 ============ ============= Year ended December 31, 1995 Allowance for doubtful accounts $ 97,000 $ 23,000 $ 120,000 ============ ============ ============= Year ended December 31, 1996 Allowance for doubtful accounts $ 120,000 $ 78,000 (a) $ 42,000 ============ ============ =============
(a) Uncollectible accounts written off S-1 Securacom, Incorporated [Diagram of Services Offered by Securacom] Single Source Security Through Technology NO DEALER, SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. TABLE OF CONTENTS Page Prospectus Summary............................... Risk Factors..................................... Use of Proceeds.................................. Dividend Policy.................................. Dilution......................................... Capitalization................................... Pro Forma Consolidated Financial Information..... Selected Financial Data.......................... Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... Business......................................... Management....................................... Certain Transactions............................. Principal and Selling Stockholders............... Description of Capital Stock..................... Shares Eligible for Future Sale.................. Underwriting..................................... Legal Matters.................................... Experts.......................................... Additional Information........................... Index to Financial Statements.................................... UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,000,000 Shares [SECURACOM LOGO] COMMON STOCK PROSPECTUS , 1997 HANIFEN, IMHOFF INC. SCOTT & STRINGFELLOW, INC. PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses payable in connection with the registration of the Common Stock that is the subject of this Registration Statement, all of which shall be borne by the Company. All the amounts shown are estimates except for the registration fee, the New York Stock Exchange listing fee, and the NASD filing fee.
To Be Paid By Registrant Securities and Exchange Commission registration fee..................... $ 6,970.00 Nasdaq listing fee...................................................... * National Association of Securities Dealers filing fee................... Printing and engraving expenses......................................... * Legal fees and expenses................................................. * Accounting fees and expenses............................................ * Blue sky filing fees.................................................... * Miscellaneous........................................................... * ----------- Total............................................................... $ *
* To be supplied by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Certificate of Incorporation and By-Laws provide for indemnification of directors, officers, agents, and employees of the Company to the fullest extent permitted by law. Under Delaware law, a corporation may indemnify any person who was or is a party or is threatened to be made a party to an action (other than an action by or in the right of the corporation) by reason of his service as a director or officer of the corporation, or his service, at the corporation's request, as a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys' fees) that are actually and reasonably incurred by him ("Expenses"), and judgments, fines and amounts paid in settlement that are actually and reasonably incurred by him, in connection with the defense or settlement of such action, provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Although Delaware law permits a corporation to indemnify any person referred to above against Expenses in connection with the defense or settlement of an action by or in the right of the corporation, provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, if such person has been judged liable to the corporation, indemnification is only permitted to the extent that the Court of Chancery (or the court in which the action was brought) determines that, despite the adjudication of liability, such person is entitled to indemnity for such Expenses as the court deems proper. The determination as to whether a person II-1 seeking indemnification has met the required standard of conduct is to be made (1) by a majority vote of a quorum of disinterested members of the board of directors, or (2) by independent legal counsel in a written opinion, if such a quorum does not exist or if the disinterested directors so direct, or (3) by the stockholders. The General Corporation Law of the State of Delaware also provides for mandatory indemnification of any director, officer, employee or agent against Expenses to the extent such person has been successful in any proceeding covered by the statute. In addition, the General Corporation Law of the State of Delaware provides the general authorization of advancement of a director's or officer's litigation expenses in lieu of requiring the authorization of such advancement by the board of directors in specific cases, and that indemnification and advancement of expenses provided by the statute shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement or otherwise. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since January 1, 1994, the Registrant has sold or issued the following unregistered securities: During 1994, the Company issued an aggregate of 316,000 shares of Common Stock to eight individuals and five entities at a purchase price of $5.00 per share. Also during 1994, the Company issued $515,000 aggregate principal amount of promissory notes to one entity at a purchase price equal to the principal amount of the promissory notes. From January 1995 through June 1995, the Company issued an aggregate of 247,500 shares of Common Stock to three individuals and three entities at a purchase price of $5.00 per share. In June 1995, $515,000 aggregate principal amount of promissory notes held by one entity was converted into 103,000 shares of Common Stock at a conversion price of $5.00 per share. During July and August 1995, the Company issued an aggregate of 35,294 shares of Common Stock to one entity at a purchase price of $8.50 per share. In August 1995, the Company issued 25,000 shares of Common Stock to one individual in connection with the acquisition of the assets and certain liabilities of a security consulting business. In March and May 1996, two entities and two directors exercised warrants to purchase an aggregate of 427,137 shares of Common Stock at an exercise price of $0.53 per share. From October 1995 through March 1997 the Company issued $3,350,000 aggregate principal amount of 10% subordinated debentures and warrants to purchase 478,580 shares of Common Stock at an exercise price of $7.00 per share to nine entities and 19 individuals at a purchase price equal to the principal amount of the debentures. The issuances of securities in the above transactions were deemed to be exempt from registration under the Act in reliance on Section 4(2) thereof as transactions not involving a public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following is a list of exhibits furnished: 1.1 Form of Underwriting Agreement 1.2 Form of Underwriter's Warrant II-2 3.1 Form of Restated Certificate of Incorporation of Securacom, Incorporated 3.2 Form of Bylaws of Securacom, Incorporated 4 Form of Rights Agreement 5* Opinion of Counsel 10.1 Stock Option Plan 10.2 Employment Agreement with Ronald C. Thomas 10.3 Employment Agreement with Larry M. Weaver 10.4 Consulting Agreement with Wirt D. Walker, III 10.5+ Agreement and Certificate of Limited Partnership for Special Situation Investment Holdings, Ltd. 10.6 Form of Stock Purchase Agreement 11+ Computation of Net Income (Loss) Per Share 23.1 Consent of Grant Thornton LLP 23.2 Consent of Amper, Politziner & Mattia 23.3 Consent of Counsel (included as part of Exhibit 5) 24+ Power of Attorney 27+ Financial Data Schedule * To be filed by amendment + Previously filed (b) The following is a list of the financial statement schedule furnished: Schedule II - Valuation and Qualifying Accounts. Schedules not listed above have been omitted because they are not applicable or because required information is included in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: II-3 (1) To provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. (2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (3) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (4) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Woodcliff Lake and State of New Jersey on the 9th day of June, 1997. SECURACOM, INCORPORATED By: * Ronald C. Thomas President and Chief Executive Officer 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 * June 9, 1997 - -------------------------------------- Ronald C. Thomas President, Chief Executive Officer, and Director (Principal Executive Officer) * June 9, 1997 - -------------------------------------- Larry M. Weaver Executive Vice President, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) * Chairman and Director June 9, 1997 - -------------------------------------- Wirt D. Walker, III * Director June 9, 1997 Mishal Yousef Saud Al Sabah * Director June 9, 1997 - -------------------------------------- Marvin Bush * Director June 9, 1997 - -------------------------------------- Robert B. Smith, Jr.
By: /s/ MICHAEL JOSEPH Michael Joseph Attorney-in-Fact II-5 EX-1.1 2 FORM OF UNDERWRITING AGREEMENT [2,000,000] SHARES OF COMMON STOCK SECURACOM, INCORPORATED UNDERWRITING AGREEMENT June __, 1997 Hanifen, Imhoff Inc. Scott & Stringfellow, Inc. As Representatives of the Several Underwriters 1125 17th Street, Suite 1600 Denver, Colorado 80202 Ladies and Gentlemen: Securacom, Incorporated (the "Company"), confirms its agreement to issue and sell to the several underwriters (the "Underwriters") named in Schedule A hereto for whom you are acting as representatives (the "Representatives") an aggregate of [1,400,000] shares (the "Company Firm Shares") of the Company's Common Stock, $0.01 par value per share (the "Common Stock"). Moreover, a certain stockholder of the Company named in Schedule B hereto (the "Selling Stockholder") confirms its agreement to sell to the Underwriters [600,000] shares of the Common Stock (the "Stockholder Firm Shares"). The Company Firm Shares and the Stockholder Firm Shares are hereinafter collectively referred to as the "Firm Shares." The respective amounts of the Firm Shares to be purchased by the several Underwriters are set forth opposite their names in Schedule A. In addition, for the sole purpose of covering over-allotments in connection with the sale of the Firm Shares, the Company and the Selling Stockholder confirm their agreement to grant to the Underwriters options to purchase up to an additional 210,000 shares and 90,000 shares, respectively of Common Stock (collectively, the "Option Shares"). The Firm Shares and any Option Shares purchased pursuant to this Agreement are hereinafter referred to as the "Shares." The Company and the Selling Stockholder are hereinafter collectively referred to as the "Sellers." As the Representatives, you have advised the Company that you are authorized to enter into this Agreement on behalf of the several Underwriters and that the several Underwriters are willing, acting severally and not jointly, to purchase the number of Firm Shares set forth opposite their respective names in Schedule A plus their pro rata portion of the Option Shares if you elect to exercise the over allotment option in whole or in part for the accounts of the several Underwriters. In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto hereby agree as follows: 1. Representations and Warranties of the Company. In order to induce the Underwriters to enter into this Agreement, the Company represents and warrants to each Underwriter that: (A) A registration statement on Form S-1 (File No. _________) with respect to the Shares has been prepared by the Company and executed by its directors in conformity with the requirements of the Securities Act of 1933, as amended (the "Act") and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") promulgated thereunder and has been filed with the Commission. Copies of such registration statement and all forms of the prospectuses included therein and the exhibits, financial statements and schedules thereto, as finally amended and revised, have heretofore been delivered by the Company to the Representatives. Such registration statement, and the prospectus therein, Part II thereof, any documents incorporated by reference therein, and all financial schedules and exhibits thereto, as amended at the time when it became effective, and including all information omitted therefrom in reliance upon Rule 430A of the Rules and Regulations is hereinafter referred to as the "Registration Statement." Such Registration Statement has been declared effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. No stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or threatened by the Commission. The prospectus included as part of the Registration Statement on file with the Commission when it became effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, the prospectus that discloses all the information that was omitted from the prospectus on the effective date pursuant to such Rule, and in either case, together with any changes contained in any prospectus filed with the Commission by the Company after the effective date of the Registration Statement, is hereinafter referred to as the "Prospectus." Each prospectus included in the Registration Statement and any amendments thereto prior to the effective date of the Registration Statement or which is filed with the Commission pursuant to Rule 424(a) of the Rules and Regulations is referred to herein as a "Preliminary Prospectus." (B) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission and no proceedings have been instituted for that purpose; each Preliminary Prospectus, at the time of filing thereof, (a) conformed in all material respects to the requirements of the Act and the Rules and Regulations and (b) did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (C) As of the time it became effective, as the case may be, and at all times subsequent thereto, the Registration Statement and any post-effective amendment thereto and the Prospectus and any supplement thereto conformed and will conform in all material respects with the requirements of the Act and the Rules and Regulations. Neither the Registration Statement nor any amendment thereto, and neither the Prospectus nor any supplement thereto, at the time the Registration Statement or any amendment thereto became or will become effective, and, with respect to the Prospectus or any supplement thereto, at the effective date, the date the Prospectus or any supplement is filed with the Commission and at each Closing Date (as such term is defined below), contained or will contain, as the case may be, any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (D) Except as disclosed in the Registration Statement, the Company does not have any beneficial or record ownership of, or control, any corporation, partnership, joint venture, limited liability company, unincorporated association or other entity. (E) There are no contracts, leases, indentures, instruments or other documents which are required by the Act and the Rules and Regulations to be filed as exhibits to the Registration Statement or described in the Prospectus which have not been so filed or described. All such contracts and other documents to which the Company is a party have been duly authorized, executed and delivered by the Company, constitute valid and binding agreements of the Company and are enforceable by and against the Company in accordance with the terms thereof. Neither the Company, nor, to the Company's knowledge, any other party is in default in the observance or performance of any term or obligation to be performed by it under any such agreement, and no event has occurred which with notice or lapse of time or both would constitute such a default, in any such case in which a default or event would have a material adverse effect on the assets or properties, business, results of operations, prospects or financial condition of the Company. No default exists, and no event has occurred which with notice or lapse of time or both would constitute a default, in the due performance and observance of any term, covenant or condition by the Company of any other agreement or instrument to which the Company is now a party or by which it or its properties or business may be bound or affected which default or event would have a material adverse effect on the assets or properties, business, results of operations, prospects or condition (financial or otherwise) of the Company. (F) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization, with full power and authority (corporate and other) to own or lease its properties and to conduct its business as described in the Prospectus. The Company is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions in which the character of the business conducted by it or the properties owned or leased by it requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, condition (financial or otherwise), results of operations, assets, properties or prospects of the Company. Complete and correct copies of the certificate of incorporation and of the bylaws of the Company and all amendments thereto have been delivered to the Underwriters and, with respect to the Company, filed with the Commission as part of the Registration Statement and no changes therein will be made subsequent to the date hereof and prior to each Closing Date. (G) The capitalization of the Company as of March 31, 1997 is as set forth under the caption "Capitalization" in the Prospectus, and the Common Stock conforms to the description thereof contained under the caption "Description of Capital Stock" in the Prospectus. The outstanding shares of Common Stock have been duly authorized, validly issued, fully paid and are non-assessable. The Shares, the Representatives' Warrants, and the Common Stock underlying the Representatives' Warrants and the shares of Common Stock to be issued upon the exercise of the warrants and options described in the Prospectus upon issuance and delivery and payment therefor in the manner herein described, will be duly authorized, validly issued, fully paid and non-assessable. There are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's certificate of incorporation, bylaws or other governing documents or any agreement or other instrument to which the Company is a party or by which it may be bound other than certain rights pursuant to the stock purchase agreements entered into between the Company and certain of its current stockholders that have been waived or satisfied in connection with the offering or sale of the shares contemplated by this Agreement. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement will give rise to any right, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. The Representatives' Warrants (as defined in Section 3(e) hereof) conform to all statements with regard to them in the Registration Statement. Except as disclosed in the Registration Statement and the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and there is no commitment, plan or arrangement to issue, any share of stock of the Company or any security convertible into, or exercisable or exchangeable for, such stock. (H) Grant Thorton LLP and Amper, Politziner & Mattia, whose reports appear in the Prospectus, are independent certified public accountants as required by the Act and the Rules and Regulations. The consolidated financial statements and schedules of the Company, together with the related notes included in the Registration Statement, each Preliminary Prospectus or the Prospectus, comply in all material respects with the requirements of the Act and the Rules and Regulations and present fairly the financial condition, results of operations and cash flows of the entities purported to be shown thereby at the dates and for the periods indicated. All of such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made. The information set forth in the Registration Statement under the captions "Summary Financial Information," "Capitalization" and "Selected Financial Data" present fairly the information shown therein and have been compiled on a basis consistent with the financial statements presented in the Registration Statement. The pro forma financial information set forth in the Registration Statement reflects, subject to the limitations set forth in the Registration Statement as to such pro forma financial statements, the results of operations of the entities purported to be shown thereby for the periods indicated and conforms to the requirements of Regulation S-X of the Rules and Regulations. (I) Except as described in the Prospectus, there is no litigation or governmental action or proceeding pending or threatened before any court or governmental, administrative or regulatory agency, domestic or foreign or, to the knowledge of the Company, contemplated, to which the Company or any officer thereof in their capacity as such is a party or of which any of the Company's property is the subject and which, either (i) if determined adversely to the Company would have a material adverse effect on the business, condition (financial and otherwise), results of operations, assets, properties or prospects of the Company, or (ii) is required to be disclosed in the Prospectus. (J) The Company has good and marketable title in fee simple to all items of real property and good and marketable title to all personal property owned by them, in each case clear of all liens, encumbrances and defects except such as are disclosed in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company; and any real property and buildings held under lease by the Company are held by it under valid, existing and enforceable leases with such exceptions as are not material and do not interfere with the uses made or proposed to be made of such property and buildings by the Company. (K) The Company has correctly and timely filed all necessary federal, state, local and foreign income, property and franchise tax returns and paid all taxes required to be shown as due thereon and all assessments received by it to the extent that the same are material and have become due. Neither the Company nor any of its officers has any knowledge of any tax deficiency of the Company or any tax proceeding or action pending or threatened against the Company. There are no liens for taxes on the assets of the Company, except for taxes not yet due. There are no audits pending of the Company's tax returns (federal, state, local or foreign), and there are no claims which have been or, to the best of the Company's knowledge, may be asserted relating to any such tax returns which, if determined adversely, would result in the assertion by any governmental agency of any deficiency material to the Company. There have been no waivers of any statute of limitations by the Company relating to tax returns (federal, state, local and foreign). The Internal Revenue Service has not asserted or threatened to assert any assessment, claim or liability for taxes due or to become due in connection with any review or examination of the tax returns of the Company for any year. (L) The Company is not, and with the giving of notice or lapse of time or both, would not be, in violation of or in default under, nor will the execution or delivery of this Agreement, the consummation of the transactions contemplated herein or the fulfillment of the terms hereof conflict with or result in a violation of or default under, (i) the certificate of incorporation, bylaws or other governing documents of the Company, (ii) any foreign or domestic permit, judgment, decree, order, statute, rule or regulation applicable to the Company, or (iii) any lease, license, contract, indenture, mortgage, deed of trust, loan agreement or other agreement, instrument, obligation, arrangement or understanding to which the Company is a party or by which it or any of its respective properties is bound, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or assets of the Company, which violation or default would have a material adverse effect on the business, condition (financial and otherwise), results of operations, assets, properties or prospects of the Company. Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body or court necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated herein (except such additional steps as may be required by the Act, the Exchange Act, the National Association of Securities Dealers, Inc. ("NASD") or which may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws, all of which have been or will be completed before the Closing Date) has been obtained or made and is in full force and effect. (M) The Company is not an "investment company" or an "affiliated person" of, or a "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (N) Since the respective dates as of which information is given in the Registration Statement or, if later, the Prospectus, as each may be amended or supplemented, there has not been any material adverse change in, or any development which materially affects the business, condition (financial and otherwise), results of operations, assets, properties or prospects of the Company, whether or not occurring in the ordinary course of business. Since the respective dates as of which information is given in the Registration Statement or, if later, the Prospectus, as each may be amended or supplemented, and except as set forth in the Prospectus, there has not been any change in the capital stock of the Company, or any transactions entered into by the Company (other than those in the ordinary course of business consistent with past practices) that are material with respect to the Company, or any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock or any issuance of warrants, options, convertible securities or other rights to purchase or acquire capital stock of the Company. (O) The business and operations conducted by the Company are being conducted in accordance with all applicable laws, rules, regulations and decrees of all public authorities, foreign or domestic, having jurisdiction over the Company. The Company has all requisite corporate authority and owns or possesses all authorizations, approvals, orders, licenses, registrations, other certificates and permits of and from all governmental regulatory officials and bodies, necessary to conduct the business of the Company as presently described in or contemplated in the Prospectus except where the failure to own or possess all such authorizations, approvals, orders, licenses, registrations, other certificates and permits would not have a material adverse effect on the Company or its business, condition (financial or otherwise), results of operations, assets, properties or prospects; there is no proceeding pending or threatened (or any basis therefor known to the Company) that may cause any such authorization, approval, order, license, registration, certificate or permit to be revoked, withdrawn, canceled, suspended or not renewed. (P) The Company owns, licenses or possesses adequate rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and other proprietary and similar rights necessary for the conduct of its business as currently conducted. Neither the Company, nor any of their products has infringed upon, or is presently infringing upon, any patents, patent rights, trademarks, service marks, trade names, copyrights, licenses, inventions, trade secrets or other proprietary rights of other persons. The Company is not aware that any other party has infringed upon, or is presently infringing upon, any patents, patent rights, trademarks, service marks, trade names, copyrights, licenses, inventions, trade secrets or other proprietary rights of the Company. (Q) Any document hereafter filed by the Company pursuant to Section 12, 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), prior to the termination of the offering of the Shares, at the time such documents were or are filed with the Commission, complied or will comply in all material respects with the requirements of the Act and the Rules and Regulations and the Exchange Act and the rules and regulations thereunder, and did not at the time of filing, or will not when filed, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. (R) The Company has the full power and authority (corporate and other) to execute, deliver and perform this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as to rights to either indemnity hereunder which may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity. (S) The Company has adequate liability and other insurance policies insuring it against the risks of loss arising out of or related to its businesses, issued by insurers of recognized financial responsibility. (T) All transactions during the Company's current fiscal year and last three (3) full fiscal years between the Company and any person who is or was during such period an officer, director or 5% or greater stockholder of the Company have been (i) on terms which were fair to and in the best interest of the Company, (ii) approved by a majority of the Company's directors who did not have an interest in such transactions and (iii) disclosed in the Prospectus to the extent required under the Act or the Rules and Regulations. (U) Other than the over-allotment option granted to the Underwriters, the Company has not taken and will not take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of shares of Common Stock to facilitate the sale or resale of the Shares. (V) The Company has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares other than any Preliminary Prospectus or the Prospectus or other materials permitted by the Act and the Rules and Regulations to be distributed by the Company. (W) The Common Stock and the Shares have been approved for quotation on the Nasdaq SmallCap Market, subject only to official notification of issuance. (X) The Company has not and will not incur any liability for any finder's or broker's fee in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (Y) The Company is in compliance in all material respects with all federal, state and local laws and regulations respecting the employment of its employees and employment practices, terms and conditions of employment and wages and hours relating thereto. There are no pending investigations involving the Company by the United States Department of Labor or any other governmental agency responsible for the enforcement of such federal, state or local laws and regulations. There is no labor strike, dispute or work stoppage or lockout pending, or, to the knowledge of the Company, threatened, against or affecting the Company, and no such labor strike, dispute, work stoppage or lockout has occurred with respect to any employees of the Company, during the two years prior to the date of this Agreement. No union organization activity is in progress with respect to the employees of the Company, and no question concerning representation exists with respect to such employees. No unfair labor practice charge or complaint against the Company is pending or, to the knowledge of the Company, threatened, before the National Labor Relations Board or similar foreign authorities, and no such charge or complaint against the Company has been filed during the past two years. There is no pending, or, to the knowledge of the Company, threatened, grievance that, if adversely decided, would have a material adverse effect on the business, results of operations, prospects or financial condition of the Company. No charges with respect to or relating to the Company are pending before the Equal Employment Opportunity Commission or any similar state, local or foreign agency responsible for the prevention of unlawful employment practices, and no such charges have been filed with respect to the Company. (Z) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document delivered in connection with this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect. (AA) The Company has obtained from each of its officers, directors and one percent or greater shareholders their written agreement that, for a period of 180 days from the date of the Prospectus, they will not, without the prior written consent of the Representatives, sell, contract to sell, grant any option for the sale of or otherwise dispose of, directly or indirectly, any shares of Common Stock of the Company owned by them (or any securities convertible into or exercisable for such shares of Common Stock) or file a registration statement contemplating such sale or disposition. (BB) The Company has not engaged in the handling, manufacture, treatment, storage, use or generation of any Hazardous Materials (as defined below) upon any real property owned or leased by it. The Company has not been a party to any litigation in which it is alleged, nor has it at any time received written notice of any violation, other allegation, or investigation of the possibility, that any of them or any of their assets is or was subject to any liability, clean-up or other obligation arising out of or relating to any discharge, or the storage, handling or disposal, of any Hazardous Material except such as could not have a material adverse effect on the business, financial position, stockholders' equity or results of operations present or prospective, of the Company. To the Company's knowledge there has been no discharge at any time by the Company of any Hazardous Material that the Company has reported or is or was obligated to report to any governmental agency the occurrence of which may have a material adverse effect on the Company. For the purposes of this Agreement, "Hazardous Material" means any substance: (i) the presence of which requires investigation or remediation under any federal, state, provincial, or local statute, regulation, ordinance, order, action, policy or common law; (ii) that is or becomes defined as a "hazardous waste," "hazardous substance," pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. 9601 et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C. section 6901 et seq.); (iii) that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States or of any state or any political subdivision thereof or any similar Polish political entity; or (iv) which contains polychlorinated biphenyls (PCBs), asbestos, urea formaldehyde foam insulation or radon gas. (CC) None of the Company, or any officer or director purporting to act on behalf of the Company has during the past five years (i) made any contributions to any candidate for political office, or failed to disclose fully any such contributions, in violation of law; (ii) made any payment to any Federal, state, local or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or allowed by applicable law; (iii) made any payment outside the ordinary course of business to any purchasing or selling agent or person charged with similar duties of any entity to which the Company, sells (or has in the past sold) or from which the Company, buys (or has in the past bought) products for the purpose of influencing such agent or person to buy products from or sell products to the Company; or (iv) engaged in any transaction, maintained any bank account or used any corporate funds except for transactions, bank accounts and funds which have been and are reflected in the normally maintained books and records of the Company. (DD) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is (or was) taken with respect to any differences. (EE) The Company is not required to register as a "broker" or "dealer" in accordance with the provisions of the Exchange Act or the rules and regulations promulgated thereunder. (FF) The Company has complied with all of the requirements and filed the required forms, if any, as specified in Florida Statutes Section 517.075. (GG) The Company is in compliance with the Foreign Corrupt Trade Practices Act. 2. REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDER. The Selling Stockholder represents and warrants to each Underwriter (a) that the Selling Stockholder now has valid marketable title to such number of shares of the Common Stock as are to be sold by the Selling Stockholder pursuant to this Agreement (the "Stockholder Shares"), and on each Closing Date on which the Selling Stockholder will sell Common Stock will have valid and marketable title to the Stockholder Shares free and clear of any security interests, claims, liens, equities and other encumbrances, (b) that the Stockholder Shares, when delivered, will have been duly authorized and will be validly issued, fully paid and nonassessable, (c) that the Selling Stockholder now has, and on each Closing Date on which such Selling Stockholder will sell Common Stock, will have, the legal right and power, and all consents, approvals and authorizations required by law, to enter into this Agreement and to sell, transfer and deliver the Stockholder Shares in the manner provided in this Agreement and that no such action will contravene any provision of applicable law or, if Selling Stockholder is a partnership, the partnership agreement or any other agreement or other instrument binding upon the Selling Stockholder, (d) that all information furnished in writing by or on behalf of such Selling Stockholder expressly for use in the Registration Statement and Prospectus is, and on each Closing Date will be, true, correct and complete, and does not, and on each Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading, (e) that this Agreement has been duly and validly authorized, executed and delivered by the Selling Stockholder and constitutes a legal, valid and binding agreement of the Selling Stockholder, enforceable against it in accordance with its terms, and (f) that all transactions between the Company and the Selling Stockholder have been (i) on terms which were fair to and in the best interest of the Company, (ii) approved by a majority of the Company's directors who did not have an interest in such transaction and (iii) disclosed in the Prospectus to the extent required under the Act or the Rules and Regulations. 