-----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, Uxxhk3u7tVXeNGyRsrsqLRoIw1zsWUoF8URU6HeUMypUpDP/u9/W4L/xqJKUq0zd PIPJba2R+IRRvACFeBxydg== 0000950135-98-001481.txt : 19980312 0000950135-98-001481.hdr.sgml : 19980312 ACCESSION NUMBER: 0000950135-98-001481 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980311 SROS: NONE GROUP MEMBERS: CANAAN EQUITY L P GROUP MEMBERS: CANAAN EQUITY PARTNERS LLC GROUP MEMBERS: DEEPAK KAMRA GROUP MEMBERS: ERIC A. YOUNG GROUP MEMBERS: GREGORY KOPCHINSKY GROUP MEMBERS: GUY M. RUSSO GROUP MEMBERS: HARRY T. REIN GROUP MEMBERS: ROBERT MIGLIORINO GROUP MEMBERS: STEPHEN L. GREEN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ALARMGUARD HOLDINGS INC CENTRAL INDEX KEY: 0000319250 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 330318116 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-30530 FILM NUMBER: 98563584 BUSINESS ADDRESS: STREET 1: 125 FRONTAGE ROAD STREET 2: STE 1880 CITY: ORANGE STATE: CT ZIP: 06477 BUSINESS PHONE: 6192311818 MAIL ADDRESS: STREET 1: 125 FRONTAGE ROAD STREET 2: STE 1880 CITY: ORANGE STATE: CT ZIP: 06477 FORMER COMPANY: FORMER CONFORMED NAME: TRITON GROUP LTD DATE OF NAME CHANGE: 19950328 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CANAAN EQUITY L P CENTRAL INDEX KEY: 0001037901 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 105 ROWAYTON AVE CITY: ROWAYTON STATE: CT ZIP: 06853 BUSINESS PHONE: 2038550400 SC 13D 1 CANAAN EQUITY, L.P. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. __)* ALARMGUARD HOLDINGS, INC. ------------------------------------------------------------------------------ (Name of Issuer) ------------------------------------------------------------------------------ COMMON STOCK, par value $.0001 per share ------------------------------------------------------------------------------ (Title of Class of Securities) 011649100 ------------------------------------------------------------------------------ (CUSIP Number) Lisel M. Mittelholzer Testa, Hurwitz & Thibeault, LLP High Street Tower 125 High Street Boston, MA (617) 248-7785 ------------------------------------------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) February 2, 1998 ------------------------------------------------------------------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 2 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 2 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Canaan Equity L. P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [X] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* 00 - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 645,161 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 0 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 645,161 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 645,161 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * PN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 3 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 3 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Canaan Equity Partners LLC - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 645,161 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 645,161 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 645,161 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * 00 - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 4 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 4 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Harry T. Rein - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 1,428,264 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 1,428,264 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,428,264 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 22.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 5 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 5 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Stephen L. Green - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 645,161 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 645,161 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 645,161 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 6 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 6 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Deepak Kamra - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 645,161 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 645,161 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 645,161 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 7 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 7 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Gregory Kopchinsky - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 1,428,264 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 1,428,264 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,428,264 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 22.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 8 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 8 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Robert J. Migliorino - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 1,428,264 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 1,428,264 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,428,264 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 22.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 9 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 9 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Guy M. Russo - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 645,161 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 645,161 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 645,161 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 10.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 10 - --------------------------- ----------------------------- CUSIP NO. 011649100 SCHEDULE 13D PAGE 10 OF 16 PAGES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Eric A Young - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 1,428,264 OWNED BY ----------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 0 WITH ----------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 1,428,264 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,428,264 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 22.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. 11 Item 1. SECURITY AND ISSUER. This Schedule 13D report relates to the common stock, par value $.0001 per share (the "Common Stock"), of Alarmguard Holdings, Inc. (the "Issuer"). The principal executive offices of the Issuer are located at 125 Frontage Road, Orange, CT 06477. Item 2. IDENTITY AND BACKGROUND. This statement is filed by Canaan Equity L.P., a Delaware limited partnership, ("Canaan Equity"), Canaan Equity Partners LLC, a Delaware limited liability company, ("Canaan Partners"), Harry T. Rein, Stephen L. Green, Deepak Kamra, Gregory Kopchinsky, Robert J. Migliorino, Guy M. Russo and Eric A. Young (collectively, the "Partners"). Messrs. Rein, Kopchinsky, Migliorino and Young are general partners of other venture capital investment funds which may be deemed to be affiliated with Canaan Equity and Canaan Partners (collectively, the "Canaan Entities"). Canaan Equity, Canaan Partners (which serves as the general partner of Canaan Equity) and the Partners (who serve as general partners of Canaan Partners), are collectively referred to as the "Reporting Persons" in this Schedule 13G. Except in the case of Deepak Kamra and Eric A. Young, the principal business address of the Reporting Persons is 105 Rowayton Avenue, Rowayton, CT 06853. The principal business address of Deepak Kamra and Eric A. Young is 2884 Sand Hill Road, Suite 115, Menlo Park, CA 94025. The principal business of Canaan Equity is to assist growth-oriented businesses located primarily in the United States. The principal business of Canaan Partners is to act as general partner of Canaan Equity. The principal business of each of the Partners is to act as general partner of Canaan Partners and a number of affiliated partnerships with similar businesses. In addition, Messrs. Rein, Kopchinsky, Migliorino and Young also act as a general partners of a number of partnerships affiliated with the Canaan Entities. During the five years prior to the date hereof, none of the Reporting Persons has been convicted in a criminal proceeding or has been a party to a civil proceeding ending in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Canaan Equity is a limited partnership organized under the laws of Delaware. Canaan Partners is a limited liability company organized under the laws of Delaware. Each of the Partners are citizens of the United States. Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On February 2, 1998 Canaan Equity acquired 5,000 shares of Series B Convertible Preferred Stock (the "Preferred Stock") of the Issuer for a total purchase price of $5,000,000.00. The Preferred Stock acquired by Canaan Equity is currently convertible into 645,161 shares of the Issuer's Common Stock. The working capital of Canaan Equity was the source of funds for 12 this purchase. No part of the purchase price was or will be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding, trading or voting the Preferred Stock. Item 4. PURPOSE OF TRANSACTION. Canaan Equity acquired the Issuer's securities for investment purposes. Depending on market conditions, its continuing evaluation of the business and prospects of the Issuer and other factors, Canaan Equity may dispose of or acquire additional securities of the Issuer. Except as set forth above, none of the Reporting Persons has any present plans which relate to or would result in: (a) The acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer; (b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) Any material change in the present capitalization or dividend policy of the Issuer; (f) Any other material change in the Issuer's business or corporate structure, including but not limited to, if the issuer is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company act of 1940; (g) Changes in the Issuer's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) Causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934; or (j) Any action similar to any of those enumerated above. 13 Item 5. INTEREST IN SECURITIES OF THE ISSUER. (a) Canaan Equity is the record owner of 5,000 shares of Preferred Stock. The Preferred Stock is currently convertible into 645,161 shares of the Issuer's Common Stock (the "Conversion Shares"). By virtue of its status as general partner of Canaan Equity, Canaan Partners may be deemed to be the beneficial owner of the Preferred Stock and the Conversion Shares. By virtue of their status as general partners of Canaan Partners, the Partners may each be deemed to be the beneficial owner of the Preferred Stock and the Conversions Shares. By virtue of their affiliation with the Canaan Entities, Messrs. Rein, Kopchinsky, Migliorino and Young may be deemed to be the beneficial owners of the Preferred Stock, the Conversion Shares and 783,103 shares of Common Stock, respectively. Percent of Class: Canaan Equity: 10.3%; Canaan Partners: 10.3%; the Partners (except for Messrs. Rein, Kopchinsky, Migliorino and Young): 10.3%; and Messrs. Rein, Kopchinsky, Migliorino and Young: 22.9% respectively. The foregoing percentages are calculated based on (i) 5,592,000 shares of Common Stock of the Issuer reported to be outstanding on the Bloomberg website in January, 1998 and (ii) the number of shares of Common Stock (645,161) issuable upon the conversion of the Preferred Stock. (b) Regarding the number of shares as to which such person has: (i) sole power to vote or to direct the vote: Canaan Equity: 645,161 shares of Common Stock; and 0 shares of Common Stock for all remaining Reporting Persons. (ii) shared power to vote or to direct the vote: Canaan Equity: 0 shares of Common Stock; all other Reporting Persons (except for Messrs. Rein, Kopchinsky, Migliorino and Young): 645,161 shares of Common Stock; and Messrs. Rein, Kopchinsky, Migliorino and Young: 1,428,264 shares of Common Stock, respectively. (iii) sole power to dispose or to direct the disposition: Canaan Equity: 645,161 shares of Common Stock; and 0 shares of Common Stock for all remaining Reporting Persons. (iv) shared power to dispose or to direct the disposition: 14 Canaan Equity: 0 shares of Common Stock; all other Reporting Persons (except for Messrs. Rein, Kopchinsky, Migliorino and Young): 645,161 shares of Common Stock; and Messrs. Rein, Kopchinsky, Migliorino and Young shares of Common Stock: 1,428,264, respectively. (c) Except as set forth above, none of the Reporting Persons has effected any transaction in the shares of Common Stock during the last 60 days. (d) No other person is known to have the right to receive or the power to direct the receipt of dividends from, or any proceeds from the sale of, shares of Common Stock beneficially owned by any of the Reporting Persons. (e) Not Applicable. Item 6. CONTRACTS, ARRANGEMENTS, UNDERTAKINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Canaan Equity acquired its shares of Series B Convertible Preferred Stock of the Issuer pursuant to a Preferred Stock Purchase Agreement dated as of February 2, 1998 (attached hereto as Exhibit 3) by and between the Issuer and Canaan Equity, Advance Capital Partners, L.P., Advance Capital Offshore Partners, L.P., Elliott Associates, L.P., Westgate International, L.P., Exeter Capital Partners IV, L.P., Aetna Life Insurance Company, Ziff Asset Management, L.P., Oz Master Fund, Ltd., LB I Group Inc., IBJS Capital Corporation, Granite Properties Management Corp., Credit Suisse (Guernsey) Limited as trustee for the Dynamic Growth Fund II, and Paul Finkelstein (collectively, the "Purchasers"). By virtue of the Preferred Stock Purchase Agreement, Canaan Equity acquired 5,000 shares of Series B Convertible Preferred Stock, $.0001 par value, for $1,000.00 per share; and the other Purchasers acquired, in the aggregate, 35,000 shares of Series A Convertible Preferred Stock, $.0001 par value, for $1,000.00 per share. The series A and B Preferred Stock are currently convertible, in the aggregate, into 4,887,586 shares of the Issuer's Common Stock. The holders of Series A and B Convertible Preferred Stock are also entitled to elect two directors to serve on the Issuer's Board of Directors. The terms of conversion and voting rights are more fully set forth in Sections 5 and 6 of the Certificate of Designations of the Issuer dated as of February 2, 1998 (attached hereto as Exhibit 