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS. (A) Subject to the terms and conditions and upon the basis of the representations, warranties and covenants herein set forth, the Company agrees to issue and sell to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase at a price of $[________] per Share, the number of Company Firm Shares set forth opposite such Underwriter's name in Schedule A hereto, and the Selling Stockholder hereby agrees to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase at a price of $[________] per Share, the number of Stockholder Firm Shares set forth opposite the Selling Stockholder's name in Schedule B hereto (in proportion to the number of Firm Shares set forth opposite such Underwriter's name in Schedule A hereto), subject to adjustment in accordance with the terms hereof, except that the respective purchase obligations of each Underwriter shall be adjusted so that no Underwriter shall be obligated to purchase fractional shares. The Underwriters agree to offer the Firm Shares to the public as set forth in the Prospectus. (B) The Company and the Selling Stockholder hereby grant to the Underwriters options to purchase from the Company, solely for the purpose of covering over-allotments in the sale of Firm Shares, all or any portion of the Option Shares for a period ending thirty (30) days after the date hereof (the "Option Period") at the purchase price per Share set forth above in Section 3(a). Option Shares shall be purchased from the Company, severally and not jointly, for the account of each Underwriter as nearly as practicable in proportion to the number of Firm Shares set forth opposite such Underwriter's name in Schedule A hereto, except that the respective purchase obligations of each Underwriter shall be adjusted by the Representatives so that no Underwriter shall be obligated to purchase fractional Option Shares. 4. DELIVERY OF AND PAYMENT FOR SHARES. (A) Delivery of certificates for the Firm Shares and certificates for the Option Shares, if the option to purchase the same is exercised on or before the third Business Day (as defined below) prior to the Closing Date, to be purchased by the Underwriters from the Company and the Selling Stockholder and payments therefor shall be made at the offices of Gibson, Dunn & Crutcher LLP, 1801 California Street, Suite 4100, Denver, Colorado 80202 (or such other place as mutually may be agreed upon), at 9:00 a.m. Eastern Time on the third business day following the date of this Agreement (or the fourth business day if permitted by Rule 15c6-1(c) promulgated under the Exchange Act), or at such time on such other date, not later than 10 business days after the date of this Agreement, as shall be agreed upon by the Company and the Representatives (the "Closing Date"). (B) The option to purchase Option Shares granted in Section 3 hereof, may be exercised during the Option Period by delivery of written notice to the Company and the Selling Stockholder from the Representatives. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the time and date, not earlier than either the Closing Date or the second Business Day after the date on which the option shall have been exercised or later than the third Business Day after the date of such exercise, as determined by the Representatives, when the Option Shares are to be delivered (the "Option Closing Date"). The Option Closing Date may occur after the expiration of the Option Period provided that the notice of the exercise of the option to purchase the Option Shares is delivered during the Option Period. (C) Delivery and payment for such Option Shares is to be at the offices set forth above for delivery and payment of the Firm Shares. (The Closing Date and the Option Closing Date are herein individually referred to as a "Closing Date" and collectively referred to as the "Closing Dates".) (D) Delivery of certificates for the Shares shall be made by or on behalf of the Company and the Selling Stockholder to the Representatives, for the respective accounts of the Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment by the Representatives, for the several accounts of the Underwriters, of the purchase price therefor by certified or bank cashier's check payable to the order of the Company and each Selling Stockholder, as applicable in next day funds. The certificates for the Shares shall be registered in such names and denominations as the Representatives shall have requested at least two (2) full Business Days prior to the applicable Closing Date, and shall be made available for checking and packaging at the offices of or other location designated by the Representatives at least one (1) full Business Day prior to such Closing Date. Time shall be of the essence and delivery at the time and place specified in this Agreement is a further condition to the obligations of each Underwriter. (E) The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Shares by the Company to the respective Underwriters shall be borne by the Company. The Company will pay and save each Underwriter and any subsequent holder of the Shares harmless from any and all liabilities with respect to or resulting from any failure or delay in paying federal and state stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the original issuance or sale to such Underwriter of the Shares. (F) In consideration of services provided by the Representatives, the Company hereby grants to the Representatives certain warrants (the "Representatives' Warrants"), as set forth in the form of Warrant Agreement attached to this Agreement as Exhibit 1-A and 1-B hereto (the "Warrant Agreements"), to purchase an aggregate number of shares of Common Stock equal to 8 1/3% of the total number of Shares purchased hereunder (including the Option Shares). The Representatives' Warrants will be exercisable beginning one year from the effective date of the Registration Statement and continuing for 24 months thereafter at an exercise price per share equal to [Offering Price * 120%.] 5. OFFERING BY UNDERWRITERS. It is understood that the several Underwriters intend to make a public offering of the Firm Shares as soon as you deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus; provided, however, that you may from time to time increase or decrease the public offering price prior to the Closing Date. To the extent, if at all, that any Option Shares are purchased pursuant to Section 3 hereof, the Underwriters will offer them to the public on the foregoing terms. 6. COVENANTS OF THE COMPANY. The Company covenants and agrees with each Underwriter that: (A) The Company shall use its best efforts to cause the Registration Statement and any post-effective amendment subsequently filed to become effective promptly or, if the procedure in Rule 430A under the Rules and Regulations is followed, comply with the provisions of and make all requisite filings with the Commission pursuant to such Rule and to notify you promptly (in writing, if requested) of all such filings. The Company shall prepare and file with the Commission, promptly upon your request, any amendments of or supplements to the Registration Statement or Prospectus which, in your opinion, may be necessary or advisable in connection with the distribution of the Shares; and the Company may not file any amendment of or supplement to the Registration Statement or the Prospectus, that is not approved by you after reasonable notice thereof. (B) The Company will advise you promptly, and, if requested by you, will confirm such advice in writing, (i) when the Registration Statement shall have become effective and when any amendment thereto shall have become effective and when any amendment of or any supplement to the Prospectus shall be filed with the Commission; (ii) of any request of the Commission for additional information or for any amendment of or supplement to the Registration Statement or the Prospectus; (iii) of the issuance by the Commission or any other governmental body of any order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for such purpose; (iv) of the suspension of the qualification of the Shares for offering or sale in any jurisdiction or of the institution of any proceedings for such purpose; (v) of receipt by the Company or any representative or attorney of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any Preliminary Prospectus or the Prospectus; or (vi) of the happening of any event which in the judgment of the Company makes any material statement in the Registration Statement or Prospectus untrue or which requires the making of any changes on the Registration Statement or Prospectus in order to make the statements therein not misleading. The Company will use its best efforts to prevent the issuance of any such order preventing or suspending the use of the Prospectus, and, if such an order is issued, to obtain as soon as possible the lifting thereof. (C) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose. The Company will, from time to time, prepare and file such statements, reports and other documents as are or may be required to continue such qualifications in effect for so long as is required under the laws of such jurisdictions for such offering and sale. (D) The Company will furnish the Underwriters with as many copies of any Preliminary Prospectus as the Underwriters may reasonably request and, during the period when delivery of a prospectus is required under the Act, the Company will furnish the Underwriters with as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may, from time to time, request. In addition, the Company will deliver to each of the Representatives, at or before the Closing Date and without charge, a signed copy of the Registration Statement (including the exhibits thereto) and all amendments and supplements thereto. (E) Within the time during which a prospectus relating to the Shares is required to be delivered under the Act, the Company shall comply with all requirements imposed upon it by the Act and the Rules and Regulations, as from time to time in force, so far as is necessary to permit the continuance of sales of or dealings in the Shares as contemplated by the provisions hereof and the Prospectus. If during such period any event occurs as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act and the Rules and Regulations, the Company shall promptly notify you and shall amend the Registration Statement or supplement the Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. (F) The Company will make generally available to its security holders, in the manner contemplated by Rule 158(b) under the Act, and will deliver to the Representatives, as soon as it is practicable to do so, but in any event not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs (or not later than 90 days after the end of such fiscal quarter if such fiscal quarter is the last fiscal quarter of the fiscal year), an earnings statement satisfying the requirements of Section 11(a) of the Act and covering a period of at least twelve (12) consecutive months beginning after the effective date of the Registration Statement, and will advise you in writing when such statement has been so made available. (G) The Company will apply the net proceeds from the sale of the Shares as set forth under the caption "Use of Proceeds" in the Prospectus and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (H) During a period of five (5) years from the date hereof, the Company shall furnish to each Representative and each other Underwriter who may so request copies of all reports or other communications furnished to stockholders and copies of any reports or financial statements furnished to or filed with the Commission or any national securities exchange or quotation system on which any class of securities of the Company is listed. (I) The Company will comply with all the provisions of any undertakings contained in the Registration Statement. (J) The Company will not at any time, directly or indirectly, take any action designed, or which might reasonably be expected, to cause or result in, or which will constitute stabilization of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares. (K) The Company authorizes the Underwriters to use the Prospectus as from time to time amended or supplemented in connection with the offering and sale of the Shares. (L) The Company shall cause the Shares to be listed on the Nasdaq SmallCap Market and shall use its best efforts to maintain the Common Stock on the Nasdaq SmallCap Market (or on a national securities exchange) for a period of five years after the effective date of the Registration Statement. 7. COSTS AND EXPENSES. The Selling Stockholder agrees to pay or cause to be paid all taxes, if any, on the transfer and sale of the Stockholder Shares being sold by the Selling Stockholder and the fees and expenses of counsel and accountants retained by the Selling Stockholder, all to the extent the Company has not agreed by separate instrument with the Selling Stockholder to pay such fees and expenses of the Selling Stockholder. Whether or not the transactions contemplated hereunder are consummated or this Agreement becomes effective or is terminated, the Company agrees to pay or reimburse if paid by the Representatives, all costs, expenses and fees incident to the performance of the obligations of the Company and the Selling Stockholder under this Agreement except as set forth above, including, without limiting the generality of the foregoing, the following: accounting fees of the Company and the Selling Stockholder; the fees and disbursements of counsel for the Company and the Selling Stockholder; all expenses incident to the issuance and delivery of the Shares (including all printing and engraving costs); all fees and expenses of the registrar and transfer agent of the Common Stock; the cost of preparation, printing and filing of the Registration Statement, each Preliminary Prospectus and the Prospectus (including the financial statements therein and all exhibits thereto) and any amendments and supplements thereto and the printing, mailing and delivery to the Underwriters and dealers of copies thereof and of this Agreement, the Agreement Among Underwriters, any Selected Dealers Agreement, any other underwriting document, the Blue Sky memorandum and any supplements or amendments thereto; the filing fees of the Commission; the filing fees incident to securing any required review by the NASD of the terms of the sale of the Shares; filing fees and listing fees, if any, transfer taxes and the expenses (including the fees and disbursements of counsel for the Underwriters up to $20,000) incurred in connection with the qualification of the Shares under state securities or Blue Sky laws; the Company's slide presentation and travel in connection with informational meetings for the brokerage community and institutional and retail investors; and all other costs and expenses incident to the performance of the obligations of the Company and the Selling Stockholder hereunder which are not otherwise specifically provided for in this Section 7. In addition, the Company shall pay Hanifen, Imhoff Inc. ("Hanifen") an aggregate of $75,000 to reimburse Hanifen for expenses actually incurred by it in connection with the Offering. Hanifen acknowledges receipt of $50,000 of such funds which the parties agree shall be non-refundable whether or not the transactions contemplated hereby are consummated. The remaining $25,000 shall be due and payable on the Closing Date with respect to the Firm Shares. If the sale of the Shares provided for herein is not consummated by reason of any failure, refusal or inability on the part of either the Company or the Selling Stockholder to perform any agreement on their respective parts to be performed or because any other condition of the Underwriters' obligations hereunder is not fulfilled, the Company shall reimburse the several Underwriters for all reasonable out-of-pocket expenses and disbursements (including fees and disbursements of counsel) incurred by the Underwriters in connection with their investigation, preparing to market and marketing the Shares or otherwise in contemplation of performing their obligations hereunder. 8. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters hereunder are subject to the accuracy as of the date hereof and each Closing Date (as if made at such Closing Date) of the representations and warranties of the Company and the Selling Stockholder contained herein, and to the performance and fulfillment by the Company and the Selling Stockholder of their covenants, obligations and conditions hereunder, and to the following additional conditions: (A) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made within the time required by the Act and the Rules and Regulations; no order suspending the effectiveness of the Registration Statement or any amendment or supplement thereto or the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction, shall have been issued and no proceedings for such purposes shall have been initiated or threatened, or, to the knowledge of the Company, shall be contemplated and all requests for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been disclosed to the Representatives and complied with to its satisfaction and the satisfaction of the Commission; and neither the Registration Statement or Prospectus nor any amendment or supplement thereto shall have been filed to which counsel to the Underwriters shall have reasonably objected or have not given their consent. (B) No Underwriter shall have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact which, in the opinion of counsel to the Underwriter, is material, or required to be stated therein or is necessary to make the statements therein not misleading. (C) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, there shall not have been any change in, or any development which affects the capital stock of the Company or the business condition (financial or otherwise), results of operations, assets, properties or prospects of the Company that, in your judgment, makes it impractical or inadvisable to market the Shares on the terms and in the manner contemplated in the Prospectus. (D) You shall have received on each Closing Date the opinion of Dyer Ellis & Joseph, P.C., counsel for the Company, dated as of such Closing Date addressed to the Underwriters, in form and substance satisfactory to you and counsel for the Underwriters to the effect that: (I) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization, with full corporate power and authority to own or lease its properties and conduct its business as described in the Prospectus, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company; (II) The Company has all requisite corporate power and authority and, to such counsel's knowledge, all necessary authorizations, approvals, consents, orders, licenses, certificates and permits required to own, lease and license its assets and properties and to conduct its business as now being conducted and as described in the Registration Statement and the Prospectus. The Company has all requisite corporate power and authority and all necessary authorizations, approvals, consents, orders, licenses, certificates and permits to enter into, deliver and perform this Agreement, and, to issue and sell the Shares and the Representatives' Warrants, other than those authorizations, approvals, consents, orders licenses, certificates and permits required under state and foreign securities laws. To such counsel's knowledge, the Company does not control, directly or indirectly, any corporation, partnership, joint venture, association or other business organization. (III) The Company had authorized, issued and outstanding capital stock as of March 31, 1997 as described under the caption "Capitalization" in the Prospectus and the Common Stock, the Representatives' Warrants, and the rights issued under the shareholder rights plan conform to the descriptions thereof contained under the caption "Description of Capital Stock" in the Prospectus. The outstanding shares of the Company's capital stock have been, and the Shares, the Representatives' Warrants, the Common Stock underlying the Representatives' Warrants (the "Warrant Shares") and the shares of Common Stock to be issued upon the exercise of the warrants and options described in the Prospectus, upon issuance, delivery and payment therefor in the manner herein described, will be, duly authorized, validly issued, fully paid and non-assessable. The certificates for the Shares, the Representatives' Warrants and the Warrant Shares, are in due and proper form under the corporations law of the State of the Company's organization. There are no preemptive or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of the Company's capital stock pursuant to the Company's certificate of incorporation, bylaws, other governing documents or any agreements or other instruments to which the Company is a party or by which any of them is bound, other than certain rights pursuant to stock purchase agreements entered into between the Company and certain of its current stockholders that have been waived or satisfied in connection with the offering or sale of the Shares contemplated by this Agreement; and to such counsel's knowledge, after conducting a reasonable investigation, neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, which have not been waived or satisfied, for or relating to the registration of any shares of the Company's capital stock. All corporate action required to be taken on the part of the Company for the authorization, issuance and sale of the Shares, the Representatives' Warrants and the Warrant Shares by the Company has been duly and validly taken; (IV) The Registration Statement and all post-effective amendments thereto have become effective under the Act and, to such counsel's knowledge, after conducting a reasonable investigation, such counsel has reasonable grounds to believe and does believe that no stop order proceedings with respect thereto have been instituted or are pending before or threatened by the Commission and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; (V) The Registration Statement and the Prospectus and any amendment or supplement thereto, as of their respective effective dates comply in all material respects with the requirements of the Act and the Rules and Regulations (except that counsel need express no opinion on the financial statements or other financial data) and such counsel, after conducting a reasonable investigation, have no reason to believe that the Registration Statement or any amendment thereto at the time it became effective contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that, on each Closing Date, the Prospectus or any amendment or supplement thereto contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (VI) The Company is not, or with the giving of notice or lapse of time or both will not, in violation of or in default under, nor will the execution or delivery hereof or consummation of the transactions contemplated hereby result in a violation of, or constitute a default under, the certificate of incorporation, bylaws or other governing documents of the Company, or, to the knowledge of such counsel, any agreement, indenture or other instrument to which the Company is a party or by which it is bound, or to which any of their properties are subject, nor will the performance by the Company of its obligations hereunder violate any law, rule or regulation of any governmental agency or body having jurisdiction over the Company, or its properties, or result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or assets of the Company. Except for permits and similar authorizations required under the Act, the NASD, and the securities or Blue Sky laws of certain jurisdictions and for such permits and authorizations which have been obtained, no consent, approval, authorization or order of any court, governmental agency or body or financial institution is required in connection with execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement; (VII) The descriptions of matters in the Registration Statement and Prospectus under the headings "Description of Capital Stock" and "Shares Eligible for Future Sale" are accurate and fairly present the information required to be shown; and such counsel, after conducting a reasonable investigation, do not know of or believe that any contracts or documents of a character required to be summarized or described therein or to be filed as exhibits thereto which are not so summarized, described or filed, nor after conducting a reasonable investigation do such counsel know of or believe that there is any pending or threatened litigation or any governmental proceeding, statute or regulation, disclosed by the Act, the Exchange Act and the respective rules and regulations thereunder. All descriptions in the Prospectus of statutes, regulations, legal or governmental proceedings, contracts and other documents, insofar as such statements constitute a summary of the legal matters, documents or proceeding referred to therein are accurate and fairly present the information required to be shown; and such counsel, after conducting a reasonable investigation, do not know of or believe that any contracts or documents of a character required to be summarized or described therein or to be filed as exhibits thereto which are not so summarized, described or filed, nor after conducting a reasonable investigation do such counsel know of or believe that there is any pending or threatened litigation or any governmental proceeding, statute or regulation required to be described in the Prospectus which is not so described; (VIII) Each of this Agreement, the Warrant Agreements and the Representatives' Warrants have been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding agreement of the Company and is enforceable against the Company in accordance with its terms, except as the right to indemnity under this Agreement may be limited by Federal or state securities laws and except as (i) may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and (ii) is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (IX) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended; (X) To such counsel's knowledge, the Company is in compliance with the Foreign Corrupt Trade Practices Act; and (XI) To such counsel's knowledge after conducting a reasonable investigation, there are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Securities Act, except as waived or disclosed in the Registration Statement and the Prospectus. To the extent deemed advisable by such counsel, they may rely as to matters of fact on certificates of officers of the Company and public officials and on the opinions of other counsel satisfactory to the Underwriters as to matters which are governed by laws other than the Federal laws of the United States and the Delaware General Corporation Law; provided that such counsel shall state that they believe that they and the Underwriters are justified in relying on such other opinions. Copies of such certificates and other opinions shall be furnished upon request to the Underwriters and counsel for the Underwriters. (E) You shall have received on the Closing Date an opinion of [__________________], counsel for the Selling Stockholder, dated the Closing Date, to the effect that: (I) This Agreement has been duly authorized, executed and delivered by or on behalf of the Selling Stockholder and constitutes a legal, valid and binding agreement of Selling Stockholder and is enforceable against the Selling Stockholder in accordance with its terms, except as the right to indemnity under this Agreement may be limited by Federal or state securities laws and except as (i) may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and (ii) is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law);; (II) The execution, delivery and performance of this Agreement by the Selling Stockholder will not contravene, any provision of applicable law, (ii) the certificates of incorporation, bylaws or other governing documents of the Selling Stockholder that is a corporation, or the articles of partnership of the Selling Stockholder that is a limited partnership, or the trust agreement of the Selling Stockholder that is a trust or (iii) any agreement or other instrument known to such counsel to be binding upon the Selling Stockholder, no consent, approval or authorization of any governmental body is required for the performance of this Agreement by the Selling Stockholder, except such as are specified and have been obtained and except such as may be required by federal securities laws and state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (III) The Selling Stockholder has valid marketable title to the Shares to be sold by the Selling Stockholder and has the legal right and power, and all authorization and approval required by law, to enter into this Agreement and to sell, transfer and deliver the Shares to be sold by the Selling Stockholder; (IV) The Custody Agreement signed by the Selling Stockholder and the Custodian relating to the deposit of the Shares to be sold by the Selling Stockholder, and the Power-of-Attorney appointing certain individuals as the Selling Stockholder's attorneys-in-fact to the extent set forth therein, relating to the transactions contemplated hereby and by the Registration Statement, have been duly authorized, executed and delivered by the Selling Stockholder and are valid and binding agreements of the Selling Stockholder; and (V) Delivery of the certificates for the Shares to be sold by the Selling Stockholder pursuant to this Agreement to each of the several Underwriters (who such counsel may assume have purchased the Shares in good faith and without notice of any adverse claim) will pass to each such Underwriter marketable title to such Shares free and clear of any security interests, claims, liens, equities and other encumbrances. With respect to all of paragraph (e) above, counsel may rely, to the extent such counsel deems appropriate, as to matters of fact upon the representations of the Selling Stockholder contained herein and in the aforementioned Custody Agreements and Powers of Attorney and in other documents and instruments and opinions of local counsel; provided however, that copies of such Custody Agreements and Powers of Attorney and of such other documents and instruments shall be delivered to the Underwriters and shall be reasonably satisfactory to your counsel and, in the case of local counsel, such local counsel shall be reasonably satisfactory to your counsel, (a) a copy of each opinion from local counsel so relied upon shall be delivered to you and shall be reasonably satisfactory to your counsel and (b) counsel for each Selling Stockholder shall state that they have no reason to believe that they are not justified in relying thereon. With respect to all of paragraph (e) above, counsel may assume the legal capacity and the absence of any legal disability to contract as to each Selling Stockholder that is a natural person. The opinions as to all of paragraph (e) above shall state that such opinions may be relied upon by the Custodian and the attorneys-in-fact appointed under the Powers of Attorney executed by the Selling Stockholder. (F) You shall have received on the date of this Agreement and also on each Closing Date, signed letters from Grant Thorton LLP and Amper, Politziner & Mattia, in form and substance satisfactory to you and your counsel regarding the financial information contained in the Prospectus, the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or any Blue Sky Application (as defined below). (G) You shall have received on each Closing Date, a certificate or certificates signed by the Chairman of the Board, Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to you, to the effect that: (I) The Registration Statement has become effective under the Act, no order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been initiated or threatened or are, to their knowledge, contemplated by the Commission; (II) The representations and warranties of the Company in this Agreement are true and correct, as if made at and as of such Closing Date, and the Company has complied with all the covenants and agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; (III) Any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; (IV) The signers of said certificate and each director of the Company have carefully examined the Registration Statement and the Prospectus, and any amendments or supplements thereto, and such documents contain all statements and information required to be included therein, and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (V) Since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not been so set forth; and (VI) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), results of operations, properties or prospects of the Company from that set forth in the Registration Statement. (H) Since the effective date of the Registration Statement, the Company shall not have sustained any loss by fire, flood, accident or other calamity, or shall have become a party to or the subject of any litigation, which is material to the Company, nor shall there have been a material adverse change in the general affairs, key personnel, or net worth of the Company whether or not arising in the ordinary course of business, which loss, litigation or change, in your judgment, shall make it impractical or inadvisable to proceed with the marketing of the Shares. (I) The Shares shall be qualified for sale in such jurisdictions as the Representatives may request and each such qualification shall be in effect and not subject to any stop order or other proceeding on each Closing Date. (J) Prior to the Closing Date the Shares shall have been duly authorized for listing on the Nasdaq SmallCap Market, subject only to official notice of issuance. (K) The Company shall have furnished to the Representatives such certificates, in addition to those specifically mentioned herein, as the Representatives may have reasonably requested as to the accuracy and completeness at each Closing Date of any statement in the Registration Statement, the Prospectus as to the accuracy at each Closing Date of the representations and warranties of the Company herein, as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Representatives. (L) No order preventing or suspending the use of any preliminary prospectus or the Prospectus shall have been or shall be in effect and no order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the satisfaction of the Underwriters. (M) The Company will have obtained from each of its officers, directors and one percent or greater shareholders of record their written agreement that, for a period of 180 days from the date of the Prospectus, that they will not, without the prior written consent of the Representatives, sell, contract to sell, grant any option for the sale of or otherwise dispose of, directly or indirectly, any shares of Common Stock of the Company owned by them (or any securities convertible into or exercisable for such shares of Common Stock) or file a registration statement contemplating such sale or disposition. The several obligations of the Underwriters to purchase Option Shares hereunder are further subject to the delivery to you on the Option Closing Date of such documents comparable to the foregoing as you may reasonably request. 9. INDEMNIFICATION. (A) The Company will indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning set forth in the Act (i) against any losses, claims, damages or liabilities to which such Underwriter or such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (A) any untrue statement or alleged untrue statement made by the Company in Section 1 hereof, (B) any untrue statement or alleged untrue statement of any material fact contained (x) in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (y) in any Blue Sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Shares under the securities or Blue Sky laws thereof (any such application, document or information being hereinafter called a "Blue Sky Application"), or (C) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or in any Blue Sky Application, a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any, governmental agency or body, commenced or threatened, or of any claim, in each case arising out of or based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 9(d) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim, in each case arising out of or based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above, and will reimburse promptly each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company through you by or on behalf of any Underwriter specifically for use in the preparation of the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or in any Blue Sky Application; provided further, however, that the indemnity agreement provided in this Section with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, charges, liabilities, expenses or litigation purchased Shares (or to the benefit of any person controlling such Underwriter), if a copy of the Prospectus correcting such untrue statement or omission has not been sent or given to such person within the time required by the Act and the rules and regulations promulgated thereunder, unless such failure is the result of noncompliance by the Company with the terms of this Agreement. This indemnity agreement will be in addition to any liability which the Company may otherwise have, including but not limited to the obligations to indemnify the Underwriters pursuant to the Engagement Letter dated April 1, 1997. (B) Each Underwriter severally, but not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, each person, if any, who controls the Company within the meaning set forth in the Act and the Selling Stockholder, (i) against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained (A) in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (B) in any Blue Sky Application, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any, governmental agency or body, commenced or threatened, or of any claim, in each case arising out of or based upon any such untrue statement or omission, if such settlement is effected with the written consent of the Underwriters; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 9(d) hereof, the fees and disbursements of counsel chosen by the indemnified parties), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim, in each case arising out of or based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above, and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending any such loss, claim, damages, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case as provided in subsection (i), (ii) and (iii) of this Section to the extent, but only to the extent, that such loss, liability, claim, damage or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission that has been made in the Registration Statement, Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or in any Blue Sky Application in reliance upon and in conformity with written information furnished to the Company through the Representative by or on behalf of such Underwriter specifically for use in the preparation thereof or from the failure of any Underwriter within the time required by the Act and the Rules and Regulations to send or deliver a copy of the Prospectus (or the Prospectus as amended or supplemented) to the person asserting any such losses, claims, charges, liabilities or litigation, unless such failure is the result of noncompliance by the Company with the terms of this Agreement. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (C) Each Selling Stockholder, severally and not jointly, will indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning set forth in the Act (i) against any losses, claims, damages or liabilities to which such Underwriter or such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (A) any untrue statement or alleged untrue statement made by such Selling Stockholder in Section 2 hereof, (B) any untrue statement or alleged untrue statement of any material fact contained (x) in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (y) in any Blue Sky application or other document executed by such Selling Stockholder specifically for that purpose or based upon written information furnished by such Selling Stockholder filed in any state or other jurisdiction in order to qualify any or all of the Shares under the securities or Blue Sky laws thereof or (C) the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or in any Blue Sky Application, a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any, governmental agency or body, commenced or threatened, or of any claim, in each case arising out of or based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of such Selling Stockholder; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 9(d) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim, in each case arising out of or based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above, and will reimburse promptly each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that any Selling Stockholder will be liable in any such case to the extent, but only to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission, made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder specifically for use in the preparation of the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or in any Blue Sky Application; provided further, however, that the indemnity agreement provided in this Section with respect to any Prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, charges, liabilities, expenses or litigation purchased Shares (or to the benefit of any person controlling such Underwriter), if a copy of an amendment or supplement to the Prospectus correcting such untrue statement or omission has not been sent or given to such person within the time required by the Act and the rules and regulations promulgated thereunder, unless such failure is the result of noncompliance by such Selling Stockholder or the Company with the terms of this Agreement. This indemnity agreement will be in addition to any liability which the Selling Stockholder may otherwise have. (D) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity or contribution may be sought pursuant to this Section 9, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 9(a), (b) or (c) or contribution provided for in Section 9(e) shall be available to any party who shall fail to give notice as provided in this Section 9(d) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party otherwise than on account of the provisions of Section 9(a), (b), (c) or (d). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred the reasonable fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to material actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you and shall be reasonably satisfactory to the Company in the case of parties indemnified pursuant to Section 9(a) and 9(c) and shall be designated by the Company and shall be reasonably satisfactory to you in the case of parties indemnified pursuant to Section 9(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (E) If the indemnification provided for in this Section 9 is legally unavailable to hold harmless an indemnified party under Section 9(a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company, the Selling Stockholder and the Underwriters from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholder on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholder bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholder, or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9(e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereto) referred to above in this Section 9(e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriter's obligations in this Section 9(e) to contribute are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule A hereto (or such number of Firm Shares increased as set forth in Section 10 hereof). (F) In any proceeding relating to the Registration Statement, the Preliminary Prospectus, the Prospectus or any supplement or amendment thereto or any Blue Sky Application, the Company and the Underwriters, and each other party against whom contribution may be sought under this Section 9, hereby consent to the exclusive jurisdiction and venue of any court situated in the State of Colorado, City of Denver, and all such parties agree that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. 10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter shall fail to purchase the Shares set forth opposite its name in Schedule A hereto, and such failure to purchase shall constitute a default by such Underwriter in its obligation to purchase the number of Shares which it has agreed to purchase under this Agreement, the non-defaulting Underwriters shall have the right and shall be obligated to purchase (in the respective proportions which the number of Shares set forth opposite the name of each non-defaulting Underwriter in Schedule A hereto bears to the total number of Shares set forth opposite the names of all the non-defaulting Underwriters in Schedule A hereto) the Shares which the defaulting Underwriter agreed but failed to purchase; except that the non-defaulting Underwriters shall not be obligated to purchase any of the Shares if the total number of Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase exceed 10% of the total number of Shares, and any non-defaulting Underwriter shall not be obligated to purchase more than 110% of the number of Shares set forth its name in Schedule A hereto plus the applicable Option Shares, if any, purchasable by it pursuant to the terms of Section 2; provided further, that if the foregoing maximums are exceeded, the non-defaulting Underwriters, and any other underwriters satisfactory to you who so agree, shall have the right, but shall not be obligated, to purchase (in such proportions as may be agreed upon among them) all the Shares. If the non-defaulting Underwriters or the other underwriters satisfactory to you do not elect to purchase the Shares which the defaulting Underwriter or Underwriters agreed but failed to purchase, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company except for the payment of expenses to be borne by the Company and the Underwriters as provided in Section 7 and the indemnity and contribution agreement of the Company and the Underwriters contained in Section 9 hereof. If any of the Underwriters shall fail to purchase the entire number of shares set forth opposite its name and such failure to purchase shall not constitute a default by such Underwriter in the performance of its obligations under this Agreement, the remaining Underwriters shall have the right, but shall not be obligated, to take up and pay for (in such proportions as may be agreed upon among them) the entire amount (but not less than all) of the Shares which all withdrawing Underwriters agreed but failed to purchase. Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have for damages caused by its default. If the other underwriters satisfactory to you are obligated or agree to purchase the Shares of a defaulting Underwriter, either you or the Company may postpone the Closing Date for up to seven (7) full Business Days in order to effect any changes that may be necessary in the Registration Statement or Prospectus or in any other document or agreement, and to file promptly any amendment or any supplements to the Registration Statement or the Prospectus which in you opinion may thereby be made necessary. 11. NOTICES. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered or sent by facsimile or telex as follows: (a) if to the Company, at the office of the Company, 2600 Virginia Ave., N.W., Suite 900, Washington, D.C. 20037, Attention: Wirt Walker III (Facsimile:(202) 965-0886), with a copy to Dyer Ellis & Joseph, P.C., 600 New Hampshire Avenue, N.W., Suite 1000, Washington, D.C. 20037, Attention: Michael Joseph, Esq. (Facsimile: (202) 944-3068), (b) if to the Underwriters, to the Underwriters at the offices of Hanifen, Imhoff Inc., 1125 17th Street, Suite 1600, Denver, Colorado 80202, Attention: Corporate Finance Department (Facsimile: (303) 291-5470) with a copy to Gibson, Dunn & Crutcher LLP, 1801 California Street, Suite 4100, Denver, Colorado 80202, Attention: Thomas R. Denison, Esq. (Facsimile: (303) 296-5310), and (c) if to the Selling Stockholder, to the address set forth on Exhibit B, with a copy to _______________________________. 12. EFFECTIVE DATE AND TERMINATION. This Agreement shall become effective at 6:30 p.m. Eastern Time, on the date hereof. Until this Agreement is effective, it may be terminated by the Company by giving written notice to the Representatives or by the Representatives by giving written notice to the Company, except that the provisions of Section 7 and 9 shall at all time be effective. This Agreement may be terminated at any time on or prior to each Closing Date by the Representatives by notice to the Company as follows: (A) At any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in, or any adverse development or discovery which materially affects the business, condition (financial and otherwise), results of operations, properties or prospects of the Company whether or not arising in the ordinary course of business, (ii) trading in any of the equity securities of the Company shall have been suspended by the Commission, by the exchange that lists the Shares, or by the NASDAQ, (iii) any outbreak or escalation of hostilities or declaration of war or national emergency after the date hereof or other national or international calamity or crises if the effect of such outbreak, escalation, declaration, emergency, calamity or crises would, in your judgment, make the offering or delivery of the Shares impracticable or inadvisable, (iv) suspension or material limitation of trading in securities on the New York Stock Exchange, the American Stock Exchange, Nasdaq National Market, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade or limitation on prices for securities on any such exchange or quotation system, (v) additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by any such exchange or quotation system or by order of the Commission or any court or other governmental authority, (vi) declaration of a banking moratorium by either federal or New York authorities or (vii) if there shall have been such a material change in general economic, political or financial conditions or if the effect of international conditions on the financial markets in the United States shall be such as, in you judgment, makes it impracticable or inadvisable to proceed with the delivery of the Shares; or (B) As provided in Sections 8 and 10 of this Agreement. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party, except to the extent provided in Sections 8 and 10 hereof. If this Agreement is terminated pursuant to this Section, you shall notify the Company thereof promptly by telephone or facsimile, confirmed by express mail. 13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE ELIVERY. The indemnity and contribution agreements contained in Section 9 and the representations, warranties and agreements of the Company and the Selling Stockholder in Sections 1, 2, 5, 6 and 7 hereof shall survive the delivery of the Shares to the Underwriters hereunder and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any Underwriter or other indemnified party. 14. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in the last paragraph of the cover page and under the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus constitute the only written information furnished by or on behalf of any Underwriter. 15. SUCCESSORS. This Agreement has been and is made solely for the benefit of the Underwriters, the Selling Stockholder and the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to in Section 9, and no other person will acquire or have any right or obligation hereunder. The term "successors and assigns" shall not include any purchaser of any of the Shares merely by reason of such purchase. 16. MARKET STAND-OFF. Each Seller hereby agrees that, without your prior written consent, it will not offer, sell, contract to sell or otherwise dispose of any shares of Common Stock of the Company or any securities convertible into or exercisable or exchangeable for such Common Stock for a period of 180 days after the date of the public offering of the Shares, other than the Shares to be sold hereunder. However, the Company may issue options under existing option plans and shares of Common Stock upon the exercise of existing options. The Company will not file any registration statement with respect to any capital stock of the Company with the Commission for a period of 180 days after the date of the public offering of the Shares. 17. MISCELLANEOUS. For purposes of this Agreement, "Business Day" means any day on which the New York Stock Exchange, Inc. is open for trading and Subsidiary has the meaning set forth in Rule 405 of the Rules and Regulations. Except as otherwise provided herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all other agreements and understandings except that the provisions of Paragraphs I(m) and (n) and II of the Engagement Letter dated April 1, 1997 between the Company and the Representatives shall survive the execution of this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to the choice of law or conflicts of law principles thereof. If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholder and the several Underwriters in accordance with its terms. Very truly yours, Securacom, Incorporated By: Its: The Selling Stockholder named in Schedule B hereto: By: Attorney-in-Fact The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written: HANIFEN, IMHOFF INC. SCOTT & STRINGFELLOW, INC. as Representatives of the Several Underwriters names in Schedule A hereto HANIFEN, IMHOFF INC. By: Its: EX-1.2 3 FORM OF UNDERWRITER'S WARRANT FORM OF WARRANT TO PURCHASE [__________] COMMON SHARES WARRANT TO PURCHASE COMMON SHARES OF SECURACOM, INCORPORATED TRANSFER RESTRICTED -- SEE SECTION 5.02 This certifies that, for [$_______] and other good and valuable consideration, HANIFEN, IMHOFF INC. and its registered, permitted assigns (collectively, the "Warrantholder"), is entitled to purchase from SECURACOM, INCORPORATED, a corporation incorporated under the laws of the state of Delaware (the "Company"), subject to the terms and conditions hereof, at any time after 9:00 A.M., New York time, on [Issue Date], 1998 and before 5:00 P.M., New York time, on [Issue Date], 2000 (or, if such day is not a Business Day, at or before 5:00 P.M., New York time, on the next following Business Day), the number of fully paid and non-assessable Common Shares stated above at the Exercise Price. The Exercise Price and the number of shares purchasable hereunder are subject to adjustment from time to time as provided in Article III hereof. ARTICLE I Section 1.01: Definition of Terms. As used in this Warrant, the following capitalized terms shall have the following respective meanings: (a) 50% Holders: At any time as to which a Demand Registration is requested, the holders of any Warrants and the holders of Warrant Shares who have the right to acquire or hold, as the case may be, not less than 50% of the combined total of Warrant Shares issuable and Warrant Shares outstanding at the time such Demand Registration is requested. (b) Business Day: A day other than a Saturday, Sunday or other day on which banks in the State of New York are authorized by law to remain closed. - ------------ (c) Common Stock: Common Stock, par value of $0.01 per share, of the Company. (d) Common Stock Equivalents: Securities that are convertible into or exercisable for shares of Common Stock. (e) See Section 6.02. (f) Exchange Act: The Securities Exchange Act of 1934, as amended. (g) Exercise Price: 120% of the public offering price per Warrant Share, as such price may be adjusted from time to time pursuant to Article III hereof (h) Expiration Date: 5:00 P.M., New York time, on [Issue Date], 2000 or if such day is not a Business Day, the next succeeding day which is a Business Day. (i) Holder: A Holder of Registrable Securities. (j) NASD and NASDAQ: National Association of Securities Dealers, Inc., and NASD Automatic Quotation System. (k) Participatory Registration: See Section 6.01. (l) Person: An individual, partnership, joint venture, corporation, trust, unincorporated organization or government or any department or agency thereof. (m) Prospectus: Any prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. (n) Public Offering: A public offering of any of the Company's equity securities pursuant to a Registration Statement under the Securities Act. (o) Registrable Securities: Any Warrant Shares issued to HANIFEN, IMHOFF INC. and/or its designees or transferees as permitted under Section 5.02 and/or other securities that may be or are issued by the Company upon exercise of this Warrant, including those which may thereafter be issued by the Company in respect of any such securities by means of any stock splits, stock dividends, recapitalizations, reclassifications or the like, and as adjusted pursuant to Article III hereof. (p) Registration Expenses: Any and all expenses incurred in connection with any registration or action incident to performance of or compliance by the Company with Article VI, including, without limitation, (i) all SEC, national securities exchange and NASD registration and filing fees; all listing fees and all transfer agent fees; (ii) all fees and expenses of complying with state securities or blue sky laws (including the fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities); (iii) all printing, mailing, messenger and delivery expenses and (iv) all fees and disbursements of counsel for the Company and of its accountants, including the expenses of any special audits and/or "cold comfort" letters required by or incident to such performance and compliance, but excluding underwriting discounts and commissions, brokerage fees and transfer taxes, if any, and fees of counsel or accountants retained by the holders of Registrable Securities to advise them in their capacity as Holders of Registrable Securities. (q) Registration Statement: Any registration statement of the Company filed or to be filed with the SEC which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including all amendments (including post-effective amendments) and supplements thereto, all exhibits thereto and all material incorporated therein by reference. (r) SEC: The Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act. (s) Securities Act: The Securities Act of 1933 as amended. (t) Transfer: See Section 5.02. (u) Warrant: This Warrant, and all other similar warrants issued on the date hereof, and all other warrants that may be issued in its place (together evidencing the right to purchase an aggregate of [_____] shares of Common Stock), originally issued as set forth in the definition of -------- Registrable Securities. (v) Warrantholders: The person(s) or entity(ies) to whom this Warrant is originally issued, or any successor in interest thereto, or any assignee or transferee thereof, in whose name this Warrant is registered upon the books to be maintained by the Company for that purpose. -------------- (w) Warrant Shares: Common Stock, Common Stock Equivalents and other securities purchased or purchasable upon exercise of the Warrants. (x) $U.S.: United States dollars. ARTICLE II DURATION AND EXERCISE OF WARRANT Section 2.01: Duration of Warrant. The Warrantholder may exercise this Warrant at any time and from time to time after 9:00 A.M., New York time on [Issue Date], 1998 and before 5:00 P.M., New York time, on the Expiration Date. If this Warrant is not exercised on the Expiration Date, it shall become void, and all rights hereunder shall thereupon cease. Section 2.02: Exercise of Warrant. (a) The Warrantholder may exercise this Warrant, in whole or in part, as follows: (i) by presentation and surrender of this warrant to the Company at its corporate office at 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675 or at the office of its stock transfer agent, if any, with the Subscription Form annexed hereto duly executed and accompanied by payment of the Exercise Price for each Warrant Share to be purchased by means of a cashiers or certified check; or (ii) By presentation and surrender of this Warrant to the Company at its principal executive offices with a Cashless Exercise Form annexed hereto duly executed (a "Cashless Exercise"). In the event of a Cashless Exercise, the Warrantholder shall exchange its Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares by a fraction, the numerator of which shall be the amount by which the then current market price per share of Common Stock exceeds the Exercise Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 2.02(a)(ii), the then current market price per share of Common Stock at any date shall be deemed to be the last sale price of the Common Stock on the business day prior to the date of the Cashless Exercise or, in case no such reported sales take place on such day, the average of the last reported bid and asked prices of the Common Stock on such day, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the representative closing bid price of the Common Stock as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price of the Common Stock as determined by the Board of Directors in good faith. (b) Upon receipt of this Warrant with the Subscription Form fully executed and accompanied by payment of the aggregate Exercise Price for the Warrant Shares for which this Warrant is then being exercised, or, in the case of Section 2.02(a)(ii), with the Cashless Exercise Form duly executed, the Company shall cause to be issued certificates for the total number of whole shares of Common Stock for which this Warrant is being exercised (adjusted to reflect the effect of the anti-dilution provisions contained in Article III hereof, if any, and as provided in Section 2.04 hereof) in such denominations as are requested for delivery to the Warrantholder, and the Company shall thereupon deliver such certificates to the Warrantholder. The Warrantholder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock may not then be actually delivered to the Warrantholder. If at the time this Warrant is exercised, a Registration Statement is not in effect to register under the Securities Act the Warrant Shares issuable upon exercise of this Warrant, the Company may require the Warrantholder to make such representations, and may place such legends on certificates representing the Warrant Shares, as may be reasonably required in the opinion of counsel to the Company to permit the Warrant Shares to be issued without such registration. (c) In case the Warrantholder shall exercise this Warrant with respect to less than all of the Warrant Shares that may be purchased under this Warrant, the Company shall execute a new warrant in the form of this Warrant for the balance of such Warrant Shares and deliver such new warrant to the Warrantholder. (d) The Company shall pay any and all stock transfer and similar taxes which may be payable in respect of the issue of this Warrant or in respect of the issue of any Warrant Shares. Section 2.03: Reservation of Shares; Representation as to Shares. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant such number of shares of Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized, and when issued upon such exercise, shall be validly issued, filly paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights, and not issued in violation of any rights of other Holders of the Company securities, including without limitation, rights of first offer or refusal held by shareholders of the Company. Section 2.04: Fractional Shares. The Company shall not be required to issue any fraction of a share of its capital stock in connection with the exercise of this Warrant, and in any case where the Warrantholder would, except for the provisions of this Section 2.04, be entitled under the terms of this Warrant to receive a fraction of a share upon the exercise of this Warrant, the Company shall, upon the exercise of this Warrant and receipt of the Exercise Price, issue the greatest number of whole shares purchasable upon exercise of this Warrant for which payment in full of the Exercise Price has been received. The Company shall not be required to make any cash or other adjustment in respect of such fraction of a share to which the Warrantholder would otherwise be entitled. Section 2.05: Listing. Prior to the issuance of any shares of Common Stock upon exercise of this Warrant, the Company shall secure the listing of such shares of Common Stock upon each national securities exchange or automated quotation systems, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. ARTICLE III ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF EXERCISE PRICE The Exercise Price and the number and kind of Warrant Shares shall be subject to adjustment from time to time upon the happening of certain events as provided in this Article III. Section 3.01: Mechanical Adjustments (a) If at any time prior to the exercise of this Warrant in full, the Company shall (i) declare a dividend or make a distribution on the Common Stock payable in shares of its Common Stock; (ii) subdivide, reclassify or recapitalize the outstanding Common Stock into a greater number of shares of Common Stock;(iii) combine, reclassify or recapitalize its outstanding-shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock by reclassification of its Common Stock (including any such reclassification in connection with a consolidation or a merger in which the Company is the continuing corporation), the Exercise Price in effect at the time of the record date of such dividend, distribution, subdivision, combination, reclassification or recapitalization shall be adjusted so that the Warrantholder shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised in full immediately prior to such event, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination, reclassification or recapitalization. Any adjustment required by this paragraph 3.01(a) shall be made successively and become effective immediately after the record date, in the case of a dividend or distribution, or the effective date, in the case of a subdivision, combination, reclassification or recapitalization, to allow the purchase of such aggregate number and kind of shares. (b) If at any time prior to the exercise of this Warrant in full, the Company shall (i) issue or sell any Common Stock or Common Stock Equivalents without consideration or for consideration per share of Common Stock less than the current market price per share of Common Stock on the date of such issuance or sale as defined in Section 3.01(f) (other than pursuant to employee benefit or compensation arrangements and other than pursuant to subscription rights, options or warrants which had a subscription, exercise, purchase or conversion price equal to or greater than the current market price per share on the effective date of issuance or grant of such rights, options or warrants) or (ii) fix a record date for the issuance of subscription rights, options or warrants to all holders of Common Stock entitling them to subscribe for or purchase shares of Common Stock (or Common Stock Equivalents) at a price (or having an exercise or conversion price per share) less than the current market price of the Common Stock (as determined pursuant to Section 3.01(e)) on the record date described below, the Exercise Price shall be adjusted so that the Exercise Price shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the date of such sale or issuance (which date in the event of distribution to shareholders shall be deemed to be the record date set by the Company to determine shareholders entitled to participate in such distribution) by a fraction, the numerator of which shall be (i) the number of shares of Common Stock outstanding on the date of such sale or issuance, plus (ii) the number of additional shares of Common Stock which the aggregate consideration received by the Company upon such issuance or sale (plus the aggregate of any additional amount to be received by the Company upon the exercise of such subscription rights, options or Warrants) would purchase at such current market price per share of the Common Stock immediately prior to the date of such issuance or sale; and the denominator of which shall be (i) the number of shares of Common Stock outstanding on the date of such issuance or sale, plus (ii) the number of additional shares of Common Stock offered for subscription or purchase (or into which the Common Stock equivalents so offered are exercisable or convertible). Any adjustments required by this paragraph 3.01(b) shall be made immediately after such issuance or sale or record date, as the case may be unless the offering period of such Common Stock or Common Stock Equivalents, or the period in which such rights, options or warrants may be exercised or converted, shall expire in 90 days or less, in which case such event shall be given effect immediately after the expiration of such period based upon the number of shares of Common Stock (or Common Stock Equivalents) actually delivered; provided that should any Warrant be exercised during such period, the number of shares of Common Stock issuable upon such exercise shall be recalculated giving effect to any adjustment made at the end of such period in respect of such event and an appropriate number of additional shares of Common Stock shall be issued in respect of such exercise. Such adjustments shall be made successively whenever such event shall occur. In the event that such period shall be greater than 90 days, then to the extent that shares of Common Stock (or Common Stock Equivalents) are not delivered after the expiration of such subscription rights, options or warrants, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect had the adjustments made upon the issuance of such rights, options or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or Common Stock Equivalents) actually delivered. (c) If at any time prior to the exercise of this Warrant in full, the Company shall fix a record date for the issuance or making a distribution to all holders of the Common Shock (including any such distribution to be made in connection with a consolidation or merger in which the Company is to be the continuing corporation) of evidences of its indebtedness, any other securities of the Company or any cash, property or other assets or securities, including without limitation shares of a subsidiary's capital stock (excluding a common stock dividend, combination, reclassification, recapitalization or issuance referred to in Section 3.01(a)), regular cash dividends or cash distributions in the ordinary course of business or subscription rights, options or warrants for Common Stock or Common Stock Equivalents (excluding those referred to in Section 3.01(b)) (any such nonexcluded event being herein called a "Special Dividend"), the Exercise Price shall be decreased immediately after the record date for such Special Dividend to a price determined by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then current market price of the Common Stock (as defined in Section 3.01(e)) on such record date less the fair market value (as determined by the Company's Board of Directors) of the evidences of indebtedness, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock or of such subscription rights or warrants applicable to one share of Common Stock, and the denominator of which shall be such then current market price per share of Common Stock (as so determined). Any adjustment required by this paragraph 3.01(c) shall be made successively effective on the record date for the Special Dividend and in the event that such distribution is not so made, the Exercise Price shall again be adjusted to be the Exercise Price that was in effect immediately prior to such record date. (d) If at any time prior to the exercise of this Warrant in full, the Company shall make a distribution to all holders of the Common Stock of stock of a subsidiary or securities convertible into or exercisable for such stock, then in lieu of an adjustment in the Exercise Price or the number of Warrant Shares purchasable upon the exercise of this warrant, each Warrantholder, upon the exercise hereof at any time after such distribution, shall be entitled to receive from the Company, such subsidiary or both, as the Company shall determine, the stock or other securities to which such Warrantholder would have been entitled if such Warrantholder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Article III, and the Company shall reserve, for the life of the Warrant such securities of such subsidiary or other corporation; provided, however, that no adjustment in respect of dividends or interest of such stock or other securities shall be made during the term of this Warrant or upon its exercise. (e) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to one or more of paragraphs (a), (b) and (c) of this Section 3.01, the Warrant Shares shall simultaneously be adjusted by multiplying the number of Warrant Shares initially issuable upon exercise of each Warrant by the Exercise Price in effect on the date thereof and dividing the product so obtained by the Exercise Price, as adjusted. (f) For the purpose of any computation under this Section 3.01, the current market price per share of Common Stock at any date shall be deemed to be the average of the daily closing prices for 20 consecutive trading days commencing 30 trading days before such date. The closing price for each day shall be the last sale price regular way or, in case no such reported sales take place on such day, the average of the last reported bid and asked prices regular way, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on such exchange, the representative closing bid price as reported by NASDAQ, or other similar organization if NASDAQ is no longer reporting such information, or if not so available, the fair market price as determined in good faith by the Board of Directors of the Company. (g) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($.05) in such price; provided, however, that any adjustments which by reason of this paragraph (f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3.01 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Notwithstanding anything in this Section 3.01 to the contrary, the Exercise Price shall not be reduced to less than the then existing par value, if any, of the Common Stock as a result of any adjustment made hereunder. (h) In the event that at any time, as a result of any adjustment made pursuant to Section 3.01(a), the Warrantholder thereafter shall become entitled to receive any shares of the Company other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 3.01(a). (i) In the case of an issue of additional Common Stock or Common Stock Equivalents for cash, the consideration received by the Company therefor, without deducting therefrom any discount or commission or other expenses paid by the Company for any underwriting of, or otherwise in connection with, the issuance thereof, shall be deemed to be the amount received by the Company therefor. To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amounts of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as reasonably determined in good faith by the Board of Directors of the Company (but without deduction of any compensation, discounts or expenses paid or incurred by the Company for, and in the underwriting of, or otherwise in connection with, the issuance thereof). The term issue shall include the sale or other disposition of shares held by or on account of the Company or m the treasury of the Company but until so sold or otherwise disposed of such shares shall not be deemed outstanding. Section 3.02: Notices of Adjustment. Whenever the number of Warrant Shares or the Exercise Price is adjusted as herein provided, the Company shall prepare and deliver forthwith to the Warrantholder a certificate signed by its President, and by any Vice President, Treasurer or Secretary, setting forth the adjusted number of shares purchasable upon the exercise of this Warrant and the Exercise Price of such shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which adjustment was made. The certificate of any independent firm of public accountants of recognized standing selected by the Board of Directors of the Company shall be conclusive evidence of the arithmetic correctness of any computation made under this Section 3. Section 3.03: No Adjustment for Dividends. Except as provided in Section 3.01 of this Agreement, no adjustment in respect of any cash dividends shall be made during the term of this Warrant or upon the exercise of this Warrant. Section 3.04: Preservation of Purchase Rights in Certain Transactions. In case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock) or in case of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition to such transaction cause such successor or purchasing corporation, as the case may be, to execute with the Warrantholder an agreement granting the Warrantholder the right thereafter, upon payment of the Exercise Price in effect immediately prior to such transaction, to receive upon exercise of this Warrant the kind and amount of shares and other securities and property which he would have owned or have been entitled to receive as a result of such transaction had this Warrant been exercised immediately prior to such action. Such agreement shall provide for adjustments in respect of such shares of stock and other securities and property, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article III and shall provide that such rights may be exercised at any time prior to the Expiration Date. In the event that in connection with any such transaction, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Article III. The provisions of this Section 3.04 shall similarly apply to successive reclassifications, capital reorganizations, consolidations, mergers, sales or conveyance. Section 3.05: Form of Warrant After Adjustments. The form of this Warrant need not be changed because of any adjustments in the Exercise Price or the number or kind of the Warrant Shares, and Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrant, as initially issued. Section 3.06: Treatment of Warrantholder. Subject to Article V, prior to due presentment for registration of transfer of this Warrant, the Company may deem and treat the Warrantholder as the absolute owner of this Warrant (notwithstanding any notation of ownership or other writing hereon) for all purposes and shall not be affected by any notice to the contrary. ARTICLE IV OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER Section 4.01: No Rights as Shareholders; Notice to Warrantholders. Nothing contained in this Warrant shall be construed as conferring upon the Warrantholder or his or its transferees the right to vote or to receive dividends or to consent or to receive notice as a shareholder in respect of any meeting of shareholders for the election of directors of the Company or of any other matter, or any rights whatsoever as shareholders of the Company. The Company shall give notice to the Warrantholder by registered mall if at any time prior to the expiration or exercise in full of the Warrants, any of the following events shall occur: (a) the Company shall authorize the payment of any dividend to all holders of Common Stock; (b) the Company shall authorize the issuance to all holders of Common Stock of any additional shares of Common Stock or Common Stock equivalents or of rights, options or warrants to subscribe for or purchase Common Stock or Common Stock Equivalents or of any other subscription rights, options or warrant; (c) a dissolution, liquidation or winding up of the Company; or (d) a capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock) or any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or change of Common Stock outstanding) or in the case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety. Such giving of notice shall be completed at least l5 Business Days prior to the date fixed as a record date or effective date or the date of closing of the Company's stock transfer books for the determination of the shareholders entitled to such dividend, distribution, or subscription rights, or for the determination of the shareholders entitled to vote on such proposed merger, consolidation, sale, conveyance dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the stock transfer books, as the case may be. Failure to provide such notice shall not affect the validity of any action taken in connection with such dividend, distribution or subscription rights, or proposed merger, consolidation, sale, conveyance, dissolution, liquidation or winding up. Section 4.02: Lost, Stolen, Mutilated, or Destroyed Warrants. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, upon receipt by the Company of evidence of ownership reasonably satisfactory to it and on such terms as to indemnity or otherwise as it may in its discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as, and in substitution for, this Warrant. ARTICLE V SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS Section 5.01: Split-Up, Combination, Exchange and Transfer of Warrants. Subject to the provisions of Section 5.02 hereof, this Warrant may be split up, combined or exchanged for another Warrant or Warrants containing the same terms to purchase a like aggregate number of Warrant Shares. If the Warrantholder desires to split up, combine or exchange this Warrant, he or it shall make such request in writing delivered to the Company and shall surrender to the Company this Warrant and any other Warrants to be so split-up, combined or exchanged. Upon any such surrender for a split-up, combination or exchange, the Company shall execute and deliver to the person entitled thereto a Warrant or Warrants, as the case may be, as so requested. The Company shall not be required to effect any split-up, combination or exchange which will result in the issuance of a Warrant entitling the Warrantholder to purchase upon exercise a fraction of a share of Common Stock or a fractional Warrant Section 5.02: Restrictions on Transfer. Neither this Warrant nor the Warrant Shares may be disposed of or encumbered (any such action, a "Transfer"), except (i) to HANIFEN, IMHOFF INC. any successor to the business of such company, or any officer or partner of such company, or (ii) to any underwriter in connection with a registered Public Offering of the Warrant Shares, provided (as to (ii)) that this Warrant is exercised upon such Transfer and the Warrant Shares issued upon such exercise are sold by such underwriter as part of such registered Public Offering and, as to both (i) and (ii), only in accordance with and subject to the provisions of the Securities Act and the rules and regulations promulgated hereunder. If at the time of a Transfer, a Registration Statement is not in effect to register this Warrant or the Warrant Shares, the Company may require the Warrantholder to make such representations, and may place such legends on certificates representing this Warrant, as may be reasonably required in the opinion of counsel to the Company to permit a Transfer without such registration. ARTICLE VI REGISTRATION UNDER THE SECURITIES ACT OF 1933 Section 6.01: Piggyback Registration. (a) Right to Include Registrable Securities. If at any time or from time to time after [Issue Date], l998, and prior to the Expiration Date, the Company proposes to register any Common Stock (or any other securities for which this Warrant may then be exercised) under the Securities Act on any form for the registration of securities under such Act, whether or not for its own account (other than by a registration statement on forms S-8 (or any successor forms) or other form which does not include substantially the same information as would be required in a form for the general registration of securities or would not be available for the Registrable Securities) (a "Participatory Registration"), it shall give written notice to all Holders of its intention to do so and of such Holders' rights under this Section 6.01. Such rights are referred to hereinafter as "Participatory Registration Rights." Upon the written request of any such Holder made within 20 days after receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended manner of distribution of such securities), the Company shall use its best efforts to include in the Registration Statement the Registrable Securities which the Company has been so requested to register by the Holders thereof (subject to paragraph (e) below) and the Company shall keep such registration statement in effect and maintain compliance with each Federal and state law or regulation for the period necessary for such Holder to effect the proposed sale or other disposition (but in no event for a period greater than 90 days). (b) Withdrawal of Participatory Registration by Company. If, at any time after giving written notice of its intention to register any securities in a Participatory Registration but prior to the effective date of the related Registration Statement, the Company shall determine for any reason not to register such securities, the Company shall give written notice of such determination to each Holder and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such Participatory Registration. All best efforts obligations of the Company pursuant to Section 6.04 shall cease if the Company determines to terminate prior to such effective date any registration where Registrable Securities are being registered pursuant to this Section 6.01. (c) Participatory Registration of Underwritten Public Offerings. If a Participatory Registration involves an offering by or through underwriters, then, (i) all Holders requesting to have their Registrable Securities included in the Company's Registration Statement must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to other selling shareholders and (ii) any Holder requesting to have his or its Registrable Securities included in such registration Statement may elect in writing, not later than three Business Days prior to the Company's request for effectiveness of the Registration Statement filed in connection with such registration, not to have his or its Registrable Securities so included in connection with such registration. (d) Payment of Registration Expenses for Participatory Registration. The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to a Participatory Registration Right contained in this Section 6.01. (e) Priority in Participatory Registration. If a Participatory Registration involves an offering by or through underwriters, the Company, except as otherwise provided herein, shall not be required to include Registrable Securities therein if and to the extent the underwriter managing the offering reasonably believes in good faith and advises each Holder requesting to have Registrable Securities included in the Company's Registration Statement that such inclusion would materially adversely affect such offering; provided that any such reduction or elimination shall be pro rata to all shares of Common Stock proposed to be included in the Company's Registration Statement in proportion to the respective number of shares that have been requested to be registered by the Company, any Holder or any other selling shareholder, as the case may be. Section 6.02: Demand Registration. (a) Request for Registration. If, at any time subsequent to [Issue Date], 1998 and prior to the Expiration Date, any 50% Holders make a written request that the Company file a registration statement under the Securities Act, the Company as soon as practicable shall use its best efforts to file a registration statement with respect to all Warrant Shares that it has been so requested to include and obtain the effectiveness thereof, and to take all other action necessary under any Federal or state law or regulation to permit the Warrant Shares that are then held and/or that may be acquired upon the exercise of the Warrants specified in the notices of the Holder or Holders thereof to be sold or otherwise disposed of, and the Company shall maintain such compliance with each such Federal and state law and regulation for the period necessary for such Holder or Holders to effect the proposed sale or other disposition (but in no event for more than 90 days) (the "Demand Registration"); provided, however, the Company shall be entitled to defer such Demand Registration for a period of up to 90 days if and to the extent that its Board of Directors shall determine in good faith that such registration would interfere with a pending corporate transaction. The Company shall also promptly give written notice to the Holder and the Holders of any other Warrants and/or the Holders of any Warrant Shares who or that have not made a request to the Company pursuant to the provisions of this subsection (a) of its intention to effect any required registration or qualification, and shall use its best efforts to effect as expeditiously as possible such registration or qualification of all other such Warrant Shares that are then held or that may be acquired upon the exercise of the Warrants, the Holder or Holders of which have made a written request for such registration or qualification, within l5 days after such notice has been given by the Company, as provided in the preceding sentence. The Company shall be required to effect a registration or qualification pursuant to this subsection (a) on one (1) occasion only. Each written request of the Holders shall specify the names of the Holders making such request and the number of Warrant Shares to be sold by each Holder. (b) Payment of Registration Expenses for Demand Registration. The Company shall pay all Registration Expenses in connection with the Demand Registration. (c) Selection of Underwriters. If any Demand Registration is requested to be in the form of an underwritten offering, the managing underwriter shall be HANIFEN, IMHOFF INC., co-manager shall be [_____] and the independent pricer required under the rules of the NASD (if any) shall be selected and obtained by the Holders of a majority of the Warrant Shares to be registered. Such selection shall be subject to the Company's consent, which consent shall not be unreasonably withheld. All fees and expenses (other than Registration Expenses otherwise required to be paid) of any managing underwriter, any co-manager or any independent underwriter or other independent pricer required under the rules of the NASD shall be paid for by such underwriters or by the Holder or Holders whose shares are being registered. If Hanifen, Imhoff Inc., or [__________] should decline to serve as managing underwriter, the Holders of a majority of the Warrant Shares to be registered may select and obtain one or more managing underwriters. Such selection shall be subject to the Company's consent, which shall not be unreasonably withheld. Section 6.03: Buy-outs of Registration Demand. Upon receipt of any request pursuant to Section 6.01 or a demand pursuant to Section 6.02 that Registrable Securities be included in a registration statement, and in lieu of any obligation under such Sections to effect either a Participatory or a Demand Registration with respect to such Registrable Securities, the Company may, within five business days of receipt of such request, purchase all, but not less than all, such Registrable Securities at an amount in cash equal to with respect to Warrants not yet exercised the difference between (a) the then current market value (as determined in Section 3.01(e)) of the Common Stock on the day of such repurchase, and (b) the Exercise Price in effect on such day and with respect to issued Warrant Shares, the then current market value (as determined in Section 3.01(e)) of the Common Stock on the day of such repurchase. Section 6.04: Registration Procedures. If and whenever the Company is required to use its best efforts to take action pursuant to any Federal or state law or regulation to permit the sale or other disposition of any Warrant Shares that are then held or that may be acquired upon exercise of the Warrants in order to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Article VI, the Company shall, as expeditiously as practicable; (a) furnish to each selling Holder of Registrable Securities and the underwriters, if any, without charge, as many copies of the Registration Statement, the Prospectus or the Prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as they may reasonably request; (b) enter into such agreements (including an underwriting agreement) and take all such other actions reasonably required in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, if the registration is in connection with an underwritten offering (i) make such representations and warranties to the underwriters in such form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions in form, scope and substance shall be reasonably satisfactory to the underwriters and their counsel) addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters; (iii) obtain "cold comfort" letters and updates thereof from the Company's accountants addressed to the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with underwritten offerings; (iv) set forth in any underwriting agreement entered into the indemnification provisions and procedures of Section 6.05 hereof with respect to all parties to be indemnified pursuant to said Section or such other alternative indemnification language reasonably satisfactory to such persons; and (v) deliver such documents and certificates as may be reasonably requested by the underwriters and their counsel to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; the above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; (c) make available for inspection by one or more representatives of the Holders of Registrable Securities being sold, any underwriter participating in any disposition pursuant to such registration, and any attorney or accountant retained by such Holders or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representatives; and (d) otherwise use its best efforts to comply with all applicable Federal and state regulations and take such other action as may be reasonably necessary to or advisable to enable each such Holder and each such underwriter to consummate the sale or disposition in such jurisdiction or jurisdictions in which any such Holder or underwriter shall have requested that the Registrable Securities be sold. Except as otherwise provided in this Agreement, the Company shall have sole control in connection with the preparation, filing, withdrawal, amendment or supplementing of each Registration Statement, the selection of underwriters, and the distribution of any preliminary prospectus included in the Registration Statement, and may include within the coverage thereof additional shares of Common Stock or other securities for its own account or for the account of one or more of its other security holders; provided, however, with respect to the Demand Registration that additional shares of Common Stock may be included only if the managing underwriter determines in its judgment that the inclusion of such additional shares will not adversely affect such offering. Each seller of Registrable Securities as to which any registration is being effected shall furnish to the Company such information regarding the distribution of such securities and such other information as may otherwise be required by the Securities Act to be included in such Registration Statement. Section 6.05: Indemnification. (a) Indemnification by Company. In connection with each Registration Statement relating to disposition of Registrable Securities, the Company shall indemnify and hold harmless each Holder and each Person, if any, who controls such Holder (within the meaning of Section l 5 of the Securities Act or Section 20 of the Exchange Act) against any and all losses, claims, damages and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other Federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arises out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary prospectus or any amendment thereof or supplement thereto, or arise out of or are based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they are made not misleading; provided, however, that such indemnity shall not inure to the benefit of any Holder (or any Person controlling such Holder within the meaning of Section l5 of the Securities Act or Section 20 of the Exchange Act) on account of any losses, claims, damages or liabilities arising from the sale of the Registrable Securities if such untrue statement or omission or alleged untrue statement or omission was made in such Registration Statement, Prospectus or preliminary prospectus, or such amendment or supplement, in reliance upon and in conformity with information furnished in writing to the Company by such Holder specifically for use therein. The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of Section l 5 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities, if requested. This indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) Indemnification by Holder. In connection with each Registration Statement, each selling Holder shall indemnify, to the same extent as the indemnification provided by the Company in Section 6.05(a), the Company, its directors, officers, employees, agents and counsel and each Person who controls the Company (within the meaning of Section l 5 of the Securities Act and Section 20 of the Exchange Act) but only insofar as such losses, claims, damages and liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which was made in the Registration Statement, the Prospectus or preliminary prospectus or any amendment thereof or supplement thereto, in reliance upon and in conformity with information furnished in writing by such Holder to the Company specifically for use therein. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Procedure. Any party that proposes to assert the right to he indemnified hereunder will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim is to be made against an indemnifying party or parties under this section, notify each such indemnifying party of the commencement of such action, suit or proceeding, enclosing a copy of all papers served. No indemnification provided for in Section 6.05(a) or 6.05(b) shall be available to any party who shall fail to give notice as provided in this Section 6.05(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice, but the omission so to notify such indemnifying party of any such action, suit or proceeding shall not relieve it from any liability that it may have to any indemnified party for contribution or otherwise than under this Section. In case any such action, suit or proceeding shall be brought against any indemnified party, and the indemnified party notifies the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and the approval by the indemnified party of such counsel, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses, except as provided below and except for the reasonable costs of investigation subsequently incurred by such indemnified party in connection with the defense thereof. The indemnified party shall have the right to employ separate counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of counsel by such indemnified party has been authorized in writing by the indemnifying parties; (ii) the indemnified party shall have been reasonably advised by counsel that there may be a conflict of interest between the indemnifying parties and the indemnified party in the conduct of the defense of such action (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party); or (iii) the indemnifying parties shall not have employed counsel to assume the defense of such action within a reasonable time after notice of the commencement thereof, in each of which cases the fees and expenses of separate counsel for the indemnified party shall be at the expense of the indemnifying parties. An indemnifying party shall not be liable for any settlement of any action, suit, proceeding or claim effected without its written consent, which consent shall not be withheld unreasonably. (d) Contribution. In connection with each Registration Statement relating to the disposition of Registrable Securities, if the indemnification provided for in subsection (a) or (b) hereof is unavailable to an indemnified party thereunder in respect of any losses, claims, damages or liabilities referred to therein, then the indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities. The amount to be contributed by the indemnifying party hereunder shall be an amount which is in the same proportionate relationship to the total amount of such losses, claims, damages or liabilities as the total net proceeds from the offering (before deducting expenses) of the Registrable Securities sold by such party bears to the total price to the public (including underwriters' discounts) for the offering of the securities covered by such registration. (e) Specific Performance. The Company and the Holder acknowledge that remedies at law for the enforcement of this Section 6.05 may be inadequate and intend that this Section 6.05 shall be specifically enforceable. ARTICLE VII OTHER MATTERS Section 7.01: Amendments and Waivers. The provisions of this Warrant, including the provisions of this sentence, may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority of the outstanding Registrable Securities. Holders shall be bound by any consent authorized by this Section whether or not certificates representing such Registrable Securities have been marked to indicate such consent. Section 7.02: Counterparts. This Warrant may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 7.03: Governing Law. This Warrant shall be governed by and construed in accordance, with the laws of the State of New York. Section 7.04: Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provisions in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. Section 7.05: Attorneys' Fees. In any action or proceeding brought to enforce any provisions of this Warrant, or where any provisions hereof or thereof are validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees and disbursements in addition to its costs and expenses and any other available remedy. Section 7.06: Computations of Consent. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (other than the Warrantholder or subsequent Holders if they are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. Section 7.07: Notices. Any notices or certificates by the Company to the Holder and by the Holder to the Company shall be deemed delivered if in writing and delivered in person or by registered mail (return receipt requested) to the Holder addressed to him in care of Hanifen, Imhoff Inc., 1125 17th Street, Suite 1600, Denver, CO 80202, Attention: Kathy Evers with a copy to Gibson, Dunn & Crutcher, LLP, 1801 California Street, Suite 4100, Denver, CO 80202 Attention: Thomas R. Denison or, if the Holder has designated, by notice in writing to the Company, any other address, to such other address, and if to the Company, addressed to it at Securacom Incorporated 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675 The Company may change its address by written notice to the Holder and the Holder may change its address by written notice to the Company. Section 7.08: Investment Representation of the Holder. By accepting delivery of this Warrant the Holder represents to the Company that it has acquired this Warrant solely for its own account for investment (except as contemplated in Section 5.02) and not with a view to distribution or sale in violation of the Securities Act, but subject, nevertheless, to any requirement of law that the disposition of the Holder's property be at all times within its control. The Holder represents that it understands that this Warrant has been issued in a transaction that is exempt from the registration requirements of the Securities Act and that this Warrant must be held by the Holder and may not be resold unless subsequently registered under the Securities Act or an exemption from such registration is available. Section 7.09: Currency. All amounts used in this Agreement are expressed in U.S. Dollars unless otherwise specified. IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under its corporate seal as of the [Issue Date], 1997. SECURACOM, INCORPORATED By: ................................................ Title: ............................................. Attest: ............................................ Secretary: ......................................... ASSIGNMENT (To be executed only upon assignment of Warrant Certificate) For value received, _______________ hereby sells, assigns and transfers unto _________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _____________ attorney to transfer said Warrant Certificate on the books of the within- named Company with respect to the number of Warrants set forth below, with full power of substitution in the premises: Name(s) of Assignee(s) No. of Warrants And if said number of Warrants shall not be all the Warrants represented by the Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the Warrants registered by said Warrant Certificate. Dated: _________________, 199_. Note: The above signature should correspond exactly with the name on the face of this Warrant Certificate SUBSCRIPTION FORM (To be executed upon exercise of Warrant)The undersigned hereby irrevocably elects to exercise the right of purchaser represented by the within Warrant Certificate for, and to purchase thereunder, _____________ shares of Common Stock, as provided for therein, and tenders herewith payment of the purchase price in full in the form of cash or a certified or official bank check for the amount of $_____________ Please issue a certificate or certificates for such Common Stock in the name of, and pay any cash for any fractional share to: Name: ................................................... (Please print Name, Address and Social Security No.) Signature: .............................................. Note: The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form below. And if said number of shares shall not be all the shares purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder rounded up to the next higher number of shares. CASHLESS EXERCISE FORM (To be executed upon exercise of Warrant pursuant to Section 2.02(a)(ii)) The undersigned hereby irrevocably elects to Exchange its Warrant for such shares of Common Stock pursuant to the Cashless Exercise provisions of the within Warrant Certificate, as provided for in Section 2.02(a)(ii) of such Warrant Certificate. Please issue a certificate or certificates for such Common Stock in the name of: Name: ................................................... ..........(Please print Name, Address and Social Security No.) Signature: .............................................. Note: The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form below. And if said number of shares shall not be all the shares exchangeable or purchasable under the within Warrant Certificate, a new Warrant Certificate is to be issued in the name of the undersigned for the balance remaining of the shares purchasable rounded up to the next higher number of shares. EX-3.1 4 RESTATED CERTIFICATE OF INCORPORATION RESTATED CERTIFICATE OF INCORPORATION OF SECURACOM, INCORPORATED Pursuant to Section 245 of the General Corporation Law of the State of Delaware Securacom, Incorporated, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. This Restated Certificate of Incorporation of the Corporation restates and integrates and further amends the provisions of the Certificate of Incorporation of the Corporation and was duly authorized by the stockholders of the Corporation pursuant to Section 228 of the General Corporation Law of the State of Delaware, after first having been declared advisable by the Board of Directors of the Corporation, all in accordance with the provisions of Sections 228, 242, and 245 of the General Corporation Law of the state of Delaware. 2. The capital of the Corporation will not be reduced under, or by reason of, the amendments set forth herein to the Certificate of Incorporation of the Corporation. 3. The text of the Certificate of Incorporation of the Corporation is hereby restated and further amended to read in its entirety as follows: ARTICLE I The name of the Corporation is Securacom, Incorporated. ARTICLE II The period of its duration is perpetual. ARTICLE III The purpose for which the Corporation is organized is to engage in the transaction of any or all lawful business for which corporations may be incorporated under the Delaware General Corporation Law. ARTICLE IV The total number of shares of all classes of stock which the Corporation shall have authority to issue is 25,000,000, of which (a) 5,000,000 shares, par value $0.01 per share, are to be designated "Preferred Stock" (the "Preferred Stock") (b) 20,000,000 shares, par value $0.01 per share, are to be of a class designated "Common Stock" (the "Common Stock"). 1 The designations, powers, preferences and rights and qualifications, limitations, or restrictions of the Preferred Stock and the Common Stock are as follows: A. PREFERRED STOCK The Board of Directors is authorized and empowered to designate the rights, preferences, and restrictions of shares of Preferred Stock from time to time in accordance with the following: 1. The Board of Directors is hereby authorized to issue the Preferred Stock from time to time in one or more series, which Preferred Stock shall be preferred to the Common Stock as to dividends and distribution of assets of the Corporation on dissolution, as hereinafter provided, and shall have such distinctive designations as may be stated in the Certificate of Designation providing for the issue of such stock adopted by the Board of Directors pursuant to Section 151(g) of the Delaware General Corporation Law. In such Certificate of Designation providing for the issue of shares of each particular series, the Board of Directors is hereby expressly authorized and empowered to fix the number of shares constituting such series and to fix the relative rights and preferences of the shares of the series so established to the full extent allowable by law except as otherwise provided herein and except insofar as such rights and preferences are fixed herein. Such authorization in the Board of Directors shall expressly include the authority to fix and determine the relative rights and preferences of such shares in the following respects: (a) The rate of dividend; (b) Whether shares can be redeemed or called and, if so, the redemption or call price and terms and conditions of redemption or call; (c) The amount payable upon shares in the event of voluntary and involuntary liquidation; (d) The purchase, retirement, or sinking fund provisions, if any, for the call, redemption, or purchase of shares; (e) The terms and conditions, if any, on which shares may be converted into Common Stock or any other securities; (f) Whether or not shares have voting rights, and the extent of such voting rights, if any, including the number of votes per share; and (g) Whether or not shares shall be cumulative, non-cumulative, or partially cumulative as to dividends and the dates from which any cumulative dividends are to accumulate. 2 All shares of the Preferred Stock shall be of equal rank and shall be identical, except in respect to the particulars that may be fixed by the Board of Directors as hereinabove provided in this Article IV and which may vary among the series. 2. The holders of Preferred Stock are entitled to receive, when, as, and if declared by the Board of Directors, but only from funds legally available for the payment of dividends, cash dividends at the annual rate for each particular series as theretofore fixed and determined by the Board of Directors as hereinabove authorized, and to more; such dividends to be payable before any dividend on Common Stock shall be paid or set apart for payment. 3. In the event of any dissolution, liquidation, or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of each series of Preferred Stock shall be entitled to receive, out of the net assets of the Corporation, an amount in cash for each share equal to the amount fixed and determined by the Board of Directors in any Certificate of Designation providing for the issue of any particular series of Preferred Stock, plus an amount equal to any dividends payable to such holder which are then unpaid, either under the provisions of the Certificate of Designation adopted by the Board of Directors providing for the issue of such series of Preferred Stock or by declaration of the Board of Directors, on each such share up to the date fixed for distribution, and no more, before any distribution shall be made to the holders of Common Stock. Neither the merger or consolidation of the Corporation, nor the sale, lease, or conveyance of all or a part of its assets shall be deemed to be a dissolution, liquidation, or winding up of the affairs of the Corporation unless otherwise stated by the Board of Directors with respect to such series. B. COMMON STOCK 1. Whenever dividends upon the Preferred Stock at the time outstanding shall have been paid in full for all past dividend periods or declared and set apart for payment, the holders of the Common Stock shall be entitled to receive dividends when, as, and if declared by the Board of Directors out of funds legally available therefor. 2. In the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, either voluntary or involuntary, distributions to the stockholders of the Corporation shall be made in the following manner: if any Preferred Stock is then outstanding and if payment has been made to the holders of the such Preferred Stock of the full amount to which they shall be entitled then the holders of the Common Stock shall be entitled to share in all remaining assets of the Corporation available for distribution to its stockholders on a share for share basis. 3. Each holder of Common Stock shall be entitled to vote on all matters and shall be entitled to one vote for each share of Common Stock standing in such holder's name on the books of the Corporation. 3 ARTICLE V Except as provided elsewhere in this Certificate of Incorporation, the preemptive rights of any shareholder of the Corporation to acquire additional, unissued, or treasury shares of the Corporation, or securities of the Corporation convertible into or carrying a right to subscribe to or acquire shares of the Corporation, is hereby denied; provided, however, that nothing herein shall preclude the Corporation from granting preemptive rights by contract or agreement to any person, corporation, or other entity. ARTICLE VI Cumulative voting by the shareholders of the Corporation at any election of directors of the Corporation is hereby prohibited. ARTICLE VII The street address of the Corporation's registered office is . ARTICLE VIII 1. Number. The number of directors of the Corporation may be fixed by the Bylaws. 2. Powers. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: (a) To make, alter, or repeal the Bylaws of the Corporation; (b) To authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation; (c) To set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created; and (d) By a majority of the whole Board of Directors, to designate one or more committees, each committee to office for a term expiring at the annual meeting of stockholders held in the year following the year of their election. 3. Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies of the Board of Directors resulting from death, resignation, disqualification, removal, or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding 4 sentence shall hold office for the remainder of the full term and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 4. Removal. Any director may be removed from office for cause by the affirmative vote of the holders of two-thirds of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. 5. Amendment or Repeal. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least two-thirds of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with, or repeal Sections 3, 4, or 5 of this Article VIII. ARTICLE IX 1. Location of Meetings; Books and Records; Use of Ballots in the Elections of Directors. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to applicable law) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. Elections of Directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. 2. Actions by Shareholders; Special Meetings: Amendment. Any action required or permitted to be taken by the stockholders of the Corporation must be affected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Special meetings of stockholders of the Corporation may be called only by the Chairman of the Board of Directors, the President, or the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least two-thirds of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with, or repeal this Section 2 of this Article IX. ARTICLE X To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages for an act or omission in the director's capacity as a director. 5 ARTICLE XI 1. Right to Indemnification. Each person who was or is made a party to or is threatened to be made a party to or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability, and loss (including attorney's fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the indemnitee's heirs, executors, and administrators; provided, however, that, except as provided in section 3 hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the board of directors of the Corporation. 2. Right to Advancement of Expenses. The right to indemnification conferred in section 1 of this Article XI shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article XI or otherwise. 3. Right of Indemnitee to Bring Suit. The rights to indemnification and to the advancement of expenses conferred in sections 1 and 2 of this Section shall be contract rights. If a claim under sections 1 or 2 of this Article XI is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the 6 unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled also to be paid the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expense hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the Corporation. 4. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article XI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this Corporation's certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested, directors, or otherwise. 5. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Delaware General Law. ARTICLE XII The election of directors need not be by written ballot. ARTICLE XIII The Board of Directors shall have power to adopt, amend, and repeal the Bylaws of the Corporation. Any Bylaws adopted by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Certificate of Incorporation to the contrary, provisions of the Bylaws 7 of the Corporation regulating the number, qualification, and election of directors, newly created directorships and vacancies, removal of directors and election of directors shall not be amended or repealed and no provision inconsistent with provisions regulating such matters in the then existing Bylaws shall be adopted without the affirmative vote of the holders of at least two-thirds of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least two-thirds of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with, or repeal this Article XIII. ARTICLE XIV This Certificate of Incorporation may be amended from time to time as provided in the Delaware General Corporation Law, as amended from time to time. IN WITNESS WHEREOF, Securacom, Incorporated has caused this certificate to be signed by its President, who hereby acknowledges under penalty of perjury that the facts herein stated are true and that this certificate is the act and deed of the Corporation, this day of , 1997. SECURACOM, INCORPORATED By: Name: Title: 8 EX-3.2 5 BY-LAWS OF SECURACOM BYLAWS OF SECURACOM INCORPORATED ARTICLE 1 OFFICES SECTION 1.1 Registered Office. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, and the name of its registered agent shall be . SECTION 1.2 Places of Business. The Corporation may have offices at such places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS SECTION 2.1 Place of Meeting. All meetings of stockholders for the election of directors shall be held at the principal business office of the Corporation or at such other place, either within or without the State of Delaware, as shall be designated from time to time by the caller of the meeting and stated in the notice of the meeting. SECTION 2.2 Annual Meeting. The annual meeting of stockholders shall be held at such date and time as shall be designated by the Board of Directors and stated in the notice of the meeting. SECTION 2.3 Voting List. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of such meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Failure to comply with this Section shall not affect the validity of any action taken at such meeting. SECTION 2.4 Special Meetings. Special meetings of stockholders of the Corporation may be called only by (i) the Chairman, (ii) the President or (iii) the Board of Directors pursuant to a -1- resolution approved by a majority of the entire Board of Directors. SECTION 2.5 Notice of Meeting. Written or printed notice of the annual, and each special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, not less than ten (10) nor more than sixty (60) days before the meeting. Such further or earlier notice shall be given as may be required by law. A stockholder's attendance at a meeting shall constitute a waiver of notice by such stockholder, unless such attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or called or convened as herein required. In addition, a stockholder may waive notice of a meeting in writing signed by him as provided in Section 5.2 hereof. SECTION 2.6 Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice (other than a request for inclusion of a proposal in the Corporation's proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934) must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors. SECTION 2.7 Quorum. The holders of a majority of the voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business except as -2- otherwise provided by statute or by the Certificate of Incorporation. Notwithstanding the other provisions of the Certificate of Incorporation or these bylaws, the holders of a majority of the voting power of the shares of capital stock entitled to vote thereat, present in person or represented by proxy, whether or not a quorum is present, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 2.8 Voting. When a quorum is present at any meeting of the stockholders, the vote of the holders of a majority of the voting power of the stock having voting rights present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes, of the Certificate of Incorporation or of these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder, bearing a date not more than three years prior to voting, unless such instrument provides for a longer period, and filed with the Secretary of the Corporation before, or at the time of, the meeting. If such instrument shall designate two (2) or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one (1) be present, then such powers may be exercised by that one (1); or, if any even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of the same portion of the shares as he is of the proxies representing such shares. SECTION 2.9 Voting of Stock of Certain Holders. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws of such Corporation may prescribe, or in the absence of such provision, as the Board of Directors of such Corporation may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares standing in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the Corporation, he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, on his proxy, may represent the stock and vote thereon. SECTION 2.10 Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares. -3- SECTION 2.11 Fixing Record Date. The Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date for payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change, or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, any such meeting and any adjournment thereof, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 2.12 Balloting. Upon the demand of any stockholder, the vote upon any question before the meeting shall be by ballot. At each meeting inspectors of election may be appointed by the presiding officer of the meeting, and at any meeting for the election of directors, inspectors shall be so appointed on the demand of any stockholder present or represented by proxy and entitled to vote at the election of Directors. No director or candidate for the office of director shall be appointed as such inspector. The number of votes cast by shares in the election of directors shall be recorded in the minutes. SECTION 2.13 Record of Stockholders. The Corporation shall keep at its principal business office, or the office of its transfer agents or registrars, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each. ARTICLE 3 BOARD OF DIRECTORS SECTION 3.1 Powers. The business and affairs of the Corporation shall be managed by the Corporation's board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders. SECTION 3.2 Number, Qualification and Term. The number of directors which shall constitute the whole Board Shall be fixed and determined from time to time by the Board of Directors and shall be set forth in the notice of any meeting of stockholders held for the purpose of electing directors. At each annual meeting of stockholders, Directors shall be elected to hold office until the next succeeding annual meeting. Each Director shall hold office until the expiration of his or her term and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. The number of directors may be decreased from time to time; however, no such decrease shall have the effect of shortening the term of any incumbent director. SECTION 3.3 Notice of Stockholder Nominees. Only persons who are nominated in accordance with the procedures set forth in this Section shall be eligible for election as Directors. -4- Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (b) as to the Stockholder giving the notice (i) the name and record address of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth in this Section. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3.4 Vacancies, Additional Directors and Removal From Office. If any vacancy occurs in any position on the Board of Directors caused by the death, resignation, retirement, disqualification or removal from office of such director, or otherwise, or if any new directorship is created, a majority of the directors then in office, though less than a quorum, or a sole remaining director, may chose a successor to fill the newly created directorship; and a director so chosen shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until his successor shall be duly elected and shall qualify, unless sooner displaced. Any director may be removed for cause at any duly constituted special meeting of stockholders duly called and held for such purpose by the affirmative vote of two-thirds of the voting power of the issued and outstanding capital stock of the Corporation. This section may not be amended except upon the affirmative vote of stockholders holding at least two-thirds of the voting power of the issued and outstanding capital stock of the Corporation. SECTION 3.5 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and places as may be designated from time to time as may be determined by the Board of Directors. -5- SECTION 3.6 Special Meeting. A special meeting of the Board of Directors may be called by the Chairman of the Board or by the President and shall be called by the Secretary on the written request of any two directors. The Chairman or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting. SECTION 3.7 Notice of Special Meetings. Written notice of special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours prior to the time of such meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the purpose of objecting to the transaction or any business because the meeting is not lawfully called or convened. Except as may be otherwise provided by law, the Certificate of Incorporation or these bylaws neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given of any proposed amendment to the bylaws if it is to be adopted at any special meeting. SECTION 3.8 Quorum. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Certificate of Incorporation or these bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.9 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article IV of these bylaws, may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 3.10 Telephonic Meetings. Unless otherwise restricted by law, the Certificate of Incorporation, or these Bylaws, members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting. SECTION 3.11 Compensation of Directors. The Board of Directors shall have authority to determine, from time to time, the amount of compensation, if any, which shall be paid to its members for their services as Directors and as members of committees of the Board of Directors. The Board of Directors shall also have power in its discretion to provide for and to pay to Directors rendering services to the Corporation not ordinarily rendered by Directors as such, special -6- compensation appropriate to the value of such services as determined by the Board of Directors from time to time. Nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE 4 COMMITTEE OF DIRECTORS SECTION 4.1 Designation, Powers and Name. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one (1) or more committees, including, if they shall so determine, an Executive Committee, each such committee to consist of two (2) or more of the directors of the Corporation. The committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution. The committee may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in no event shall any such committee have any power or authority in reference to (i) amending the Certificate of Incorporation, (ii) adopting an agreement of merger or consolidation, (iii) recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets, (iv) recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, (v) amending the bylaws of the Corporation, or (vi) unless specifically so authorized by resolution passed by a majority of the whole Board of Directors, declaring a dividend or authorizing the issuance of stock. The Board of Directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any member of such committee or committees, any other member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names and such limitations of authority as may be determined from time to time by resolution adopted by the Board of Directors. SECTION 4.2 Minutes. Each committee of the Board of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required except that the minutes of the Executive Committee shall be reported to the Board of Directors on a regular basis. SECTION 4.3 Compensation. Members of special or standing committees may be allowed compensation for attending committee meetings, if the Board of Directors shall so determine. ARTICLE 5 NOTICE SECTION 5.1. Methods of Giving Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these bylaws, notice is required to be given to any director, member of any committee or stockholder, such notice shall be in writing and delivered personally or mailed to such director, member or stockholder; provided that in the case of a director or a -7- member of any committee such notice may be given orally or by telephone or telegram. If mailed, notice to a director, member of a committee or stockholder shall be deemed to be given when deposited in the United States mail first class in a sealed envelope, with postage thereon prepaid, addressed, in the case of a stockholder, to the stockholder at the stockholder's address as it appears on the records of the Corporation or, in the case of a director or a member of a committee, to such person at his business address. If sent by telegram, notice to a director or member of a committee shall be deemed to be given when the telegram, so addressed, is delivered to the telegraph company. SECTION 5.2 Written Waiver. Whenever any notice is required to be given under the provisions of the statutes, the Certificate of Incorporation or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE 6 OFFICERS SECTION 6.1 Officers. The Corporation shall have a President and a Secretary and such other officers and assistant officers as the board may deem desirable to conduct the affairs of the Corporation. In the event there is a Chairman of the Board, that person shall ipso facto be President of the Corporation until and unless a person is elected President. Any two or more offices may be held by the same person. No officer need be a Stockholder or a Director. SECTION 6.2 Powers and Duties of Officers. The officers of the Corporation shall have the powers and duties generally ascribed to the respective offices, and such additional authority or duty as may from time to time be established by the Board of Directors. SECTION 6.3 Removal and Resignation. Any officer appointed by the Board of Directors may be removed by the Board of Directors whenever, in the judgment of the Board of Directors, the best interests of the Corporation will be served thereby. Any officer may resign at any time by giving written notice to the Corporation. Any such resignation shall take effect at the date of receipt of such notice or at a later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6.4 Term and Vacancies. The officers of the Corporation shall hold office until their successors are elected or appointed, or until their death, resignation, or removal from office. Any vacancy occurring in any office of the Corporation by death, resignation, removal, or otherwise, may be filled by the Board of Directors. SECTION 6.5 Compensation. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. The Board of Directors shall have the power to enter into contracts for the employment and compensation of officers on such terms as the Board of Directors deems advisable. No officer shall be disqualified from receiving a salary or other compensation by reason -8- of the fact that he or she is also a Director of the Corporation. ARTICLE 7 CONTRACTS, CHECKS AND DEPOSITS SECTION 7.1 Contracts. The Board of Directors may authorize any officer, officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 7.2 Checks, Etc. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as shall be determined by the Board of Directors. SECTION 7.3 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. ARTICLE 8 CERTIFICATES OF STOCK SECTION 8.1 Issuance. Each stockholder of this Corporation shall be entitled to a certificate or certificates showing the number of shares of stock registered in his name on the books of the Corporation. The certificates shall be in such form or forms as comply with the requirements of law and the Certificate of Incorporation and as the Board of Directors shall approve. The certificates shall be issued in numerical order and shall be entered in the books of the Corporation as they are issued. Such certificates shall exhibit the holder's name and number of shares and shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. If any certificate is countersigned (1) by a transfer agent other than the Corporation or any employee of the Corporation, or (2) by a registrar other than the Corporation or any employee of the Corporation, any other signature on the certificate may be a facsimile. In the event any officer or officers who have signed or whose facsimile signature or signatures have been placed upon such certificate shall have ceased to be such officer or officers before such certificate is issued, it may be adopted and issued by the Corporation with the same effect as if he or they had not ceased to be such officer or officers as of the date of its issuance, and issuance and delivery thereof by the Corporation shall constitute adoption thereof by the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class of stock; provided that, except as otherwise provided by statute, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or Series of stock, a statement that the Corporation will furnish to each stockholder who so requests the designations, preferences and relative, participating, optional or -9- other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new one may be issued therefor upon such terms and with such indemnity, if any, to the Corporation as the Board of Directors may prescribe. Certificates shall not be issued representing fractional shares of stock. SECTION 8.2 Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or both. SECTION 8.3 Transfers. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney and filed with the Secretary of the Corporation or the Transfer Agent. SECTION 8.4 Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. SECTION 8.5 Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents or registrars of the shares, or both, and may require all stock certificates to bear the signature of a transfer agent or registrar or both. ARTICLE 9 DIVIDENDS SECTION 9.1 Declaration. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation. -10- SECTION 9.2 Reserve. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE 10 MISCELLANEOUS SECTION 10.1 Seal. The corporate seal, if any, shall have inscribed thereon the name of the Corporation, and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 10.2 Books. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at the Chief Executive Office of the Corporation, or at such other place or places as may be designated from time to time by the Board of Directors. SECTION 10.3 Endorsement of Stock Certificates. Subject to the specific directions of the Board, any share or shares of stock issued by any other corporation and owned by the Corporation (including reacquired shares of the Corporation) may, for sale or transfer, be endorsed in the name of the Corporation by the President or any Vice-President, and attested or witnessed by the Secretary or any Assistant Secretary either with or without affixing the Corporation seal. SECTION 10.4 Voting of Shares Owned By the Corporation. Unless otherwise ordered by the Board of Directors, the President, the Secretary or the Treasurer, or any of them, shall have full power and authority on behalf of the Corporation to attend, to vote and to grant proxies to be used at any meeting of stockholders of such other corporation in which the Corporation may hold stock. The Board of Directors may confer like powers upon. any other person or persons. SECTION 10.5 Fiscal Year; Accounting Election. The fiscal year of and the method of accounting for the Corporation shall be as the Board of Directors shall at any time determine. SECTION 10.6 Indemnification of Officers, Directors and Agents. (a) Right to Indemnification. Each person who was or is made a party to or is threatened to be made a party to or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such -11- proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability, and loss (including attorney's fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the indemnitee's heirs, executors, and administrators; provided, however, that, except as provided in paragraph (c) hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the board of directors of the Corporation. (b) Right to Advancement of Expenses. The right to indemnification conferred in paragraph (a) of this Section shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. (c) Right of Indemnitee to Bring Suit. The rights to indemnification and to the advancement of expenses conferred in paragraphs (a) and (b) of this Section shall be contract rights. If a claim under paragraph (a) or (b) of this Section is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled also to be paid the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation -12- Law. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expense hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation. (d) Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this Corporation's certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested, directors, or otherwise. (e) Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Delaware General Law. Section 10.7 Invalid Provisions. If any provision of these bylaws is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable; these bylaws shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof; and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part of these bylaws a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. Section 10.8 Headings. The headings used in these bylaws are for reference purposes only and do not affect in any way the meaning or interpretation of these bylaws. -13- ARTICLE 11 AMENDMENT Except as otherwise provided herein, these Bylaws may be altered, amended or repealed at any regular meeting of the Board of Directors without prior notice or at any special meeting of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting, or by the affirmative vote of two-thirds of the voting power of the issued and outstanding capital stock voting as a single class. -14- EX-4 6 FORM OF RIGHTS AGREEMENT Draft of 5/21/97 RIGHTS AGREEMENT Agreement, dated as of ______________, 1997, between Securacom, Incorporated, a Delaware corporation (the "Company"), and American Securities Transfer & Trust, Inc. (the "Rights Agent"). The Board of Directors of the Company has authorized and declared a dividend of one preferred share purchase right (a "Right") for each Common Share (as hereinafter defined) of the Company outstanding on the close of business on the date the Company completes its initial public offering of Common Stock, and to persons who were contractually obligated on such date to receive Common Shares after such date (the "Record Date"), each Right representing the right to purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon the terms and subject to the conditions herein set forth, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as such terms are hereinafter defined). Accordingly, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall become, at any time after the date of this Rights Agreement, the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the Common Shares of the Company then outstanding, but shall not include the Company, any Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as the result of an acquisition of Common Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate number of shares beneficially owned by such Person to 15% or more of the Common Shares of the Company then outstanding; provided, however, that if a Person shall become the Beneficial Owner of 15% or more of the Common Shares of the Company then outstanding by reason of share purchases by the Company and shall, after such share purchases by the Company, become the Beneficial Owner of any additional Common Shares of the Company, then such Person shall be deemed to be an "Acquiring Person." Notwithstanding the foregoing, if the Board of Directors of the Company determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of - 1 - this paragraph (a), has become such inadvertently, and such Person divests as promptly as practicable a sufficient number of Common Shares so that such Person would no longer be an Acquiring Person, as defined pursuant to the foregoing provisions of this paragraph (a), then such Person shall not be deemed to be an "Acquiring Person" for purposes of this Agreement. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended and as in effect on the date of this Agreement (the "Exchange Act"). (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights subject hereto), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial owner of, or to beneficially own, any security if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report or schedule); or (iii) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with - 2 - respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company. Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. (d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in New York are authorized or obligated by law or executive order to close. (e) "Close of business" on any given date shall mean 5:00 p.m., New York Time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 p.m., New York Time, on the next succeeding Business Day. (f) "Common Shares" when used with reference to the Company shall mean the shares of Common Stock, par value $0.01 per share, of the Company. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. (g) "Distribution Date" shall have the meaning set forth in Section 3 hereof. (h) "Final Expiration Date" shall have the meaning set forth in Section 7 hereof. (i) "Person" shall mean any individual, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. (j) "Preferred Shares" shall mean shares of Special Preferred Stock, par value $0.01 per share, of the Company having the rights, preferences and limitations set forth in Article IV of the Certificate of Incorporation of the Company, as amended by the Certificate of Designations attached to this Agreement as Exhibit A. (k) "Redemption Date" shall have the meaning set forth in Section 7 hereof. (l) "Shares Acquisition Date" shall mean the first date of public announcement (which, for purposes of this definition, shall include, without limitation, - 3 - a report or schedule filed pursuant to Section 13(d) under the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (m) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the tenth day after the Shares Acquisition Date (or, if the tenth date after the Share Acquisition Date occurs before the Record Date, the Record Date), or (ii) the tenth business day (or such later date as may be determined by action of the Board of Directors prior to such time as any Person becomes an Acquiring Person) after the date of the commencement by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) of, or of the first public announcement of the intention of any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding Common Shares for or pursuant to the terms of any such plan) to commence, a tender or exchange offer the consummation of which would result in any Person becoming the Beneficial Owner of Common Shares aggregating 15% or more of the then outstanding Common Shares (including any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date") (x) the Rights will be evidenced (subject to the provisions of Section 3(b) hereof) by the certificates for Common Shares registered in the names of the holders thereof (which certificates shall also be deemed to be Right Certificates) and not by separate Right Certificates, and (y) the right to receive Right Certificates will be transferable only in connection with the transfer of Common Shares. As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights Agent will, if requested, send) by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a Right certificate, in substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common Share so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) Each record holder of Common Shares as of the close of business on the Record Date, at the address of such holder shown on the records of the Company, will receive an Information Statement that contains a summary of the Rights substantially identical to the Summary of Rights to Purchase Preferred Shares in the form of Exhibit C hereto (the "Summary of Rights"). Until the Distribution Date (or the earlier of the Redemption Date or the Final - 4 - Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding on the Record Date shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (c) Certificates for Common Shares which become outstanding prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend: This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement, between Securacom, Incorporated and American Securities Transfer & Trust, Inc., dated as of _____, 1997 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive office of Securacom, Incorporated. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Securacom, Incorporated will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void. With respect to such certificates containing the foregoing legend, until the Distribution Date, the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender for transfer of any such certificate shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase Preferred Shares and of assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 22 hereof, the Right Certificates shall entitle the holders thereof to purchase such number of one one-thousandths of a Preferred Share as shall be set forth therein at the price per one one-thousandth of a Preferred Share set forth therein (the "Purchase Price"), but the number of such one one-thousandths of a Preferred Share and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President, any of its Vice Presidents, or its Treasurer, either manually or by facsimile signature, shall have affixed thereto the Company's seal or a facsimile thereof, and shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by the Rights Agent and shall not be valid for any purpose unless countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Agreement any such person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at its principal office, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates (other than Right Certificates representing Rights that have become void pursuant to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24 hereof) may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a Preferred Share as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate or Right Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the principal office of the Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. - 5 - Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for delivery to the registered holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the principal office of the Rights Agent, together with payment of the Purchase Price for each one one-thousandth of a Preferred Share as to which the Rights are exercised, at or prior to the earliest of (i) the close of business on _____________, 2007 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at which such Rights are exchanged as provided in Section 24 hereof. (b) The Purchase Price for each one one-thousandth of a Preferred Share purchasable pursuant to the exercise of a Right shall initially be $80.00, and shall be subject to adjustment from time to time as provided in Section 11 or 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof by certified check, cashier's check or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i)(A) requisition from any transfer agent of the Preferred Shares certificates for the number of Preferred Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) requisition from the depositary agent depositary receipts representing such number of one one-thousandths of a Preferred Share as are to be purchased (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company hereby directs the depositary agent to comply with such request, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, deliver such cash to or upon the order of the registered holder of such Right Certificate. - 6 - (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall he issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Preferred Shares. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the Preferred Shares (and, following the Distribution Date, Common Shares and/or other securities) issuable and deliverable upon the exercise of the Rights are listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the Distribution Date on which the consideration to be delivered by the Company upon exercise of the Rights has been determined in accordance with Section 11(a)(iii) hereof, a registration statement under the securities Act of 1933 (the "Act"), with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities and (B) the Final Expiration Date. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or "blue sky" laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed 90 days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the - 7 - suspension is no longer in effect. Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, or the exercise thereof shall not be permitted under applicable law, or a registration statement shall not have been declared effective. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Preferred Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates or depositary receipts for the Preferred Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or to deliver any certificates or depositary receipts for Preferred Shares upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's reasonable satisfaction that no such tax is due. Section 10. Preferred Shares Record Date. Each person in whose name any certificate for Preferred Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Preferred Shares transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions, or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights. The Purchase Price, the number of Preferred Shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller - 8 - number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Shares transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. (ii) Subject to Section 24 of this Agreement, in the event any Person becomes an Acquiring Person, each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable and dividing the product thereof by (y) 50% of the then current per share market price (the "Current Market Price") of the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the date of the occurrence of such event (such number of shares, the "Adjustment Shares"). In the event that any Person shall become an Acquiring Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights. From and after the occurrence of such event, any Rights that are or were acquired or beneficially owned by any Acquiring Person (or any Associate or Affiliate of such Acquiring Person) shall be void and any holder of such Rights shall thereafter have no right to exercise such Rights under any provision of this Agreement. No Right Certificate shall be issued pursuant to Section 3 that represents Rights beneficially owned by an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof; no Right Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Right Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be void pursuant to the preceding sentence shall be canceled. (iii) In the event that the number of the Common Shares that are authorized by the Company's certificate of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights is not sufficient to permit the exercise in full of - 9 - the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall, to the extent permitted by applicable law and regulation, (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (computed using the Current Market Price used to determine the number of Adjustment Shares) (the "Current Value") over (2) the Purchase Price (such excess is herein referred to as the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon the exercise of the Rights and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) the Common Shares or other equity securities of the Company (including, without limitation, preferred shares, or units of preferred shares, that the Board of Directors of the Company has deemed to have the same value as the Common Shares (such preferred shares are herein referred to as the "Common Share Equivalents")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within 30 days following the later of (x) the first occurrence of a Section 11(a)(ii) event and (y) the date on which the Company's right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, the Common Shares (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional Common Shares could be authorized for issuance upon exercise in full of the Rights, the 30 day period set forth above may be extended to the extent necessary, but not more than 90 days after the Section 11(a)(ii) Trigger Date, in order that the Company may seek shareholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Shares shall be the Current Market Price per Common Share on the Section (11)(a)(ii) Trigger Date and the value of any Common Share Equivalent shall be deemed to have the same value as the Common Shares on such date. (b) In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("Equivalent Preferred - 10 - Shares")) or securities convertible into Preferred Shares or Equivalent Preferred Shares at a price per Preferred Share or Equivalent Preferred Share (or having a conversion price per share, if a security convertible into Preferred Shares or Equivalent Preferred Shares) less than the then current per share market price of the Preferred Shares (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or Equivalent Preferred Shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or Equivalent Preferred Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible); provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company shall not be deemed outstanding for the purposes of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Shares on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; provided, however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company to be issued upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. - 11 - (d) (i) For the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 11(d)(I)) on any date shall be deemed to be the average of the daily closing prices per share of such security for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Security is determined during a period following the announcement by the issuer of such Security of (A) a dividend or distribution on such Security payable in shares of such Security or securities convertible into such shares, or (B) any subdivision, combination or reclassification of such Security and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the current per share market price shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Security is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Security is listed or admitted to trading or, if the Security is not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), or such other system then in use, or, if on any such date the Security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Security selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Security is listed or admitted to trading is open for the transaction of business or, if the Security is not listed or admitted to trading on any national securities exchange, a Business Day. (ii) For the purpose of any computation hereunder, the "current per share market price" of the Preferred Shares shall be determined in accordance with the method set forth in Section 11(d)(I). If the Preferred Shares are not publicly traded, the "current per share market price" of the Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Shares as determined pursuant to Section 11(d)(I) (appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof), multiplied by one thousand. If neither the Common Shares nor the Preferred Shares are publicly held or so listed or traded, "current per share market price" shall mean the fair value per Share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; provided, however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be - 12 - carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one one-millionth of a Preferred Share or one ten-thousandth of any other share or security as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If as a result of an adjustment made pursuant to Section 11(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Preferred Shares contained in paragraphs (a) through (c), inclusive, of this Section 11, and the provisions of Sections 7, 9, 10 and 13 hereof with respect to the Preferred Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(I), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a Preferred Share (calculated to the nearest one one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of one one-thousandths of a Preferred Share purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one one-millionth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be - 13 - at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(I), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a Preferred Share issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-thousandths of a Preferred Share which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-thousandth of the then par value, if any, of the Preferred Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Preferred Shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date of the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it, in its sole discretion, shall determine to be advisable in order that any consolidation or subdivision of the Preferred Shares, issuance wholly for cash of any Preferred Shares at less than the current market price, issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or issuance of rights, options or warrants referred to hereinabove in Section 11(b), hereafter - 14 - made by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) In the event that at any time after the date of this Agreement and prior to the Distribution Date, the Company shall (i) declare or pay any dividend on the Common Shares payable in Common Shares or (ii) effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then in any such case (A) the number of one one-thousandths of a Preferred Share purchasable after such event upon proper exercise of each Right shall be determined by multiplying the number of one one-thousandths of a Preferred Share so purchasable immediately prior to such event by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) each Common Share outstanding immediately after such event shall have issued with respect to it that number of Rights which each Common Share outstanding immediately prior to such event had issued with respect to it. The adjustments provided for in this Section 11(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision, combination or consolidation is effected. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof, the Company shall promptly (a) prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) file with the Rights Agent and with each transfer agent for the Common Shares or the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. In the event, directly or indirectly, at any time on or after the date that any Person shall become an Acquiring Person, (a) the Company shall consolidate with, or merge with and into, any other Person, (b) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person other than the Company or one or more of its wholly-owned Subsidiaries, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation), not subject to any liens, encumbrances, rights of first - 15 - refusal or other adverse claims, as shall equal the result obtained by (A) multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable and dividing that product by (B) 50% of the then current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company," as used in this Agreement, shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. - 16 - (b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-thousandth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it; provided, that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares represented by such depositary receipts. In lieu of fractional Preferred Shares that are not integral multiples of one one-thousandth of a Preferred Share, the Company shall pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Preferred Share. For the purposes of this Section 14(b), the current market value of a Preferred Share shall be the closing price of a Preferred Share (as determined pursuant to the second sentence of Section 11(d)(I) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Right expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right (except as provided in this Section 14). Section 15. Rights of Action. All rights of action in respect of this Agreement, except the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of the obligations of any Person subject to, this Agreement. Section 16. Agreement of Right Holders. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares; - 17 - (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office of the Rights Agent, duly endorsed or accompanied by a proper instrument of transfer; (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however, the Company shall use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Preferred Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 25 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent, and its officers, agents and directors for, and to hold each of them harmless against, any loss, liability, or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent or such indemnified party in connection with the acceptance or administration of this Agreement or the - 18 - exercise or performance of its duties hereunder, including the costs and expenses of defending against any claim of liability in the premises. The Rights Agent shall be protected by the Company and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement or the exercise or performance of its duties hereunder in reliance upon any Right Certificate or certificate for the Preferred Shares or Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advice of counsel as set forth in Section 20 hereof. Notwithstanding anything in this Agreement to the contrary, in no event shall the Rights Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage and regardless of the form of the action. Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the stock transfer or corporate trust powers of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; provided, that such corporation would he eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. - 19 - Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations expressly imposed by this Agreement (and no implied duties or obligations shall be read into this Agreement against the Rights Agent) upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company) and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person, Affiliate or Associate and the determination of current per share market price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any person believed in good faith by the Rights Agent to be one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder to the Company and any other Person only for consequential damages arising from its own gross negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates (except its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent is serving as an administrative agent and, accordingly, shall not be under any responsibility in respect of the validity of any provision of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Section 3, 11, 13, 23 or 24 hereof, or the ascertaining of the existence of facts that - 20 - would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice to the Rights Agent that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares to be issued pursuant to this Agreement or any Right Certificate or as to whether any Preferred Shares will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any person believed in good faith by the Rights Agent to be one of the Chief Executive Officer, the President, any Vice President, the Secretary, any Assistant Secretary, or the Treasurer of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for those instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent under this Agreement and the date on or after which such action shall be taken or such omission shall be effective. The Rights Agent shall not be liable for any action taken by, or omission of, the Rights Agent in accordance with a proposal included in any such application on or after the date specified in such application (which date shall not be less than ten Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking any such action (or the effective date in the case of an omission), the Rights Agent shall have received written instructions in response to such application subject to the proposed action or omission and/or specifying the action to be taken or omitted. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. - 21 - (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares or Preferred Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, (a) shall be a corporation organized and doing business under the laws of the United States or of the State of New York (or of any other state of the United States so long as such corporation is authorized to do business as a banking institution in the State of New York), in good standing, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and (b) which, together with its parent company, has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares or Preferred Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors - 22 - to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. Section 23. Redemption. (a) The Board of Directors of the Company may, at its option, at any time prior to such time as any Person becomes an Acquiring Person, redeem all but not less than all the then outstanding Rights at a redemption price of $.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"). The redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights pursuant to paragraph (a) of this Section 23, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any such redemption; provided, however, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after such action of the Board of Directors ordering the redemption of the Rights, the Company shall mail a notice of redemption to all the holders of the then outstanding Rights at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23 or in Section 24 hereof, and other than in connection with the purchase of Common Shares prior to the Distribution Date. Section 24. Exchange. (a) The Board of Directors of the Company may, at its option, at any time after any Person becomes an Acquiring Person, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one Common Share per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such exchange ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any entity holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Common Shares then outstanding. - 23 - (b) Immediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive that number of Common Shares equal to the number of such Rights held by such holder multiplied by the Exchange Ratio. The Company shall promptly give public notice of any such exchange; provided, however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the Common Shares for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights. (c) In the event that there shall not be sufficient Common Shares issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 24, the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exchange of the Rights. In the event the Company shall, after good faith effort, be unable to take all such action as may be necessary to authorize such additional Common Shares, the Company shall substitute, for each Common share that would otherwise be issuable upon exchange of a Right, a number of Preferred Shares or fraction thereof such that the current per share market price of one Preferred Share multiplied by such number or fraction is equal to the current per share market price of one Common Share as of the date of issuance of such Preferred Shares or fraction thereof. (d) The Company shall not be required to issue fractions of Common Shares or to distribute certificates which evidence fractional Common Shares. In lieu of such fractional Common Shares, the Company shall pay to the registered holders of the Right Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Common Share. For the purposes of this paragraph (d), the current market value of a whole Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of exchange pursuant to this Section 24. Section 25. Notice of Certain Events. (a) In case the Company shall propose (i) to pay any dividend payable in stock of any class to the holders of its Preferred Shares or to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options, (iii) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (iv) to effect - 24 - any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the liquidation, dissolution or winding up of the Company, or (vi) to declare or pay any dividend on the Common Shares payable in Common Shares or to effect a subdivision, combination or consolidation of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares), then, in each such case, the Company shall give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, or distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares and/or Preferred Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (i) or (ii) above at least 10 days prior to the record date for determining holders of the Preferred Shares for purposes of such action, and in the case of any such other action, at least 10 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares and/or Preferred Shares, whichever shall be the earlier. (b) In case the event set forth in Section 11(a)(ii) hereof shall occur, then the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, in accordance with Section 26 hereof, a notice of the occurrence of such event, which notice shall describe such event and the consequences of such event to holders of Rights under Section 11(a)(ii) hereof. Section 26. Notices. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: American Securities Transfer & Trust, Inc. Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Securacom, Incorporated 50 Tice Boulevard Woodcliff Lake, New Jersey 07675 Attention: Corporate Secretary - 25 - Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 27. Supplements and Amendments. The Company may from time to time supplement or amend this Agreement without the approval of any holders of Right Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, or to make any other provisions with respect to the Rights which the Company may deem necessary or desirable, any such supplement or amendment to be evidenced by a writing signed by the Company and the Rights Agent; provided, however, that from and after such time as any Person becomes an Acquiring Person, this Agreement shall not be amended in any manner which would adversely affect the interests of the holders of Rights (other than an Acquiring Person or an Affiliate or Associate of such person). Without limiting the foregoing, the Company may at any time prior to such time as any Person becomes an Acquiring Person amend this Agreement to lower the thresholds in Sections 1(a) and 3 hereof to not less than the greater of (i) the sum of .001% and the largest percentage of the outstanding Common Shares then known by the Company to be beneficially owned by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any Subsidiary of the Company, or any entity holding Common Shares for or pursuant to the terms of any such plan) and (ii) 10%. Notwithstanding anything in this Agreement to the contrary, no supplement or amendment that changes the rights and duties of the Rights Agent under this Agreement shall be effective without the consent of the Rights Agent. Section 28. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 29. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares). Section 30. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 31. Governing Law. This Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and - 26 - for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 32. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 33. Descriptive Headings. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. Attest: SECURACOM, INCORPORATED By: By: Title: Title: [Rights Agent] By: Title: - 27 - EX-10.1 7 STOCK OPTION PLAN SECURACOM, INCORPORATED STOCK OPTION PLAN 1. PURPOSE This Stock Option Plan (the "Plan") for Securacom, Incorporated (the "Company") is intended to advance the interests of the Company by providing certain directors and employees of the Company and its subsidiaries, if any (the "Subsidiaries"), with additional incentive to promote the success of the Company and its Subsidiaries, to increase their proprietary interest in the Company, and to encourage them to remain in the Company's employ or in the employ of its Subsidiaries. 2. ADMINISTRATION OF THE PLAN 2.1 The Plan shall be administered by the Option Committee (the "Committee") of the Board of Directors of the Company (the "Board"). The Committee shall consist of two or more members of the Board, each of whom shall be appointed by and shall serve at the pleasure of the Board. The Board shall have the sole continuing authority to appoint members of the Committee both in substitution for members previously appointed and to fill vacancies however caused. All members of the Committee shall be "Non-Employee Directors" as such term is defined in Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as amended, or any successor provision. Each grant of options under the Plan shall be approved by the Board or the Committee. 2.2 The Committee shall have the authority to grant (i) stock options that constitute incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "IRC") and (ii) stock options that do not constitute Incentive Stock Options within the meaning of Section 422 of the IRC ("Nonqualified Options"). Incentive Stock Options and Nonqualified Options are together referred to as "Options" herein. 2.3 Subject to the provisions of this Plan, the Committee shall have plenary authority, in its discretion, to: (i) determine the employees and other persons (from the class of employees and other persons eligible under Section 4 to receive Options under this Plan) to whom Options shall be granted; (ii) determine the time or times at which Options shall be granted; (iii) determine the type of Options granted and their terms; and (iv) interpret the Plan and to prescribe, amend, and rescind rules and regulations relating to it. 2.4 The Committee shall hold its meetings at such times and places as it shall deem advisable. All actions of the Committee shall be taken by agreement of a majority of the whole Committee. Any action taken by the Committee through a written instrument signed by a majority of its members shall be as effective as though taken at a meeting duly called and held. The Committee may appoint a secretary to keep minutes 723/OPTION.PLN 1 of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. 3. SHARES OF STOCK SUBJECT TO THE PLAN The Committee shall have authority to grant Options under this Plan for the purchase of an aggregate of 500,000 shares of the Common Stock of the Company, par value $0.01 per share (the "Common Stock"). Such shares may be authorized but unissued shares of Common Stock, or shares of Common Stock that have been reacquired by the Company. In the event of a lapse, expiration, termination, or cancellation of any Option granted hereunder without the issuance of shares or payment of cash, the shares subject to or reserved for such Option may again be used to grant additional Options; provided, that in no event may the number of shares subject to Options issued hereunder exceed the total number of shares reserved for issuance. The Company shall reserve and keep available for issuance that number of shares of Common Stock equal to the number of shares of Common Stock subject to outstanding Options hereunder. 4. PERSONS ELIGIBLE TO RECEIVE OPTIONS 4.1 The persons who shall be eligible to receive Options granted hereunder shall be: (i) directors and employees of the Company and/or its Subsidiaries; provided, however, that the persons who shall be eligible to receive options granted hereunder intended to be Incentive Stock Options shall be employees of the Company and/or its Subsidiaries, as that term is defined in Section 424 of the IRC; and provided, further, that no employee shall receive options to purchase Common Stock hereunder or under any plan of the Company or its Subsidiaries intended to be Incentive Stock Options to the extent that the stock subject to such options exercisable for the first time in any year has a Market Value (determined at the time the options are granted) in excess of $100,000; and (ii) consultants or advisors of the Company and/or its Subsidiaries. 5. AWARDS OF OPTIONS TO DIRECTORS Each newly elected or appointed Director shall be granted Options to purchase 15,000 shares of stock upon initial election or appointment to the Board. Following such initial election or appointment, Directors who continue to serve in such capacity shall be granted Options to purchase 15,000 shares of stock on an annual basis following the annual stockholders meeting. The exercise price per share of all such Options shall be the Market Value of the Common Stock on the date of grant, as defined in Section 7.2. All such Options shall have a term of four years and shall become exercisable in three equal annual installments beginning on the first anniversary of the date of grant. 723/OPTION.PLN 2 6. OPTIONS 6.1 Each option granted hereunder shall be evidenced by an Option Certificate that shall state the number of shares of stock to which it relates. 6.2 Each Option Certificate shall contain such provisions as may be required by the terms hereof and such other provisions (including, without limitation, restrictions on the option and the Common Stock) as the Committee shall in its discretion impose. The Committee may vary the terms and provisions of individual Option Certificate on a case-by-case basis and shall not be required to make all Option Certificates uniform. 6.3 At the time each option is granted under this Plan, the Committee shall determine whether such option is to be designated an Incentive Stock Option. Options designated Incentive Stock Options shall conform to those provisions of this Plan specifically applicable to Incentive Stock Options, including, without limitation, the minimum option price specified in Section 7 and the maximum exercise period specified in Section 8.1. 7. OPTION PRICE 7.1 Other than the options issued to Directors described in Section 5 of this Plan, the option price of each option issued hereunder shall be determined by the Commit tee in its discretion at the time the option is granted, subject to the conditions of this Section 7. Options intended to be Incentive Stock Options shall have an option price per share equal to or greater than the Market Value of the Common Stock (as defined in Section 7.2) on the date such option is granted. If any option intended to be an Incentive Stock Option is granted to any employee holding stock possessing more than 10 percent of the total combined voting power of all classes of the capital stock of the Company, its parent (if any) or any of its Subsidiaries, the option price per share shall not be less than 110 percent of the Market Value of the Common Stock on the date the option is granted. Nonqualified Options shall have an option price per share not less than 85% of the Market Value of the Common Stock on the date such option is granted. 7.2 For purposes of this Plan, the term "Market Value" shall mean the closing price of the Common Stock on the Nasdaq National Market or such other exchange upon which the Common Stock might later be traded, on the date specified. 8. TERMS AND EXERCISE OF OPTIONS 8.1 Each option granted hereunder shall be exercisable only during a term commencing and ending (unless the option shall have terminated earlier under other provisions of this Plan) on dates to be fixed by the Committee, subject to the following further limitations: 723/OPTION.PLN 3 (i) with respect to any option intended to be an Incentive Stock Option, the date fixed by the Committee as the end of the option term must be a date not more than 10 years from the date the option was granted; (ii) subject to the provisions of Sections 9.3 and 9.4 hereof, any option intended to be an Incentive Stock Option may not be exercisable more than three months after the optionee ceases to be an employee of the Company or a Subsidiary; and (iii) with respect to any option intended to be an Incentive Stock Option that is granted to a person possessing more than 10 percent of the total combined voting power of all classes of the capital stock of the Com pany, its parent (if any) or any of its Subsidiaries, the date fixed by the Committee as the end of the option term must be a date not more than five years from the date the option was granted. The period of the option, once it is granted, may be reduced only as provided for in Section 9 in connection with the termination of employment, death, or disability of the optionee. 8.2 The Committee shall have authority to grant options exercisable in whole or in part at any time during their term, or exercisable in cumulative or non-cumulative installments, as may be determined by the Committee, provided that any option that is intended to be an Incentive Stock Option shall meet the requirements of Sections 8.1 and 4.1 hereof. 8.3 Unless otherwise provided herein or in the option agreement, an option may be exercised in whole or in part at any time during its term. The Committee may, in its discretion, provide that an option may not be exercised in whole or in part for any period or periods of time specified in the option agreement. The Committee may, in its discretion, include in any option granted hereunder, a condition that the optionee shall agree to remain in the employ of, and to render services to, the Company and/or a Subsidiary(ies) for a specified period of time following the date the option is granted. No such agreement shall impose upon the Company or any Subsidiary any obligation to employ the optionee for any period of time. 8.4 Options shall be exercised by delivering or mailing to the Committee: (i) a notice, in the form prescribed by the Committee, specifying the number of shares of Common Stock with respect to which the option is exercised; (ii) a certified bank check or money order payable to the Company, or shares of Common Stock, or any combination thereof, for the full option price in the case of Incentive Stock Options, and in an amount 723/OPTION.PLN 4 equal to the full option price plus any withholding tax required by law as determined by the Committee in the case of Nonqualified Options; and (iii) if the shares are to be issued pursuant to the exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), provided by Section 4(2) or any successor section of such Act, an "investment letter" in such form as may be dictated by the Committee. Shares of Common Stock delivered in full or partial payment of the option price shall be applied to the option price at their Market Value on the date received by the Committee. Any withholding tax required in connection with the exercise of Nonqualified Options must be paid by certified bank check or money order payable to the Company. 8.5 Upon receipt of such notice (and investment letter if applicable) and upon payment of the option price (and taxes if applicable), the Company shall promptly deliver to the optionee a certificate or certificates for the number of shares of Common Stock in respect of which the option was exercised, without charge to the optionee for issue or transfer tax. The stock certificate(s) may, at the request of the optionee, be issued in the name of such optionee and the name of another person as joint tenants with the right of survivorship, provided that any restrictions on such stock shall apply with equal force to such joint tenant. In the event that such shares are not registered under the Securities Act, such certificates shall bear the following legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURI TIES ACT OF 1933 AS AMENDED AND MAY NOT BE TRANSFERRED WITHOUT AN OPINION OF COUNSEL THAT SUCH TRANSFER MAY BE LAWFULLY EFFECTED IN THE ABSENCE OF SUCH REGISTRATION." 8.6 No optionee or legal representative, legatee, or distributee of such optionee, will be, or will be deemed to be, a holder of any shares of Common Stock subject to an option unless and until certificates for such shares are issued to such person under the terms of this Plan. No adjustment shall be made for dividends or other rights the record date of which is prior to the date such stock certificate is issued. 8.7 The Committee may, in its discretion, provide in the option agreement that the optionee may elect either of the following settlement methods as an alternative to payment in full of the option price for the number of shares of Common Stock in respect of which an option is exercised: (i) the right to receive from the Company cash in an amount equal to the excess of the Market Value of one share of Common Stock on the date of exercise over the option price times the number of shares with re spect to which the option is exercised; or (ii) the right to receive from the Company that number of whole shares of Common Stock having an aggregate Market Value on the date of 723/OPTION.PLN 5 exercise not greater than the cash amount calculated under subsection (i) of this Section 8.7. 8.8 The exercise of an option in any manner, including an exercise involving an election of an alternative settlement method with respect to an option, shall result in a decrease in the number of shares of Common Stock that thereafter may be available under the Plan by the number of shares as to which the option is exercised. 8.9 To the extent that the exercise of options by one of the alternative settlement methods provided for in Section 8.7 results in compensation income to the optionee, the Company will withhold from the amount due to the optionee any amount required for federal, state, and local taxes. If the settlement method set forth in subsection (ii) of Section 8.7 is selected and results in compensation income to the optionee, the optionee shall deliver to the Company a certified bank check or money order payable to the Company in an amount equal to any withholding tax required by law. 8.10 All options granted under this Plan shall be non-transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the IRC or the rules thereunder, and options may be exercised during the lifetime of the optionee only by the person to whom the option was granted. Except as permitted by the preceding sentence, no option granted under this Plan or any of the rights and privileges thereby conferred shall be transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), and no such option, right, or privilege shall be subject to execution, attachment, or similar process. Upon any attempt so to transfer, assign, pledge, hypothecate, or otherwise dispose of the option or of any right or privilege conferred thereby contrary to the provisions hereof, or upon the levy or any attachment or similar process upon such option, right, or privilege, the option and such rights and privileges shall immediately become null and void. 9. EFFECT OF TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY ON OPTIONS 9.1 If an optionee is an employee and ceases to be employed by the Company or a Subsidiary for any reason other than death, retirement on or after his Retirement Date (as defined in Section 9.2), or disability (as defined in Section 9.4), any options granted to such optionee hereunder to the extent not previously exercised shall be deemed canceled and terminated as of the date 90 days following the date such employment is terminated; provided, however, that the Committee may, subject to section 8.1(ii) hereof, extend the period of time during which options the optionee is entitled to exercise as of the date of termination may be exercised if, in its opinion, circumstances warrant such an extension. The transfer of an optionee from the employ of the Company to a Subsidiary or visa versa, or from one Subsidiary to another, shall not be deemed to constitute a termination of employment for purposes of this Section 9. The Committee shall determine in each case whether, in accordance with applicable laws, a leave of absence shall constitute a termination of employment. 