4). Pursuant to a certain Registration Rights Agreement dated February 2, 1998 (attached hereto as Exhibit 5) by and among the Issuer and the Purchasers, the Purchasers are granted, subject to certain restrictions and limitations, certain demand and "piggyback" registration rights with respect to the shares of Common Stock issuable upon the conversion of the Series A and Series B Convertible Preferred Stock. The Series A and B Preferred Stockholders have the option of participating, on a pro rata basis, in any future issuance by the Issuer of warrants, options or rights to purchase 15 preferred and/or common stock offered to the record holders of any class of Common Stock. These purchase rights are more fully set forth in Section 8 of the Certificate of Designations (attached hereto as Exhibit 4). Item 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 - Agreement regarding filing of joint Schedule 13D. Exhibit 2 - Power of Attorney. Exhibit 3 - Preferred Stock Purchase Agreement. Exhibit 4 - Certificate of Designations of Alarmguard Holdings, Inc. Exhibit 5 - Registration Rights Agreement. This filing was made pursuant to a joint filing agreement, a copy of which is attached as Exhibit 1 and pursuant to a Power of Attorney filed a copy of which is attached as Exhibit 2. [Signature Page to Follow] 16 After reasonable inquiry and to the best of my knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. March 11, 1998 CANAAN EQUITY L.P. By:Canaan Equity Partners LLC Its General Partner By: * ---------------------------- Member/Manager CANAAN EQUITY PARTNERS LLC By: * ---------------------------- Member/Manager * ---------------------------- Harry T. Rein * ---------------------------- Stephen L. Green * ---------------------------- Deepak Kamra * ---------------------------- Gregory Kopchinsky * ---------------------------- Robert J. Migliorino * ---------------------------- Guy M. Russo * ---------------------------- Eric A. Young * /s/ Guy M. Russo ---------------------------- Guy M. Russo As Attorney-in-Fact This Schedule 13D was executed by Guy M. Russo pursuant to the Power of Attorney, which is attached hereto as Exhibit 2. EX-1 2 JOINT FILING AGREEMENT 1 EXHIBIT 1 JOINT FILING AGREEMENT Pursuant to Rule 13d-1(f)(1) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree that only one statement containing the information required by Schedule 13D needs to be filed with respect to the ownership by each of the undersigned of shares of stock of Alarmguard Holdings, Inc. EXECUTED this 11th day of March, 1998. CANAAN EQUITY L.P. By: Canaan Equity Partners LLC Its General Partner By: * ---------------------------- Member/Manager CANAAN EQUITY PARTNERS LLC By: * ---------------------------- Member/Manager * ---------------------------- Harry T. Rein * ---------------------------- Stephen L. Green * ---------------------------- Deepak Kamra * ---------------------------- Gregory Kopchinsky * ---------------------------- Robert J. Migliorino * ---------------------------- Guy M. Russo * ---------------------------- Eric A. Young */s/ Guy M. Russo ---------------- Guy M. Russo As Attorney-in-Fact This Schedule 13D was executed by Guy M. Russo pursuant to the Power of Attorney, which is attached hereto as Exhibit 2. EX-2 3 POWER OF ATTORNEY 1 EXHIBIT 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Guy M. Russo his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign any and all instruments, certificates and documents required to be executed on behalf of himself as an individual or in his capacity as a general partner or authorized signatory, as the case may be, on behalf of any of Canaan Equity L.P.; Canaan Equity Offshore C.V.; Canaan Offshore Management, N.V. or Canaan Equity Partners LLC pursuant to the Securities Act of 1933, as amended, (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any and all regulations promulgated thereunder and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission, and with any other entity when and if such is mandated by the Securities Act, the Exchange Act or by the By-laws of the National Association of Securities Dealers, Inc., granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby, and ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof, or may have done in connection with the matters described above. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 2 IN WITNESS WHEREOF, this Power of Attorney has been signed as of the 11th day of March, 1998. CANAAN EQUITY L.P. By: Canaan Equity Partners LLC Its General Partner By: /s/ Harry T. Rein ---------------------------- Member/Manager CANAAN EQUITY OFFSHORE C.V. By: Canaan Offshore Management N.V. Its General Partner By: /s/ Harry T. Rein ---------------------------- Director CANAAN OFFSHORE MANAGEMENT, N.V. By: /s/ Harry T. Rein ---------------------------- Director CANAAN EQUITY PARTNERS LLC By: /s/ Harry T. Rein ---------------------------- Member/Manager 3 /s/ Harry T. Rein ---------------------------- Harry T. Rein /s/ Stephen L. Green ---------------------------- Stephen L. Green /s/ Deepak Kamra ---------------------------- Deepak Kamra /s/ Gregory Kopchinsky ---------------------------- Gregory Kopchinsky /s/ Robert J. Migliorino ---------------------------- Robert J. Migliorino /s/ Guy M. Russo ---------------------------- Guy M. Russo /s/ Eric A. Young ---------------------------- Eric A. Young 393LMM1355/1.485651-1 EX-3 4 PREFERRED STOCK PURCHASE AGREEMENT 1 Exhibit 3 --------- ALARMGUARD HOLDINGS, INC. PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY 2, 1998 2 TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS.......................................................1 1.1 Definitions; Interpretation........................................1 ARTICLE II ISSUANCE AND SALE OF PREFERRED STOCK.............................6 2.1 Number of Shares and Price.........................................6 ARTICLE III CLOSING; CLOSING DELIVERIES.....................................6 3.1 Closing............................................................6 3.2 Payment for and Delivery of Preferred Shares.......................6 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................7 4.1 Existence; Qualification; Subsidiaries.............................7 4.2 Authorization and Enforceability; Issuance of Shares...............7 4.3 Capitalization.....................................................8 4.4 Private Sale; Voting Agreements....................................8 4.5 Financial Statements; Disclosure...................................8 4.6 Absence of Certain Changes.........................................9 4.7 Litigation........................................................10 4.8 Licenses, Compliance with Law, Other Agreements, Etc..............11 4.9 Third-Party Approvals.............................................11 4.10 No Undisclosed Liabilities........................................11 4.11 Tangible Assets...................................................11 4.12 Inventory.........................................................11 4.13 Owned Real Property...............................................11 4.14 Real Property Leases..............................................12 4.15 Agreements........................................................12 4.16 Intellectual Property.............................................12 4.17 Employees.........................................................12 4.18 ERISA; Employee Benefits..........................................13 4.19 Environment, Health and Safety....................................13 4.20 Transactions With Affiliates......................................14 4.21 Taxes.............................................................14 4.22 Other Investors...................................................14 4.23 Year 2000 Representations.........................................14 4.24 Seniority.........................................................15 4.25 Investment Company................................................15 4.26 Certain Fees......................................................15 4.27 Solicitation Materials............................................15 4.28 Form S-3 Eligibility..............................................16 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 3 4.29 Listing and Maintenance Requirements Compliance...............................16 4.30 Registration Rights; Rights of Participation..................................16 4.31 Recent Results of Operations..................................................16 4.32 Small Business Matters........................................................16 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............................17 5.1 Authorization and Enforceability..............................................17 5.2 Government Approvals..........................................................17 ARTICLE VI COMPLIANCE WITH SECURITIES LAWS............................................17 6.1 Investment Intent of Purchaser................................................17 6.2 Status of Preferred Shares....................................................17 6.3 Sophistication and Financial Condition of Purchaser...........................17 6.4 Transfer of Preferred Shares and Conversion Shares............................17 6.5 Exculpation Among Purchasers..................................................19 ARTICLE VII CONDITIONS PRECEDENT......................................................19 7.1 Closing Deliveries to the Purchasers..........................................19 7.2 Closing Deliveries to the Company.............................................20 ARTICLE VIII COVENANTS OF THE COMPANY.................................................20 8.1 Restricted Actions............................................................20 8.2 Required Actions..............................................................21 8.3 Reservation of Common Stock...................................................23 8.4 Purchasers' Rights if Trading in Common Stock is Suspended or Delisted........23 8.5 Use of Proceeds...............................................................23 ARTICLE IX SURVIVAL...................................................................24 9.1 Survival......................................................................24 ARTICLE X INDEMNIFICATION.............................................................24 10.1 Indemnification...............................................................24 ARTICLE XI GENERAL PROVISIONS.........................................................25 11.1 Successors and Assigns........................................................25 11.2 Entire Agreement..............................................................25 11.3 Notices.......................................................................25 11.4 Purchasers Fees and Expenses..................................................26 11.5 Amendment and Waiver..........................................................26 11.7 Counterparts..................................................................27 11.8 Headings......................................................................27 11.9 Specific Performance..........................................................27 11.10 Remedies Cumulative...........................................................27
X:\LEGAL\393LMM\DOC\AFHM_1.DOC 4 11.11 GOVERNING LAW......................................................27 11.12 No Third Party Beneficiaries.......................................27 11.13 Severability.......................................................27 Schedule I Purchasers Exhibit A Amendment to the Certificate of Designations. Exhibit B Financial Statements Exhibit C Registration Rights Agreement Exhibit D Opinion of Counsel X:\LEGAL\393LMM\DOC\AFHM_1.DOC 5 PREFERRED STOCK PURCHASE AGREEMENT PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT") dated as of February 2, 1998 between Alarmguard Holdings, Inc., a Delaware corporation (the "COMPANY"), Advance Capital Partners, L.P., a Delaware limited partnership, Advance Capital Offshore Partners, L.P., a Cayman Islands limited partnership (collectively, "ADVANCE"), and each of the other purchasers set forth on Schedule I hereto (with Advance, each a "PURCHASER" and collectively the "PURCHASERS"). The Purchasers desire to purchase from the Company, and the Company desires to issue to the Purchasers, shares of Series A Convertible Preferred Stock $.0001 par value per share of the Company (the "SERIES A PREFERRED") and Series B Convertible Preferred Stock $.0001 par value per share of the Company (the "Series B PREFERRED"). In consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties hereto agree as follows: ARTICLE I DEFINITIONS I.1 DEFINITIONS; INTERPRETATION. (a) For purposes of this Agreement, the following terms have the indicated meanings: "ADVANCE" has the meaning set forth in the recitals hereof. "ADVANCE CLOSING" has the meaning set forth in Section 3.1. "ADVANCE CLOSING DATE" has the meaning set forth in Section 3.1. "AFFILIATE" of a person means any other person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such person. "CERTIFICATE OF DESIGNATIONS" means the Certificate of Designations designating the rights and preferences of the Series A Preferred and Series B Preferred adopted by the Board of Directors of the Company and set forth as EXHIBIT A hereto. "CLOSING" has the meaning set forth in Section 3.1. X:\LEGAL\393LMM\DOC\AFHM_1.DOC 6 "CLOSING DATE" has the meaning set forth in Section 3.1. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMON STOCK" means the common stock of the Company, par value $.0001 per share. "COMPANY" has the meaning set forth in the recitals hereof. "CONFIDENTIAL INFORMATION" means any information concerning the Company's business other than information that (i) was already known to the Person having a duty to keep confidential such information on a nonconfidential basis prior to the time of disclosure, (ii) is or becomes generally available to the public through no act or omission of such Person or (iii) becomes available to such Person on a nonconfidential basis from a source other than any party hereto (or any agent or representative thereof) if such source was not under a prohibition against disclosing the information to such Person. "CONVERSION SHARES" means shares of Common Stock issued or issuable upon conversion of Preferred Shares. "CREDIT AGREEMENT" means that certain Third Amended and Restated Acquisition Credit and Term Loan Agreement by and among the Company, certain Subsidiaries of the Company, BankBoston, N.A. as Administrative Agent, General Electric Capital Corporation as Documentation Agent and the lenders party thereto, as the same may be amended, restated, modified or supplemented from time to time. "CURRENT BALANCE SHEET" means the unaudited balance sheet of the Company dated September 30, 1997. "ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or by-products, asbestos, polychlorinated biphenyls, noise or radiation. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 7 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FINANCIAL STATEMENTS" means (i) the unaudited balance sheets of the Company for the quarterly periods ended June 30, 1997 and September 30, 1997, each as included in a quarterly report of the Company on Form 10-Q as filed with the SEC pursuant to the Exchange Act and the audited balance sheet of Triton Group Ltd. dated March 31, 1997 as included in the annual report of Triton Group Ltd. (a predecessor to the Company) on Form 10-K as filed with the SEC pursuant to the Exchange Act and the related unaudited and audited, as applicable, statements of income and consolidated cash flow for the quarterly and fiscal year-to-date periods then ended, each as included in the Company's applicable quarterly report or annual report on Form 10-Q and Form 10-K, as applicable, as filed with the SEC pursuant to the Exchange Act, and (ii) the unaudited balance sheet of Security Systems Holdings, Inc. for the quarterly period ended March 31, 1997 and the audited balance sheet of Security Systems Holdings, Inc. dated December 31, 1996 and the related unaudited and audited, as applicable, statements of income and consolidated cash flow for the quarterly and fiscal year-to-date periods then ended, all of which are attached as EXHIBIT B hereto. "Financing" means the purchase of Preferred Shares by the SBIC Holders hereunder. "GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. "GOVERNMENTAL AGENCY" means any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body and the American Stock Exchange. "INCLUDES" and "INCLUDING" mean includes and including, without limitation. "INTELLECTUAL PROPERTY" means all patents, patent applications and inventions; all trademarks, service marks, trade dress, trade names and corporate names and all goodwill associated therewith; all copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, Confidential Information, know-how, technical and computer data, documentation and software, financial, business and marketing plans, customer and supplier lists and all other intellectual property rights; and all copies and tangible embodiments of the foregoing. "IRS" means the Internal Revenue Service. "KNOWLEDGE" or "KNOW" when used with respect to the Company means the knowledge of the senior management of the Company, or any other management personnel that has had significant involvement in the business and affairs of the Company. 3 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 8 "LIABILITY" means any liability or obligation (whether absolute or contingent, liquidated or unliquidated or due or to become due). "LIEN" means any lien, mortgage, pledge, security interest, restriction, charge or other encumbrance. "MATERIAL ADVERSE CHANGE" means any material adverse change in the business, condition (financial or otherwise), prospects or results of operations of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the business, condition (financial or otherwise), prospects or results of operations of the Company and its Subsidiaries taken as a whole, or (ii) the transactions contemplated hereby or by the Related Documents. "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past practice (including with respect to quantity, quality and frequency). "PERMITTED LIENS" means (i) liens for taxes not yet due and taxes for which adequate provision is made in the Current Balance Sheet, (ii) purchase money security interests in supplies and equipment, (iii) precautionary liens filed by lessors with respect to leased equipment, (iv) encumbrances which are not substantial in amount, do not materially detract from the value of the property subject thereto and do not materially impair the use of the property subject thereto or the operation of the Company's business, and (v) liens securing the obligations under the Credit Agreement and the other documents, agreements and instruments executed in connection therewith. "PERSON" means any individual, partnership, joint venture, corporation, trust, unincorporated organization or other entity. "PLAN" means any employee benefit plan (as defined in Section 3(3) of ERISA), subject to Title IV of ERISA or the minimum funding requirements of Section 412 of the Code, maintained or contributed to by the Company, its predecessor or any Subsidiary at any time during the 5-calendar years immediately preceding the date of this Agreement. "PREFERRED SHARES" has the meaning set forth in Section 2.1. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement between the Company and the Purchasers in the form of EXHIBIT C hereto. "RELATED DOCUMENTS" means all documents and instruments to be executed or adopted by the Company in connection herewith, including the Certificate of Designations, the Preferred Shares and the Registration Rights Agreement. 4 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 9 "SBA" means the United States Small Business Administration, and any successor agency performing the functions thereof. "SBIC" means a Small Business Investment Company licensed by the SBA under the SBIC Act. "SBIC Act" means the Small Business Investment Act of 1958, as amended. "SBIC HOLDERS" means IBJS Capital Corporation and Exeter Capital Partners IV, L.P. "SBIC Regulations" means the SBIC Act and the regulations issued by the SBA thereunder, codified at Title 13 of the Code of Federal Regulations ("13 CFR"), Parts 107 and 121. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SERIES A PREFERRED" has the meaning set forth in the recitals hereof. "SERIES B PREFERRED" has the meaning set forth in the recitals hereof. "SUBSIDIARY" means any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by the Company. For purposes hereof, the Company shall be deemed to have a majority ownership interest in a partnership, association or other business entity if the Company, directly or indirectly, is allocated a majority of partnership, association or other business entity gains or losses, or is or controls the managing director or general partner of such partnership, association or other business entity. "TAX" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code ss.59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "TAX RETURNS" means any return, declaration, report, claim for refund, or 5 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 10 information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. (b) The words "HEREIN", "HEREOF" and "HEREUNDER" refer to this Agreement as a whole and not to any particular article, section or other subdivision of this Agreement. ARTICLE II ISSUANCE AND SALE OF PREFERRED II.1 NUMBER OF SHARES AND PRICE. On the terms and subject to the conditions of this Agreement, at the Closing, the Company shall issue to the