723/OPTION.PLN 6 9.2 If an optionee is an employee and ceases to be employed by the Company or a Subsidiary by reason of the optionee's retirement on or after his Retirement Date, such optionee shall have the right, at any time within three months after the date such employment is terminated, to exercise any options held by him to the extent that he was entitled to exercise the options on the date of cessation of employment, but in no event shall any option be exercisable more than ten years from the date it was granted. For purposes of this Plan, the term "Retirement Date" shall mean the earlier of the date of such employee's 65th birthday, the date of such employee's 60th birthday after 30 years of employment by the Company or a Subsidiary, or any date an employee is otherwise entitled to retire under the Company's retirement plans (if any). 9.3 Unless otherwise provided in the option agreement, if an optionee who is an employee should die while employed by the Company or a Subsidiary, or should die within three months after retirement on or after his Retirement Date, then, until the expiration of one year from the date of the optionee's death or the earlier termination of the term of the option, any options granted to the deceased optionee and not exercised by him prior to his death shall, to the extent exercisable by the optionee on the date of his death, be exercisable by his estate or by any person who acquired such options by bequest or inheritance from the optionee. Such exercise shall be subject to all applicable conditions and restrictions prescribed in this Plan or in the option agreement. 9.4 If an optionee ceases to be employed by the Company or a Subsidiary by reason of the optionee's disability, such optionee shall have the right to exercise all options held by him, to the extent not previously expired or exercised, at any time within one year after such termination of employment due to a disability. For purposes of this Section 9.4, the term "disability" shall be defined in the same manner that it is defined in the Company's long term disability plan at the applicable time, if any. In the event the Company has no long term disability plan, the Optionee shall be deemed to be disabled if he or she is eligible for and is receiving total and permanent disability benefits under Section 223 of the Social Security Act, as amended, or any similar or subsequent section or act of like intent or purpose. 10. ADJUSTMENTS TO SHARES SUBJECT TO THE PLAN 10.1 In the event that additional shares of the capital stock of the Company are issued pursuant to a stock split or stock dividend, the number of shares of Common Stock then covered by each outstanding Option granted hereunder shall be increased proportion ately (and, in the case of options, the option price shall be reduced proportionately) and the number of shares of Common Stock reserved for purposes of this Plan shall be increased proportionately. 10.2 In the event that the shares of Common Stock of the Company from time to time issued and outstanding are reduced by a combination of shares, the number of shares of Common Stock then covered by each outstanding Option granted hereunder shall be reduced proportionately (and, in the case of options, the option price shall be 723/OPTION.PLN 7 increased proportionately) and the number of shares of Common Stock reserved for purposes of this Plan shall be reduced proportionately. 10.3 In the event that the Company transfers assets to another corporation and distributes the stock of such other corporation without the surrender of Common Stock of the Company, and if such distribution is not taxable as a dividend and no gain or loss is recognized by reason of Section 355 of the IRC or some similar section, then the price per share of the shares covered by each outstanding option shall be reduced by an amount that bears the same ratio to the option price per share then in effect as the market value of the stock distributed in respect of a share of the Common Stock of the Company immediately following the distribution bears to the aggregate market value at such time of a share of the Common Stock of the Company and the stock distributed in respect thereof. 10.4 In the event of a merger or consolidation in which the Company is not the surviving corporation, or other reorganization, recapitalization, or exchange which results in substantially all the shares of the capital stock of the Company being exchanged for or converted into cash or other property, or upon the dissolution or liquidation of the Company, the Company shall have the right to terminate this Plan, in which case the options shall, to the extent exercisable upon the date of such termination, become the right to receive such cash or property net of the exercise price of the options. If the Company shall be the surviving corporation in any merger or consolidation, any option issued hereunder shall pertain, apply and relate to the securities or other property to which a holder of the number of shares of Common Stock subject to the option would have been entitled after the merger or consolidation. 10.5 All adjustments pursuant to this Section 10 shall be made by the Committee, whose determination upon the same shall be final and binding upon the Option holders; provided, however, that each option granted hereunder that is intended to be an Incentive Stock Option shall be adjusted so as to continue to qualify as an Incentive Stock Option. No fractional shares shall be issued, and any fractional interests resulting from computation pursuant to this Section 10 shall be paid in cash. No adjustment shall be made for (i) the declaration of cash dividends, (ii) the issuance of Options hereunder or under any of the Company's other incentive stock or option plans, or (iii) the issuance of rights to subscribe for additional shares of Common Stock at the Market Value thereof (or other securities at the fair market value thereof as determined by the Committee in good faith). 11. LISTING AND REGISTRATION OF SHARES SUBJECT TO OPTIONS Each option issued hereunder shall be subject to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration, or qualification of the shares subject to the options upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the granting of such option or the issuance or purchase of shares thereunder, such option may not be 723/OPTION.PLN 8 exercised in whole or in part unless and until such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 12. APPLICATION OF FUNDS The proceeds received by the Company from the sale of shares pursuant to options shall be used for general corporate purposes. 13. DISQUALIFYING DISPOSITIONS If an Optionee disposes of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years from the date the Options is granted or within one year after the issuance of such shares to the Optionee, the Optionee shall notify the Company of such disposition and provide information as to the date of disposition, sale price, number of shares disposed of and any other information relating thereto which the Company may reasonably request. 14. TERMINATION OF THE PLAN This Plan may be abandoned or terminated at any time by the Board except with respect to any Options then outstanding under the Plan. No Option shall be granted hereunder after 10 years from the effective date of this Plan. 15. AMENDMENT OF THE PLAN The Board may at any time and from time to time modify and amend the terms of this Plan in any respect, with the exception of Section 5 of this Plan which may not be amended more than once every six months, other than to comport with changes in the IRC, the Employee Retirement Income Security Act, or the rules thereunder; provided, however, that the Board shall seek stockholder approval of the amendment to the extent such approval is required by (i) state or federal law; (ii) Section 16 of the Exchange Act, to the extent that Options may be granted hereunder to persons who are required to file reports under Section 16; (iii) the Nasdaq Stock Market rules or regulations or the rules or regulations of such other exchange upon which the Common Stock might later be traded; or (iv) the IRC, to the extent that Incentive Stock Options may be granted hereunder. No modification or amendment of this Plan shall adversely affect any right acquired by any Option holder under the terms of an Option award granted before the date of such modification or amendment, without the consent of the Option holder. 16. EFFECTIVE DATE OF THE PLAN This Plan became effective on the later of the date of its adoption by the Board or its approval by the Shareholders. 723/OPTION.PLN 9 EX-10.2 8 RONALD C. THOMAS EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 23rd day of April 1997 by and between Securacom, Incorporated, a corporation organized and existing under the laws of Delaware (the "Company") and Ronald C. Thomas (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to engage the Executive to serve as President and Chief Executive Officer of the Company; and WHEREAS, the Executive desires to be employed by the Company in such capacity and to assume the duties and responsibilities set forth in this Agreement; THEREFORE, in consideration of the premises, and the mutual covenants, terms and conditions contained herein, the parties hereto agree as follows: 1. Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby employs the Executive and the Executive hereby accepts such employment. 2. Duties and Responsibilities. (a) The Executive shall perform all the duties and accept all of the responsibilities of the position of President and Chief Executive Officer of the Company as may be described in the Bylaws of the Company or assigned to him from time to time by the Board of Directors of the Company. The Executive shall fulfill such duties and responsibilities diligently, in good faith and in accordance with applicable laws, and shall have such power and authority as is necessary and appropriate in order to enable him to do so. (b) The Executive shall devote his full time, attention and energies to the business of the Company and shall use his best efforts to promote the business interests of the Company. The Executive shall not work either on a part-time or independent contractor basis for any other business or enterprise during the term of this Agreement without the prior written consent of the Board of Directors of the Company. (c) The Executive's principal place of work shall be the Company's office in Woodcliff Lake, New Jersey. He shall spend such time at such office and undertake such business-related travel as is necessary or appropriate to enable him to perform his duties and responsibilities hereunder. 3. Compensation. (a) In consideration of the services to be rendered by the Executive hereunder, the Company shall pay to the Executive an annual salary of $165,000. Salary shall be payable in installments at such times as the Company 1 customarily pays its senior management employees, and shall be subject to withholding as required by law or agreed to by the Executive. (b) The Executive shall be eligible to receive periodic salary increases, awards of stock options, and bonuses for each year or portion thereof during which the Executive is employed hereunder. The amount of salary increases, stock options and bonuses, if any, shall be determined by the Board of Directors of the Company in its sole discretion. 4. Expenses. The Company, in accordance with such rules and practices as it may establish, shall pay or reimburse the Executive for all reasonable and necessary business expenses incurred in connection with the performance by the Executive of his duties and responsibilities hereunder. Such expenses shall include, in accordance with policies established by the Company, travel and entertainment expenses and reimbursement for mileage when the Executive's personal automobile is used for business purposes. 5. Benefits. (a) The Executive shall receive the employee benefits, including health care, life insurance and pension benefits, generally provided by the Company to senior management employees. (b) The Executive shall be entitled to paid vacation and sick leave in accordance with the policies established by the Company generally applicable to senior management employees. 6. Term and Termination. (a) This Agreement shall be effective as of the date hereof and shall have a term of five years. (b) The Company shall have the right to terminate this Agreement at any time (including following a change of control pursuant to Section 6(d) hereof) for "Cause" upon written notice to the Executive, and such termination shall be effective upon delivery of such notice. For purposes of this Agreement, "Cause" shall mean a material breach of this Agreement by the Executive (other than by reason of the death or disability of the Executive), including misappropriation of funds of the Company, willful and deliberate malfeasance, gross negligence, or any act seriously impeding the Executive's ability to represent the Company. (c) If this Agreement is terminated for Cause by the Company or is terminated by the Executive, the Executive shall be entitled to receive any unpaid salary accrued to the date of termination plus any unpaid expense reimbursement, reduced by any claim the Company may have against the Executive for breach of this Agreement or otherwise. (d) If this Agreement is terminated by the Company for any reason other than for Cause or the death or disability of the Executive, the Company shall pay the Executive his 2 salary at the annual rate in effect at the date of termination through the date of expiration of the term of this Agreement, plus any bonus or portion thereof granted by the Board of Directors and earned by the Executive but remaining unpaid on the date of termination, plus any expense reimbursements due to the Executive through such date. In the event any termination described in the preceding sentence occurs within two years following a change in control of the Company, the Company shall pay to the Executive an additional amount equal to two times the Executive's salary in effect at the time of such change in control. For purposes of this Section 6(d), the term "change in control" shall mean the occurrence of any of the following events: (i) a change of stock ownership of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and any successor regulation; (ii) the acquisition of beneficial ownership, directly or indirectly, by any person (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Company or a benefit plan sponsored by the Company, of securities of the Company representing 30% or more of the combined voting power of the Company's then-outstanding securities; or (iii) a change within any two-year period of a majority of the members of the Board of Directors of the Company for any reason, unless the election, or the nomination for election by the Company's shareholders, of each director was approved by a vote of at least two-thirds of the directors still in office who were directors prior to such change. Notwithstanding the foregoing, no change of control shall be deemed to have occurred by reason of (i) any merger, consolidation, sale or similar transaction in the event that the Board of Directors approves such transaction prior to its consummation; (ii) any distribution of shares of the Company's stock by Special Situation Investment Holdings, Ltd. or Special Situation Investment Holdings L. P. II to their partners upon dissolution or otherwise; or (iii) the acquisition of beneficial ownership, either directly or indirectly, of securities of the Company by KuwAm Corporation or any of its affiliates. For purposes of this Section 6(d), termination following a change in control of the Company shall include (i) a significant reduction of Executive's duties and responsibilities, (ii) a reduction in annual salary paid to the Executive of ten percent or more of the highest annual salary previously paid to the Executive, (iii) a change in the location of Executive's office to a place that is more than fifty (50) miles from the location of such office on the date hereof, or (iv) any failure by the Company to obtain the written assumption of this Agreement by any successor of the Company (such assumption not relieving the Company of any liability hereunder). It is the intention of the Company and the Executive that any amounts payable by the Company to the Executive pursuant to this Section 6(d) shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. In the event that the 3 Company's independent accountants determine that payments hereunder would constitute excess parachute payments, such payments shall be reduced to the maximum amount that such accountants determine would not result in the payment of excess parachute payments. (e) Death or Disability of Executive. If the Executive dies during the term of this Agreement, the Company shall pay to the Executive's estate any unpaid salary, any bonus or portion thereof granted by the Board of Directors and earned by the Executive but remaining unpaid, and any unpaid expense reimbursement due hereunder, in each case as of the date of the Executive's death. In the event that the Executive becomes physically or mentally disabled during the term of this Agreement, the Executive shall receive his salary through the date on which he is first eligible to receive payment of disability benefits in lieu of salary under the Company's employee benefit plans as then in effect. 7. Non-competition. During the term of this Agreement and for a period of one year thereafter, the Executive shall not, without the prior written consent of the Board of Directors of the Company, directly or indirectly, own, manage, operate, finance, join or control, or participate in the ownership, management, operation, financing or control of, or be or become an officer, director, employee, partner, principal, agent, representative, or consultant of, or use or permit his name to be used in connection with, any business or enterprise offering products or services that compete with the products and services offered by the Company in the markets served by the Company. Notwithstanding the foregoing, this Section 7 shall not be deemed to prohibit the ownership by the Executive of not more than one percent (1%) of the capital stock of any corporation whose capital stock is publicly traded. If the provisions of this Section 7 should be found by a court of competent jurisdiction to exceed the time, geographic, product or other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum time, geographic, product or other limitations permitted by such law. 8. Confidentiality. The Executive shall not, during the period of his employment hereunder or at any time thereafter, unless specifically authorized by a resolution of the Board of Directors of the Company, use or disclose to any person or entity, any confidential or secret information with respect to the business or affairs of the Company, or any of its affiliates, including any information concerning customers or prospective customers of the Company or its affiliates, unless such information becomes generally available to the public (and only after it becomes so available). Executive agrees that all confidential and other information, data, and products, including software and technical systems, and other property prepared, compiled or developed by Executive while employed by the Company hereunder shall be the property of the Company. All files and records relating to the Company in Executive's possession shall be the property of the Company and shall be returned to the Company upon termination of employment hereunder. 4 9. Equitable Relief. Executive acknowledges and agrees that the restrictions contained in Sections 7 and 8 of this Agreement are reasonable and necessary to protect the legitimate business interests of the Company. Executive further acknowledges and agrees that any breach of any provision of Section 7 or 8 hereof will cause immediate and irreparable injury to the Company, and that the Company shall be entitled to injunctive relief to prevent any actual or threatened such breach. This Section 9 shall not be construed in such a manner as to prevent the Company from pursuing any other remedies in law or equity to which it may be entitled as the result of any such actual or threatened breach. 10. Notices. All notices, consents, approvals, requests, instructions and other communications required by or related to this Agreement shall be in writing and shall be delivered personally or shall be sent by registered or certified mail, return receipt requested, or by telex or facsimile transmission, to the receiving party at the following address and communication numbers: If to the Company: Securacom, Incorporated 50 Tice Boulevard Woodcliff Lake, New Jersey 07675 Tel: (201) 930-9500 Fax: (201) 930-9007 If to the Executive: Ronald C. Thomas 23 Carey Arthur Drive Wayne, New Jersey 07470 Tel: (201) 616-2094 Fax: 11. Assignment. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party hereto. 12. Miscellaneous. (a) This Agreement sets forth the full and complete understanding between the parties hereto with respect to the subject matter hereof, and supersedes any prior agreement, oral or written, between the parties hereto with respect to the subject matter hereof. (b) This Agreement may be amended or supplemented at any time only by written instrument executed by both the Company and the Executive. (c) Each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by applicable law. Should any term or provision of this Agreement be held invalid, illegal or unenforceable, the remainder of this Agreement, including the 5 application of such term to the extent not invalid, illegal or unenforceable, shall not be affected thereby, and this Agreement shall be interpreted as if such term or provision, to the extent invalid, illegal or unenforceable, did not exist. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. (e) In the event of any litigation between the parties in connection with this Agreement, the unsuccessful party to such litigation shall pay to the successful party all costs and expenses, including reasonable attorneys' fees, which costs and expenses shall be included as part of any judgment rendered in such litigation in addition to the other relief to which the successful party may be entitled. (f) No waiver of any provision of this Agreement by either party hereto shall be effective unless executed in writing or constitute a waiver of any other provision hereof. (g) This Agreement may be executed and delivered, including execution and delivery by facsimile transmission, in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. (h) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of the parties hereto. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement on the dates set forth opposite their respective signatures below. Securacom, Incorporated May 28, 1997 By: /s/ WIRT D. WALKER, III - ----------------- ----------------------------- Date Wirt D. Walker, III Chairman May 28, 1997 /s/ RONALD C. THOMAS - ------------------ ---------------------------- Date Ronald C. Thomas 6 EX-10.3 9 LARRY M. WEAVER EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made and entered into as of the 23rd day of April 1997 by and between Securacom, Incorporated, a corporation organized and existing under the laws of Delaware (the "Company") and Larry Weaver (the "Executive"). W I T N E S S E T H WHEREAS, the Company desires to engage the Executive to serve as Senior Vice President, Chief Operating Officer and Chief Financial Officer; and WHEREAS, the Executive desires to be employed by the Company in such capacity and to assume the duties and responsibilities set forth in this Agreement; THEREFORE, in consideration of the premises, and the mutual covenants, terms and conditions contained herein, the parties hereto agree as follows: 1. Employment. Subject to the terms and conditions set forth in this Agreement, the Company hereby employs the Executive and the Executive hereby accepts such employment. 2. Duties and Responsibilities. (a) The Executive shall perform all the duties and accept all of the responsibilities of the position of Senior Vice President, Chief Operating Officer and Chief Financial Officer of the Company as may be described in the Bylaws of the Company or assigned to him from time to time by the Board of Directors of the Company. The Executive shall fulfill such duties and responsibilities diligently, in good faith and in accordance with applicable laws, and shall have such power and authority as is necessary and appropriate in order to enable him to do so. (b) The Executive shall devote his full time, attention and energies to the business of the Company and shall use his best efforts to promote the business interests of the Company. The Executive shall not work either on a part-time or independent contractor basis for any other business or enterprise during the term of this Agreement without the prior written consent of the Board of Directors of the Company. (c) The Executive's principal place of work shall be the Company's office in Woodcliff Lake, New Jersey. He shall spend such time at such office and undertake such business-related travel as is necessary or appropriate to enable him to perform his duties and responsibilities hereunder. 3. Compensation. (a) In consideration of the services to be rendered by the Executive hereunder, the Company shall pay to the Executive an annual salary of $125,000. Salary shall be payable in installments at such times as the Company 1 customarily pays its senior management employees, and shall be subject to withholding as required by law or agreed to by the Executive. (b) The Executive shall be eligible to receive periodic salary increases, awards of stock options, and bonuses for each year or portion thereof during which the Executive is employed hereunder. The amount of salary increases, stock options and bonuses, if any, shall be determined by the Board of Directors of the Company in its sole discretion. 4. Expenses. The Company, in accordance with such rules and practices as it may establish, shall pay or reimburse the Executive for all reasonable and necessary business expenses incurred in connection with the performance by the Executive of his duties and responsibilities hereunder. Such expenses shall include, in accordance with policies established by the Company, travel and entertainment expenses and reimbursement for mileage when the Executive's personal automobile is used for business purposes. 5. Benefits. (a) The Executive shall receive the employee benefits, including health care, life insurance and pension benefits, generally provided by the Company to senior management employees. (b) The Executive shall be entitled to paid vacation and sick leave in accordance with the policies established by the Company generally applicable to senior management employees. 6. Term and Termination. (a) This Agreement shall be effective as of the date hereof and shall have a term of three years. (b) The Company shall have the right to terminate this Agreement at any time (including following a change of control pursuant to Section 6(d) hereof) for "Cause" upon written notice to the Executive, and such termination shall be effective upon delivery of such notice. For purposes of this Agreement, "Cause" shall mean a material breach of this Agreement by the Executive (other than by reason of the death or disability of the Executive), including misappropriation of funds of the Company, willful and deliberate malfeasance, gross negligence, or any act seriously impeding the Executive's ability to represent the Company. (c) If this Agreement is terminated for Cause by the Company or is terminated by the Executive, the Executive shall be entitled to receive any unpaid salary accrued to the date of termination plus any unpaid expense reimbursement, reduced by any claim the Company may have against the Executive for breach of this Agreement or otherwise. (d) If this Agreement is terminated by the Company for any reason other than for Cause or the death or disability of the Executive, the Company shall pay the Executive his 2 salary at the annual rate in effect at the date of termination through the date of expiration of the term of this Agreement, plus any bonus or portion thereof granted by the Board of Directors and earned by the Executive but remaining unpaid on the date of termination, plus any expense reimbursements due to the Executive through such date. In the event any termination described in the preceding sentence occurs within two years following a change in control of the Company, the Company shall pay to the Executive an additional amount equal to two times the Executive's salary in effect at the time of such change in control. For purposes of this Section 6(d), the term "change in control" shall mean the occurrence of any of the following events: (i) a change of stock ownership of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and any successor regulation; (ii) the acquisition of beneficial ownership, directly or indirectly, by any person (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Company or a benefit plan sponsored by the Company, of securities of the Company representing 30% or more of the combined voting power of the Company's then-outstanding securities; or (iii) a change within any two-year period of a majority of the members of the Board of Directors of the Company for any reason, unless the election, or the nomination for election by the Company's shareholders, of each director was approved by a vote of at least two-thirds of the directors still in office who were directors prior to such change. Notwithstanding the foregoing, no change of control shall be deemed to have occurred by reason of (i) any merger, consolidation, sale or similar transaction in the event that the Board of Directors approves such transaction prior to its consummation; (ii) any distribution of shares of the Company's stock by Special Situation Investment Holdings, Ltd. or Special Situation Investment Holdings L. P. II to their partners upon dissolution or otherwise; or (iii) the acquisition of beneficial ownership, either directly or indirectly, of securities of the Company by KuwAm Corporation or any of its affiliates. For purposes of this Section 6(d), termination following a change in control of the Company shall include (i) a significant reduction of Executive's duties and responsibilities, (ii) a reduction in annual salary paid to the Executive of ten percent or more of the highest annual salary previously paid to the Executive, (iii) a change in the location of Executive's office to a place that is more than fifty (50) miles from the location of such office on the date hereof, or (iv) any failure by the Company to obtain the written assumption of this Agreement by any successor of the Company (such assumption not relieving the Company of any liability hereunder). It is the intention of the Company and the Executive that any amounts payable by the Company to the Executive pursuant to this Section 6(d) shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. In the event that the 3 Company's independent accountants determine that payments hereunder would constitute excess parachute payments, such payments shall be reduced to the maximum amount that such accountants determine would not result in the payment of excess parachute payments. (e) Death or Disability of Executive. If the Executive dies during the term of this Agreement, the Company shall pay to the Executive's estate any unpaid salary, any bonus or portion thereof granted by the Board of Directors and earned by the Executive but remaining unpaid, and any unpaid expense reimbursement due hereunder, in each case as of the date of the Executive's death. In the event that the Executive becomes physically or mentally disabled during the term of this Agreement, the Executive shall receive his salary through the date on which he is first eligible to receive payment of disability benefits in lieu of salary under the Company's employee benefit plans as then in effect. 7. Non-competition. During the term of this Agreement and for a period of one year thereafter, the Executive shall not, without the prior written consent of the Board of Directors of the Company, directly or indirectly, own, manage, operate, finance, join or control, or participate in the ownership, management, operation, financing or control of, or be or become an officer, director, employee, partner, principal, agent, representative, or consultant of, or use or permit his name to be used in connection with, any business or enterprise offering products or services that compete with the products and services offered by the Company in the markets served by the Company. Notwithstanding the foregoing, this Section 7 shall not be deemed to prohibit the ownership by the Executive of not more than one percent (1%) of the capital stock of any corporation whose capital stock is publicly traded. If the provisions of this Section 7 should be found by a court of competent jurisdiction to exceed the time, geographic, product or other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum time, geographic, product or other limitations permitted by such law. 8. Confidentiality. The Executive shall not, during the period of his employment hereunder or at any time thereafter, unless specifically authorized by a resolution of the Board of Directors of the Company, use or disclose to any person or entity, any confidential or secret information with respect to the business or affairs of the Company, or any of its affiliates, including any information concerning customers or prospective customers of the Company or its affiliates, unless such information becomes generally available to the public (and only after it becomes so available). Executive agrees that all confidential and other information, data, and products, including software and technical systems, and other property prepared, compiled or developed by Executive while employed by the Company hereunder shall be the property of the Company. All files and records relating to the Company in Executive's possession shall be the property of the Company and shall be returned to the Company upon termination of employment hereunder. 4 9. Equitable Relief. Executive acknowledges and agrees that the restrictions contained in Sections 7 and 8 of this Agreement are reasonable and necessary to protect the legitimate business interests of the Company. Executive further acknowledges and agrees that any breach of any provision of Section 7 or 8 hereof will cause immediate and irreparable injury to the Company, and that the Company shall be entitled to injunctive relief to prevent any actual or threatened such breach. This Section 9 shall not be construed in such a manner as to prevent the Company from pursuing any other remedies in law or equity to which it may be entitled as the result of any such actual or threatened breach. 10. Notices. All notices, consents, approvals, requests, instructions and other communications required by or related to this Agreement shall be in writing and shall be delivered personally or shall be sent by registered or certified mail, return receipt requested, or by telex or facsimile transmission, to the receiving party at the following address and communication numbers: If to the Company: Securacom, Incorporated 50 Tice Boulevard Woodcliff Lake, New Jersey 07675 Tel: (201) 930-9500 Fax: (201) 930-9007 If to the Executive: Larry Weaver 25 Pine Road Medford, New Jersey 08055 Tel: (609) 985-5253 Fax: 11. Assignment. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party hereto. 12. Miscellaneous. (a) This Agreement sets forth the full and complete understanding between the parties hereto with respect to the subject matter hereof, and supersedes any prior agreement, oral or written, between the parties hereto with respect to the subject matter hereof. (b) This Agreement may be amended or supplemented at any time only by written instrument executed by both the Company and the Executive. (c) Each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by applicable law. Should any term or provision of this Agreement be held invalid, illegal or unenforceable, the remainder of this Agreement, including the 5 application of such term to the extent not invalid, illegal or unenforceable, shall not be affected thereby, and this Agreement shall be interpreted as if such term or provision, to the extent invalid, illegal or unenforceable, did not exist. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. (e) In the event of any litigation between the parties in connection with this Agreement, the unsuccessful party to such litigation shall pay to the successful party all costs and expenses, including reasonable attorneys' fees, which costs and expenses shall be included as part of any judgment rendered in such litigation in addition to the other relief to which the successful party may be entitled. (f) No waiver of any provision of this Agreement by either party hereto shall be effective unless executed in writing or constitute a waiver of any other provision hereof. (g) This Agreement may be executed and delivered, including execution and delivery by facsimile transmission, in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. (h) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of the parties hereto. IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement on the dates set forth opposite their respective signatures below. Securacom, Incorporated May 28, 1997 By: /s/ WIRT D. WALKER, III - ------------------- ----------------------------- Date Wirt D. Walker, III Chairman May 28, 1997 /s/ LARRY WEAVER Date Larry Weaver 6 EX-10.4 10 WIRT D. WALKER CONSULTING AGREEMENT CONSULTING AGREEMENT THIS CONSULTING AGREEMENT is made and entered into as of the 23rd day of April 1997 by and between Securacom, Incorporated, a corporation organized and existing under the laws of Delaware (the "Company") and Wirt D. Walker, III (the "Consultant"). W I T N E S S E T H WHEREAS, the Company desires to engage the Consultant to assume the responsibilities set forth in this Agreement; and WHEREAS, the Consultant desires to assume such responsibilities; THEREFORE, in consideration of the premises, and the mutual covenants, terms and conditions contained herein, the parties hereto agree as follows: 1. Engagement. Subject to the terms and conditions set forth in this Agreement, the Company hereby engages the Consultant and the Consultant hereby accepts such engagement. 