Purchasers, 27,750 shares of Series A Preferred and 5,000 shares of Series B Preferred (collectively, with the Shares of Series A Preferred to be issued to Advance at the Advance Closing, the "PREFERRED SHARES") for a purchase price of $1,000 per share. On the terms and subject to the conditions of this Agreement, at the Advance Closing, the Company shall issue to Advance, 7,250 shares of Series A Preferred for a purchase price of $1,000 per share. Each Purchaser's obligation to purchase the number of Preferred Shares opposite such Purchaser's name on Schedule I hereto shall be subject to the prior or simultaneous purchase by each other Purchaser (other than Advance) of the number of Preferred Shares opposite such Purchaser's name on Schedule I hereto. ARTICLE III CLOSING; CLOSING DELIVERIES III.1 CLOSING. The closing of the transactions contemplated hereby (the "CLOSING") shall take place at 10:00 a.m. on February 2, 1998, at the offices of Kirkland & Ellis, New York, New York or at such other time, place and/or date as shall be agreed upon by the parties hereto except that the closing of the issuance and sale of Preferred Shares to Advance (the "ADVANCE CLOSING") shall take place at 10:00 a.m. on February 13, 1998 or on such other date as shall be agreed upon by the Company and Advance. The date upon which the Closing occurs is referred to herein as the "CLOSING DATE" and the date upon which the Advance Closing occurs is referred to herein as the "ADVANCE CLOSING DATE". III.2 PAYMENT FOR AND DELIVERY OF PREFERRED SHARES. At the Closing, the Company shall issue and deliver to the Purchasers, stock certificates for the Preferred Shares duly registered in the name of each Purchaser, against payment by such Purchaser, by wire transfer of immediately-available funds to the account designated by the Company, of the purchase price therefor set forth in Section 2.1. At the Advance Closing, the Company shall issue and deliver to Advance stock certificates for the Preferred Shares duly registered in the name of Advance, against payment by Advance, by wire transfer of immediately-available funds to the account 6 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 11 designated by the Company, of the purchase price therefor set forth in Section 2.1. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to each Purchaser as follows: IV.1 EXISTENCE; QUALIFICATION; SUBSIDIARIES. The Company and each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has full corporate power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. The copies of the Restated Certificate of Incorporation and By-Laws of the Company and all amendments thereto previously delivered to the Purchasers are true, correct and complete copies of such documents. The Company and each Subsidiary is licensed or qualified as a foreign corporation and is in good standing in all jurisdictions where such person is required to be so licensed or qualified, except where the failure to be so licensed, qualified or in good standing would not have a Material Adverse Effect. Except as set forth on SCHEDULE 4.1, the Company has no Subsidiaries and owns no capital stock or other securities of, and has not made any other investment in, any other entity. All of the issued shares of capital stock of each Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or adverse claims other than liens securing the obligations under the Credit Agreement. IV.2 AUTHORIZATION AND ENFORCEABILITY; ISSUANCE OF SHARES. (a) The Company has full power and authority and has taken all required corporate and other action necessary to permit it to execute and deliver this Agreement and the Related Documents and to carry out the terms hereof and thereof and to issue and deliver the Preferred Shares and the Conversion Shares (including adoption of the Certificate of Designations), and none of such actions will violate any provision of the Restated Certificate of Incorporation of the Company, the By-Laws of the Company or of any applicable law, regulation, order, judgment or decree or rule of the stock exchange where the Company's Common Stock is listed, or result in the breach of or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under any material agreement, instrument or understanding to which the Company is a party or by which it is bound or by which it will become bound as a result of the transaction contemplated by this Agreement. This Agreement and each of the Related Documents constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. 7 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 12 (b) The Preferred Shares have been duly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued and outstanding. The Preferred Shares and, when issued, the Conversion Shares, will be fully paid and nonassessable. The Conversion Shares have been duly reserved for issuance upon conversion of the Preferred Shares and, when so issued, will be duly authorized, validly issued and outstanding, fully paid and nonassessable shares of Series A Preferred, Series B Preferred or Common Stock, as the case may be. Neither the issuance and delivery of the Preferred Shares nor the issuance and delivery of any Conversion Shares upon conversion of any Preferred Shares is subject to any preemptive right of any stockholder of the Company or to any right of first refusal or other similar right in favor of any Person which has not been waived. IV.3 CAPITALIZATION. As of the Closing, the authorized capital stock of the Company shall consist of (i) 25,000,000 shares of Common Stock, par value $.0001 per share, of which 5,592,476 shares are outstanding, 4,972,434 shares are reserved for issuance upon conversion of Preferred Shares and 770,000 shares are reserved for issuance upon the exercise of certain stock options, and (ii) 5,000,000 shares of Preferred Stock, par value $.0001 per share, of which 35,700 shares have been designated Series A Preferred and 5,000 shares have been designated Series B Preferred, of which 40,000 shares will be sold to the Purchasers pursuant to this Agreement. At the time of the Closing, all of the outstanding capital stock will be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder). Except as set forth on SCHEDULE 4.3, as of the Closing, the Company has not granted or issued any options, convertible securities, warrants, calls, pledges, transfer restrictions (except restrictions imposed by federal and state securities laws), liens, rights of first offer, rights of first refusal, antidilution provisions or commitments of any character relating to any issued or unissued shares of capital stock of the Company other than as contemplated in the Related Documents. Except as contemplated by this Agreement and the Related Documents or as set forth in SCHEDULE 4.3, there are no preemptive or other preferential rights applicable to the issuance and sale of securities of the Company, including the Preferred Shares. IV.4 PRIVATE SALE; VOTING AGREEMENTS. Assuming the accuracy of the representations and warranties made by recipients of the Company's capital stock made in connection with the acquisition of such capital stock, the Company has not violated any applicable federal or state securities laws in connection with the offer, sale and issuance of any of its capital stock. Subject to the accuracy of the Purchaser's representations contained herein, neither the offer, sale and issuance of the Preferred Shares hereunder nor the issuance and delivery of any Preferred Shares or Conversion Shares upon conversion of any Preferred Shares requires registration under the Securities Act or any state securities laws. IV.5 FINANCIAL STATEMENTS; DISCLOSURE. (a) The Financial Statements (together with the notes thereto, as applicable), (i) are true, correct and complete in all material respects, (ii) are in accordance with the books and records of the Company and (iii) fairly present the financial condition and 8 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 13 results of operations of the Company as of the dates and for the periods indicated, in accordance with GAAP except that the unaudited balance sheets and related financial statements do not contain an auditors' opinion and do not contain footnotes and are subject to normal year-end audit adjustments. (b) This Agreement together with the schedules, attachments, exhibits, written statements and certificates supplied to the Purchasers by or on behalf of the Company with respect to the transactions contemplated hereby does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading. There is no fact which has not been disclosed to the Purchasers in writing of which the Company has knowledge, and which has had or would reasonably be anticipated to have a Material Adverse Effect. (c) As of its filing date, each document filed with the SEC by the Company, as amended or supplemented prior to the Closing Date, if applicable, pursuant to the Securities Act and/or the Exchange Act (i) complied in all material respects with the applicable requirements of the Securities Act and/or Exchange Act and (ii) did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each final registration statement filed with the SEC by the Company pursuant to the Securities Act, as of the date such statement became effective (i) complied in all material respects with the applicable requirements of the Securities Act and (ii) did not contain 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 (in the case of any prospectus, in light of the circumstances under which they were made). IV.6 ABSENCE OF CERTAIN CHANGES. (a) Except as set forth on SCHEDULE 4.6 since the date of the Current Balance Sheet, neither the Company nor any Subsidiary has: (i) incurred any Liabilities other than current Liabilities incurred, or obligations under contracts entered into, in the Ordinary Course of Business and for individual amounts not greater than $250,000; (ii) paid, discharged or satisfied any claim, Lien or Liability, other than any claim, Lien or Liability (A) reflected or reserved against on the Current Balance Sheet and paid, discharged or satisfied in the Ordinary Course of Business since the date of the Current Balance Sheet or (B) incurred and paid, discharged or satisfied since the date of the Current Balance Sheet, in each case in the Ordinary Course of Business; 9 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 14 (iii) sold, leased, assigned or otherwise transferred any of its assets, tangible or intangible (other than sales of inventory in the Ordinary Course of Business and use of supplies in the Ordinary Course of Business); (iv) permitted any of its assets, tangible or intangible, to become subject to any Lien (other than any Permitted Lien); (v) written off as uncollectible any accounts receivable other than (1) in the Ordinary Course of Business, or (2) for amounts not greater than $100,000; (vi) terminated or amended or suffered the termination or amendment of, other than in the Ordinary Course of Business, failed to perform in all material respects all of its obligations or suffered or permitted any material default to exist under, any material agreement, license or permit; (vii) suffered any damage, destruction or loss of tangible property (whether or not covered by insurance) which in the aggregate exceeds $100,000; (viii) made any loan (other than intercompany advances) to any other Person (other than advances to employees in the Ordinary Course of Business which do not exceed $5,000 individually or $25,000 in the aggregate); (ix) canceled, waived or released any debt, claim or right in an amount or having a value exceeding $100,000; (x) paid any amount to or entered into any agreement, arrangement or transaction with any Affiliate (including its officers, directors and employees) outside the Ordinary Course of Business and which was not approved by a majority of the Company's disinterested directors; (xi) declared, set aside, or paid any dividend or distribution with respect to its capital stock or redeemed, purchased or otherwise acquired any of its capital stock; (xii) other than in the Ordinary Course of Business, granted any increase in the compensation of any officer or employee or made any other change in employment terms of any officer or employee; (xiii) made any change in any method of accounting or accounting practice; (xiv) suffered or caused any other occurrence, event or transaction outside the Ordinary Course of Business which could have a Material Adverse Effect; 10 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 15 or (xv) agreed, in writing or otherwise, to any of the foregoing. (b) Since the date of the Current Balance Sheet there has been no Material Adverse Change. IV.7 LITIGATION. As of the date hereof no claim, suit, proceeding or investigation is pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any officer or director thereof or the Company's and the Subsidiaries' business which if decided adversely to any such person could have a Material Adverse Effect. IV.8 LICENSES, COMPLIANCE WITH LAW, OTHER AGREEMENTS, ETC. The Company and each Subsidiary have all material franchises, permits, licenses and other rights to allow it to conduct its business and is not in violation, in any material respects of any order or decree of any court, or of any law, order or regulation of any Governmental Agency, or of the provisions of any material contract or agreement to which it is a party or by which it is bound, and neither this Agreement nor the Related Documents nor the transactions contemplated hereby or thereby will result in any such violation except where the failure to have any such franchise permit or license or any such violation could not be expected to have a Material Adverse Effect. The Company's and the Subsidiaries' business has been conducted in all material respects in compliance with all federal, state and local laws, ordinances, rules and regulations, except where such violations, defaults or noncompliance would not have a Material Adverse Effect. IV.9 THIRD-PARTY APPROVALS. Assuming the accuracy of the representations and warranties of the Purchasers contained in this Agreement, the Company is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency or other third party (including under any state securities or "blue sky" laws) in connection with the execution and delivery of this Agreement or the Related Documents, or the consummation of the transactions contemplated hereby or thereby to occur on the Closing Date or the Advance Closing Date, except for any consents, approvals or authorizations the