2. Responsibilities. (a) The Consultant shall provide the Company with advice and assistance with respect to corporate development, new business development, corporate finance, operational issues, merger and acquisition strategy, marketing and positioning in the marketplace, strategic partnership arrangements and other matters as requested by the Board of Directors of the Company. The Consultant shall fulfill his responsibilities diligently and in good faith. (b) The Consultant shall devote such time, attention and energies to the business of the Company as is required in order for him to fulfill his responsibilities as set forth in Section 2(a), and shall use his best efforts to promote the business interests of the Company. 3. Compensation. (a) In consideration of the services to be rendered by the Consultant hereunder, the Company shall pay Consultant $140,000 per year (such compensation, as it may be adjusted pursuant to Section 3(b), being hereinafter referred to as "Base Compensation"). Base Compensation shall be paid in installments at such times as the Company customarily pays its senior management employees, and shall be subject to withholding as required by law or agreed to by the Consultant. (b) The Consultant shall be eligible to receive periodic increases in Base Compensation, awards of stock options, and bonuses for each year or portion thereof 1 during which the Consultant is engaged hereunder. The amount of such increases in Base Compensation, stock options and bonuses, if any, shall be determined by the Board of Directors of the Company in its sole discretion. 4. Expenses. The Company, in accordance with such rules and practices as it may establish, shall pay or reimburse the Consultant for all reasonable and necessary business expenses incurred in connection with the performance by the Consultant of his responsibilities hereunder. Such expenses shall include, in accordance with policies established by the Company, travel and entertainment expenses and reimbursement for mileage when the Consultant's personal automobile is used for business purposes. 5. Term and Termination. (a) This Agreement shall be effective as of the date hereof and shall have a term of five years. (b) The Company shall have the right to terminate this Agreement at any time (including following a change of control pursuant to Section 5(d) hereof) for "Cause" upon written notice to the Consultant, and such termination shall be effective upon delivery of such notice. For purposes of this Agreement, "Cause" shall mean a material breach of this Agreement by the Consultant (other than by reason of the death or disability of the Consultant), including misappropriation of funds of the Company, willful and deliberate malfeasance, gross negligence, or any act seriously impeding the Consultant's ability to represent the Company. (c) If this Agreement is terminated for Cause by the Company or is terminated by the Consultant, the Consultant shall be entitled to receive any unpaid Base Compensation accrued to the date of termination plus any unpaid expense reimbursement, reduced by any claim the Company may have against the Consultant for breach of this Agreement or otherwise. (d) If this Agreement is terminated by the Company for any reason other than for Cause or the death or disability of the Consultant, the Company shall compensate the Consultant at the annual Base Compensation rate in effect on the date of termination through the date of expiration of the term of this Agreement, and pay Consultant any bonus or portion thereof granted by the Board of Directors and earned by the Consultant but remaining unpaid on the date of termination, plus any expense reimbursements due to the Consultant through such date. In the event any termination described in the preceding sentence occurs within two years following a change in control of the Company, the Company shall pay to the Consultant an additional amount equal to two times the Consultant's annual Base Compensation rate in effect at the time of such change in control. 2 For purposes of this Section 6(d), the term "change in control" shall mean the occurrence of any of the following events: (i) a change of stock ownership of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and any successor regulation; (ii) the acquisition of beneficial ownership, directly or indirectly, by any person (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Company or a benefit plan sponsored by the Company, of securities of the Company representing 30% or more of the combined voting power of the Company's then-outstanding securities; or (iii) a change within any two-year period of a majority of the members of the Board of Directors of the Company for any reason, unless the election, or the nomination for election by the Company's shareholders, of each director was approved by a vote of at least two-thirds of the directors still in office who were directors prior to such change. Notwithstanding the foregoing, no change of control shall be deemed to have occurred by reason of (i) any merger, consolidation, sale or similar transaction in the event that the Board of Directors approves such transaction prior to its consummation; (ii) any distribution of shares of the Company's stock by Special Situation Investment Holdings, Ltd. or Special Situation Investment Holdings, L.P. II to their partners upon dissolution or otherwise; or (iii) the acquisition of beneficial ownership, either directly or indirectly, of securities of the Company by KuwAm Corporation or any of its affiliates. For purposes of this Section 6(d), termination following a change in control of the Company shall include (i) a significant reduction of Consultant's responsibilities, (ii) a reduction in the annual rate of Base Compensation paid to the Consultant of ten percent or more of the highest annual rate of Base Compensation previously paid to the Consultant, or (iii) any failure by the Company to obtain the written assumption of this Agreement by any successor of the Company (such assumption not relieving the Company of any liability hereunder). It is the intention of the Company and the Consultant that any amounts payable by the Company to the Consultant pursuant to this Section 6(d) shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. In the event that the Company's independent accountants determine that payments hereunder would constitute excess parachute payments, such payments shall be reduced to the maximum amount that such accountants determine would not result in the payment of excess parachute payments. (e) Death or Disability of Consultant. If the Consultant dies during the term of this Agreement, the Company shall pay to the Consultant's estate any unpaid Base 3 Compensation, any bonus or portion thereof granted by the Board of Directors and earned by the Consultant but remaining unpaid, and any unpaid expense reimbursement due hereunder, in each case as of the date of the Consultant's death. In the event that the Consultant becomes physically or mentally disabled during the term of this Agreement, the Consultant shall be entitled to receive any unpaid Base Compensation accrued through the date that this Agreement is terminated by either party as the result of such disability and any bonus or portion thereof granted by the Board of Directors and earned by the Consultant but remaining unpaid on the date of termination plus any unpaid expense reimbursement. 7. Non-competition. During the term of this Agreement and for a period of one year thereafter, the Consultant shall not, without the prior written consent of the Board of Directors of the Company, directly or indirectly, own, manage, operate, finance, join or control, or participate in the ownership, management, operation, financing or control of, or be or become an officer, director, employee, partner, principal, agent, representative, or consultant of, or use or permit his name to be used in connection with, any business or enterprise offering products or services that compete with the products and services offered by the Company in the markets served by the Company. Notwithstanding the foregoing, this Section 7 shall not be deemed to prohibit the ownership by the Consultant of not more than one percent (1%) of the capital stock of any corporation whose capital stock is publicly traded. If the provisions of this Section 7 should be found by a court of competent jurisdiction to exceed the time, geographic, product or other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum time, geographic, product or other limitations permitted by such law. 8. Confidentiality. The Consultant shall not, during the term of his engagement hereunder or at any time thereafter, unless specifically authorized by a resolution of the Board of Directors of the Company, use or disclose to any person or entity, any confidential or secret information with respect to the business or affairs of the Company, or any of its affiliates, including any information concerning customers or prospective customers of the Company or its affiliates, unless such information becomes generally available to the public (and only after it becomes so available). Consultant agrees that all confidential and other information, data, and products, including software and technical systems, and other property prepared, compiled or developed by Consultant while retained by the Company hereunder shall be the property of the Company. All files and records relating to the Company in Consultant's possession shall be the property of the Company and shall be returned to the Company upon termination of Consultant's engagement hereunder. 4 9. Equitable Relief. Consultant acknowledges and agrees that the restrictions contained in Sections 7 and 8 of this Agreement are reasonable and necessary to protect the legitimate business interests of the Company. Consultant further acknowledges and agrees that any breach of any provision of Section 7 or 8 hereof will cause immediate and irreparable injury to the Company, and that the Company shall be entitled to injunctive relief to prevent any actual or threatened such breach. This Section 9 shall not be construed in such a manner as to prevent the Company from pursuing any other remedies in law or equity to which it may be entitled as the result of any such actual or threatened breach. 10. Notices. All notices, consents, approvals, requests, instructions and other communications required by or related to this Agreement shall be in writing and shall be delivered personally or shall be sent by registered or certified mail, return receipt requested, or by telex or facsimile transmission, to the receiving party at the following address and communication numbers: If to the Company: Securacom, Incorporated 50 Tice Boulevard Woodcliff Lake, New Jersey 07675 Tel: (201) 930-9500 Fax: (201) 930-9007 If to the Consultant: Wirt D. Walker, III 6308 Long Meadow Road McLean, Virginia 22101 Tel: (703) 356-5052 Fax: 11. Assignment. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party hereto. 12. Miscellaneous. (a) This Agreement sets forth the full and complete understanding between the parties hereto with respect to the subject matter hereof, and supersedes any prior agreement, oral or written, between the parties hereto with respect to the subject matter hereof. (b) This Agreement may be amended or supplemented at any time only by written instrument executed by both the Company and the Consultant. (c) Each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by applicable law. Should any term or provision of this Agreement be held invalid, illegal or unenforceable, the remainder of this Agreement, 5 including the application of such term to the extent not invalid, illegal or unenforceable, shall not be affected thereby, and this Agreement shall be interpreted as if such term or provision, to the extent invalid, illegal or unenforceable, did not exist. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. (e) In the event of any litigation between the parties in connection with this Agreement, the unsuccessful party to such litigation shall pay to the successful party all costs and expenses, including reasonable attorneys' fees, which costs and expenses shall be included as part of any judgment rendered in such litigation in addition to the other relief to which the successful party may be entitled. (f) No waiver of any provision of this Agreement by either party hereto shall be effective unless executed in writing or constitute a waiver of any other provision hereof. (g) This Agreement may be executed and delivered, including execution and delivery by facsimile transmission, in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. (h) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of the parties hereto. IN WITNESS WHEREOF, the Company and the Consultant have executed this Agreement on the dates set forth opposite their respective signatures below. Securacom, Incorporated May 31, 1997 By: /s/ RONALD C. THOMAS - ----------------- ------------------------ Date Ronald C. Thomas President May 30, 1997 /s/ WIRT D. WALKER III Date Wirt D. Walker, III 6 EX-10.6 11 FORM OF STOCK PURCHASE AGMT SECURACOM, INCORPORATED COMMON STOCK PURCHASE AGREEMENT Securacom, Incorporated a Delaware Corporation c/o KuwAm Corporation 2600 Virginia Avenue, N.W., Suite 900 Washington, D.C. 20037 Gentlemen: Securacom, Incorporated (the "Company") hereby agrees to issue and sell to the undersigned (the "Investor") and the undersigned hereby agrees to purchase shares of the Company's common stock, $.01 par value per share (the "Shares'), at $ per share for a total purchase price of $ . The Investor shall pay for the Shares by wiring funds in accordance with the wire transfer instructions provided below. The Investor acknowledges that he has received and read the Company's Business Plan dated January 31, 1994 (the "Business Plan") and Common Stock Purchase Agreement dated January 31, 1994 (the "Agreement") and that he has been provided sufficient information regarding the management and operation of the Company pursuant to the Business Plan. SECTION 1 Representations and Warranties of the Company The Company hereby represents and warrants to the Investor as follows: 1.1 Organization and Standing The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with its principal place of business at 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675. The Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in every jurisdiction where the failure to so qualify would have a material adverse effect on the Company's business. 1.2 Corporate Power. The Company has or, on or before the Closing Date, will have all requisite legal and corporate power to execute and deliver this Agreement, to issue and sell the Shares to the Investor hereunder and to carry out and perform its obligations under the terms of this Agreement. 1 1.3 Authorization. The Company has or, on or before the Closing Date, will have the right and power, and has taken all necessary corporate action, to authorize it to enter into, execute, deliver and perform this Agreement. This Agreement has been duly executed and delivered by the duly authorized officers of the Company and constitutes a legal, valid and binding obligation of the Company to the Investor, enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors, and rules of law governing specific performance, injunctive relief or other equitable remedies. 1.4 Capitalization. The authorized capital stock of the Company consists of: 4,000,000 shares of Common Stock, $.01 par value, of which 3,278,889 shares are issued and outstanding. 1.5 Compliance with Other Instruments. The Company is not in violation of any term of its Articles of Incorporation or Bylaws, or in any material respect of any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree, and to the best of any officer of the Company's knowledge is not in violation of any order, statute, rule or regulation applicable to the Company the violation of which could have a material adverse effect on the Company's business. 1.6 Litigation, etc. There are no actions, suits, proceedings or investigations pending or threatened against the Company or its properties before any court or governmental agency (nor, to the best of any officer of the Company's knowledge, is there any threat thereof), which, either individually or in the aggregate, might result in any material adverse change in the business, prospects, financial condition or equity ownership of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of the Company, and none of which questions the validity of this Agreement or any action taken or to be taken in connection herewith. The Company is not a party or subject to any writ, order, decree or judgment and has no plans to initiate any legal action. 1.7 Material Contracts. All contracts, agreements, leases, licenses, and other commitments between or among the Company and any other parties, whether formal or informal, written or verbal, have been disclosed to the Investor. SECTION 2 Representations and Warranties of the Investor The undersigned hereby represents and warrants to the Company as follows: 2.1 Experience. The Investor is an accredited investor (i) within the meaning of Regulation D promulgated under the Securities Act and (ii) is experienced in evaluating and investing in recently organized companies such as the Company, is able to fend for itself or himself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Investor's investment and has the ability to bear the economic risks of such Investor's investment hereunder. 2 2.2 Investment. The Investor is acquiring the Shares for investment in such Investor's own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. Such Investor understands that the Shares have not been registered under the Securities Act of 1933 by reason of a specific exemption from the registration provisions of the Securities Act that depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Investor's representations as expressed herein. The Investor understands that the basis for such exemption may not be present if, notwithstanding such representations, the Investor has in mind merely acquiring the Shares for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise; the Investor has no such intention. The principal place of business or residence of the Investor is set forth below. 2.3 Rule 144. The Investor acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act that permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations. 2.4 No Public Market. The Investor understands that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Shares. 2.5 Access to Data. The Investor has carefully reviewed the Business Plan and all other material and information relevant to the Company provided to such Investor, and has made such independent investigations as such Investor has deemed necessary, including consultation with such Investor's own advisors, to determine the suitability of an investment in the Company and the relationship of such an investment to such Investor's overall investment program and financial and tax position. The Investor has received all of the information such Investor believes required to make an informed decision regarding this investment. Any questions raised by the Investor (or such Investor's representatives) concerning the transaction have been answered to the satisfaction of the Investor (and such Investor's representatives). The Investor's decision to purchase the Shares is based on such Investor's own evaluation of the risks and merits of the purchase and the Company's proposed business activities. 2.6 Organization and Standing. If the Investor is a corporation, partnership or other entity, it is a limited partnership or corporation duly organized and existing under, and by virtue of, the laws of the jurisdiction of its organization and is in good standing under such laws. It has requisite power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. It is qualified to do business in every jurisdiction where the failure to so qualify would have a material adverse effect on its business. 2.7 Power. The Investor will have, on the Closing Date, all requisite legal power to execute and deliver this Agreement, purchase the Shares and to carry out and perform such Investor's obligations under this Agreement. 3 2.8 Authorization. All action on the part of the Investor, its directors, shareholders, partners or other principals (if applicable) necessary for the authorization, execution, delivery and performance under this Subscription Agreement by such Investor, the purchase of the Shares, and the performance of such Investor's obligations has been taken or will be taken prior to the Closing Date. 2.9 Compliance with Other Instruments. etc. Such Investor is not in violation of any term of its constituent documents (if such Investor is a corporation, partnership or other entity), or in any material respect of any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree, and to the best of such Investor's knowledge is not in violation of any order, statute, rule or regulation applicable to such Investor the violation of which could have a material adverse effect on such Investor's business or financial condition. 2.10 Litigation, etc. There are no actions, suits, proceedings or investigations pending or threatened against such Investor or such Investor's properties before any court or governmental agency (nor, to the best of such Investor's knowledge, is there any threat thereof), which, either individually or in the aggregate, might result in any material adverse change in such Investor's business or financial condition or any of such Investor's properties or assets, or in any material impairment of such Investor's right or ability to carry on such Investor's business as now conducted or as proposed to be conducted, or in any material liability on the part of such Investor, and none of which questions the validity of this Agreement or any action taken or to be taken in connection. SECTION 3 Restrictions on Transferability to Securities; Compliance with Securities Act 3.1 Restrictions on Transferability. The Shares are restricted and shall not be sold, transferred, pledged or otherwise disposed of unless all the terms and conditions of this Agreement and the provisions of the Securities Act of 1933, as amended (the "Securities Act") have been strictly complied with. The Shares have not been registered under the Securities Act and the Investor agrees not to sell, transfer or otherwise dispose of any of the Shares in a transaction which is not registered under the Securities Act or exempt from such registration, and prior to any such sale, transfer or disposition, the Investor must provide the Company with an opinion of counsel, reasonably satisfactory to the Company that the proposed sale, transfer or disposition will not violate any applicable Federal or state securities laws. 3.2 Certain Definitions. As used in this Section 3, the following terms shall have the following respective meanings: "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Holders" as used in this Section 3 shall mean and include the Investor and any person holding Registrable Securities to whom the registration rights granted hereunder are transferred in accordance with the provisions of Section 3.8. "Registrable Securities" means (i) the Shares and (ii) any Common Stock of the Company issued or issuable or other securities issued or issuable with respect to the Shares pursuant to any stock split, 4 stock dividend, recapitalization, or similar event; provided, however, that shares of Common Stock shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and delivery requirements of the Securities Act under Section 3(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale. The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 3.4 and 3.5 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Restricted Securities" shall mean the securities of the Company required to bear the legend set forth in Section 3.3 hereof (or any similar legend). "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all fees and disbursements of counsel for any Holder. 3.3 Restrictive Legend. Each certificate shall be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state, and such shares may not be sold or transferred unless such sale or transfer is in accordance with the registration requirements of the Securities Act of 1933, as at the time amended, and the appropriate state securities laws, or unless some other exemption from the registration requirements of such Act and State laws is available with respect thereto. The shares represented by this Certificate are transferable only to the Corporation or to the Shareholders of the Corporation unless and until the Holder hereof shall have complied with all provisions of the Articles of Incorporation, Bylaws and any applicable agreement with the Corporation affecting the sale thereof, copies of which are on file at the principal office of the Corporation." 3.4 Company Registration. (a) Notice of Registration. If at any time or from time to time, the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to employee benefit plans or (ii) a registration 5 relating solely to a Commission Rule 145 transaction, the Company will: (i) promptly give to each Holder written notice thereof; and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 10 days after receipt of such written notice from the Company, by any Holder or Holders. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.4(a)(i). In such event the right of any Holder to registration pursuant to Section 3.4 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 3.4, if the managing underwriter determines that marketing factors require a limitation of the number of Registrable Securities to be underwritten, the managing underwriter may exclude some or all Registrable Securities from such registration and underwriting. The Company shall so advise all Holders and the other holders distributing their securities through such underwriting, and the number of shares of Registrable Securities and other securities that may be included in the registration and underwriting shall be allocated among all Holders and other holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by all such Holders at the time of filing the registration statement. If any Holder disapproves of the terms of any such underwriting, he or it may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration and shall not be transferred in a public distribution prior to 90 days after the effective date of the registration statement relating thereto. The Company may include shares of Common Stock (or other securities issued or issuable pursuant to any stock split, stock dividend, recapitalization, or similar event) held by shareholders other than the Holders in a registration statement pursuant to this Section 3.4 only if, and to the extent, the amount of Registrable Securities included in such registration would not thereby be diminished. 3.5 Registration Procedures and Expenses. In the case of each registration, qualification or compliance effected by the Company pursuant to this Section 3, the Company will keep each Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense the Company will: (a) prepare and file with the Commission a registration statement with respect to all offered securities and use its best efforts to cause such registration statement to become and remain, and prepare and file with the Commission such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to cause such registration statement to remain, effective for a period of at least 90 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that no such registration shall constitute a shelf registration under Rule 415 promulgated by the Commission under the Act; and 6 (b) furnish such reasonable number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request. 3.6 Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 3. 3.7 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, the Company shall use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times subsequent to 90 days after the effective date of the first registration statement covering an underwritten public offering filed by the Company; (b) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934, as amended; and (c) so long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time subsequent to 90 days after the effective date of the first registration statement covering an underwritten public offering filed by the Company) and of the Securities Act and the Securities Exchange Act of 1934 (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 3.8 Transfer of Registration Rights. The rights to cause the Company to register securities granted Holders under Section 3.4 may be assigned, upon written notice to the Company, to a transferee or assignee who acquires at least 10% of the Registrable Securities of the Company, provided that such transfer must otherwise be effected in accordance with applicable securities laws. 3.9 Amendment of Registration Rights. Any provision of this Section 3 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of seventy-five percent (75%) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 3.9 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Agreement, holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 3.10 Indemnification. Subject to Section 3.4(b), in the event any Registrable Securities are included in a registration statement under Section 3: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder joining in a registration, any underwriter (as defined in the Securities Act) for it, and each 7 person, if any, who controls such Holder or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based on any untrue or alleged untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading or arise out of any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and will reimburse each such Holder, such underwriter, or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 3.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld) nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such registration statement, preliminary prospectus, final prospectus or amendments or supplements thereto, in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each Holder joining in a registration will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each agent and any underwriter for the Company (within the meaning of the Securities Act) and each person, if any, who controls the Company or such underwriter within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which the Company or any director, officer, controlling person, agent or underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein, or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, or any amendments or supplements thereto, in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, agent or underwriter in connection with investigating or defending such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 3.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). (c) Promptly after receipt by an indemnified party under this Section 3.11 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 3.10, notify the indemnifying party in writing of the commencement thereof and (unless the interest of the indemnifying party conflicts with that of the indemnified party) the indemnifying party shall have the right to participate in and, to the extent the 8 indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with its own counsel (provided such counsel is reasonably satisfactory to the indemnified party). The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to his ability to defend such action, shall relieve such indemnifying party, to the extent that he is prejudiced thereby, of any liability to the indemnified party under this Section 3.10, but the omission so to notify the indemnifying party will not relieve him of any liability that he may have to any indemnified party otherwise than under this Section 3.10. 3.11 Termination of the Company's Obligations. The Company's obligations pursuant to Section 3.4 shall expire one year after the Company first becomes subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act. 3.12 Lockup Agreement. In consideration for the Company agreeing to its obligations under this Section 3, each Investor agrees in connection with any registration of the Company's Common Stock for sale to the general public, upon the request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 120 days) from the effective date of such registration as the Company or the underwriters may specify. The Company may impose stop-transfer instructions with respect to all securities subject to the foregoing restrictions until the end of the applicable period. 3.13 Delay of Registration. No Holder shall have any right to take any action to restrain, enjoin or otherwise delay any registration as the result of any controversy that may arise with respect to the interpretation or implementation of this Agreement. 3.14 Right of First Refusal. In the event that the Company proposes to issue and sell new shares or securities that are convertible into Common or Preferred Stock (the "New Securities"), the Company shall give the Investor at least 30 days prior written notice of its intention, and description, terms and conditions of the proposed transaction and the Investor shall have the right of first refusal to purchase, pro rata, all or any part of the New Securities. The Investor shall have 30 days from the date of such notice to exercise its option. if the Investor should waive or not exercise its right of first refusal provided herein, all or part of its pro rata share of New Securities may be purchased by the other investors. In the event that the Investor fails to exercise the right of first refusal within such 30 day period and other investors do not exercise their right of first refusal with respect to such New Securities, the Company shall have 120 days thereafter to sell or enter into an agreement to sell the New Securities at the price and upon general terms no more favorable to the investors thereof than specified in the Company's notice. In the event that the Company has not sold all the New Securities or entered into an agreement to sell all the New Securities within such 120 day period, the Company shall not thereafter issue or sell any New Securities, without first offering such securities to the Investor in the manner provided above. 3.15 Option to Purchase Stock. If the Investor at any time intends to sell, transfer or otherwise dispose of any Shares, said Investor shall give the Company at least 30 days prior written notice of such intention (the "Investor Notice of Sale"), which Investor Notice of Sale shall specify the number of Shares to be sold, transferred or disposed of, the manner of the proposed sale, transfer or disposition, the name of the proposed investor, the proposed sale price (which must be payable in cash), a copy of a bona fide written offer from the proposed investor and all other material terms and conditions of such proposed 9 sale, transfer or disposition and the Company shall have the option to purchase for cash all, but not part, of the Shares to which such Investor Notice of Sale relates on the terms and conditions specified in such notice. Such option shall be exercisable by the Company no later than 30 days after the date of the receipt by the Company of the Investor Notice of Sale. The parties to such transaction shall execute such certificates and cross receipts as are reasonably necessary to consummate such transaction. If the Company does not exercise its option to purchase the Shares covered by the Investor Notice of Sale, the Investor shall have the right to sell, transfer or otherwise dispose of such Shares for a period of 30 days following the waiver or expiration of the Company's option to purchase in accordance with the terms and conditions of the Investor Notice of Sale, after which the right of first refusal will again apply. Any provisions of this Section 3.15 to the contrary notwithstanding shall apply to any transfer of the Shares. 3.16 Sale of Majority of Shares of Stock. Upon the contemporaneous sale or exchange or other transfer of a majority of the shares of capital stock of the Company by one or more shareholders, such offeror shareholders shall arrange for the purchase of all the remaining shares of the Company's capital stock held by the remaining shareholder(s), at a price and subject to terms and conditions substantially or no less favorable than the same as those applicable to the sale or exchange of the offeror shareholder's shares. SECTION 4 Miscellaneous 4.1 Binding effect. All provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the successors or assigns of the Company and any subsequent transferee. 4.2 Amendment and Modification. The parties hereto may amend, modify and supplement this Agreement in such manner as may be agreed upon by them in writing. 4.3 Notices. Any notices hereunder may be given to the Company addressed to 50 Tice Boulevard, Woodcliff Lake, New Jersey 07675, for the attention of President. All such notices shall be by letter delivered in person, sent by certified mail, telegram or telex. 10 This Agreement shall be governed by the laws of the State of Delaware and shall have the effect of a sealed instrument. Name of Investor (please print) --------------------------------------------- (Signature) Date: Address: Accepted: SECURACOM, INCORPORATED By:_______________________________ Date:_____________________________ Subscription payment instructions: - - Please wire funds to: Chemical Bank New York, New York ABA No. Account: Account No.: For Further Credit to: Account: 11 EX-23.1 12 CONSENT OF GRANT THORNTON Exhibit 23.1 We have issued our report dated March 12, 1997 accompanying the financial statements and schedule of Securacom, Incorporated contained in the Registration Statement on Form S-1 (File No. 333-26439) and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". GRANT THORNTON LLP Parsippany, New Jersey June 6, 1997 EX-23.2 13 CONSENT OF AMPER POLITZINER Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation of our report dated June 3, 1996 on the financial statements of Securacom, Incorporated as of December 31, 1995 and for each of the two years then ended which is included in this Form S-1 of Securacom, Incorporated, and to the reference of our Firm under the caption "Experts" in the Form S-1 which is expected to be filed on or about April 30, 1997. AMPER, POLITZINER & MATTIA June 6, 1997 Edison, New Jersey -----END PRIVACY-ENHANCED MESSAGE-----