failure to obtain which could not have a Material Adverse Effect. IV.10 NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its Subsidiaries has any Liabilities except (i) as and to the extent of the amounts reflected or reserved against on the Current Balance Sheet (excluding the footnotes thereto), (ii) liabilities and obligations incurred in the Ordinary Course of Business since the date thereof, (iii) such other liabilities that in the aggregate will not result in a Material Adverse Effect, and (iv) Liabilities under the Credit Agreement (as defined therein). IV.11 TANGIBLE ASSETS. The Company and its Subsidiaries own or lease all tangible assets used or reasonably necessary in connection with the conduct of its business. All material tangible assets are free from any Liens (other than Permitted Liens), are free from any material defects, have been maintained in accordance with normal industry practice and any regulatory 11 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 16 standard or procedure to which such assets are subject, are in good operating condition and repair (subject to normal wear and tear) and are suitable for the purposes for which such assets are used or proposed to be used, other than liens, defects and wear and tear which in the aggregate could not be expected to have a Material Adverse Effect. IV.12 INVENTORY. All inventory of the Company and its Subsidiaries, whether reflected on the Current Balance Sheet or otherwise, consists of a quality and quantity usable or salable in the Ordinary Course of Business, subject to normal rates of defect or obsolescence not inconsistent with the Company's historical experience. IV.13 OWNED REAL PROPERTY. The Company and its Subsidiaries own no real property. IV.14 REAL PROPERTY LEASES. There exists no event of default (nor any event which with notice or lapse of time would constitute an event of default) with respect to the Company, any Subsidiary and, to the Company's knowledge, with respect to any other party thereto under any agreement pursuant to which the Company is the lessee or lessor of any real property, except for such defaults and defects in enforceability as could not in the aggregate be expected to have a Material Adverse Effect, and all such agreements are in full force and effect and enforceable against the lessor or lessee in accordance with their terms except for such defaults and defects in enforceability as could not in the aggregate be expected to have a Material Adverse Effect. IV.15 AGREEMENTS. Neither the Company nor any Subsidiary is in default, nor to the knowledge of the Company is there any basis for a valid claim of default, and to the Company's knowledge no event has occurred which, with notice or lapse of time, would constitute a default, under any agreement, arrangement or understanding to which the Company or any Subsidiary is a party, and to the knowledge of the Company no other Person is in default under any such agreement, in each case other than defaults which in the aggregate could not be expected to have a Material Adverse Effect. Additionally, neither the Company nor any Subsidiary is party to any agreement the performance of which in accordance with its terms (including any termination provision thereof) could be expected to have a Material Adverse Effect. IV.16 INTELLECTUAL PROPERTY. SCHEDULE 4.16 sets forth a complete list of (i) all patented, registered or applied for Intellectual Property owned or filed by the Company; and (ii) all trade names and material unregistered trademarks used by the Company in connection with its business. The Company owns and possesses all right, title and interest in and to, or has a valid and enforceable license to use, the Intellectual Property necessary for the operation of its business as currently conducted and as currently proposed to be conducted, and no claim by any third party contesting the validity, enforceability, use or ownership of such Intellectual Property has been made or, to the knowledge of the Company, is threatened. The Company has not infringed or misappropriated the Intellectual Property of any third party. IV.17 EMPLOYEES. Except as set forth on SCHEDULE 4.17, since the date of the Current Balance Sheet, no key employees and no group of employees has terminated, or to the 12 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 17 knowledge of the Company plans to terminate, employment with the Company or any Subsidiary, as applicable. Except as set forth on SCHEDULE 4.17, the Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strike, material grievance, material claim of unfair labor practice or other collective bargaining dispute. Except as set forth on Schedule 4.17, to the knowledge of the Company there is no organizational effort being made or threatened by or on behalf of any labor union with respect to its employees. The Company has not committed any unfair labor practice or materially violated any federal, state or local law or regulation regulating employers or the terms and conditions of its employees' employment, including laws regulating employee wages and hours, employment discrimination, employee civil rights, equal employment opportunity and employment of foreign nationals, except for such violations as could not be expected to have a Material Adverse Effect. IV.18 ERISA; EMPLOYEE BENEFITS. Each Plan (other than a Plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA) that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service or has timely filed for a favorable determination letter from the Internal Revenue Service and no event has occurred since the date of the last determination letter that could reasonably be expected to materially adversely affect the qualified status of such Plan. Each Plan (other than a Plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA) is in full force and effect and has been administered in all material respects in accordance with its terms and is and has been, and each plan administrator and fiduciary of a Plan is acting and has been acting, in compliance in all material respects with all applicable requirements of the Code and ERISA (including the funding, reporting and disclosure and prohibited transaction provisions thereof) and other applicable laws, regulations and rulings in connection with each such Plan. No Plan has been terminated or partially terminated. With respect to each Plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA, no complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) has occurred, no such Plan is in reorganization or insolvency (within the meaning of Title IV of ERISA) and no material withdrawal liability has been assessed against the Company. The Company or one of its Subsidiaries has made, accrued or provided for all contributions required under each Plan. To the knowledge of the Company, no event has occurred or is reasonably expected to occur with respect to any employee pension benefit plan of the Company or any member of the Company's controlled group (within the meaning of Section 414 of the Code), which could reasonably be expected to directly or indirectly result in any material liability (other than liability arising in the ordinary course) to the Company or any member of its controlled group pursuant to Title IV of ERISA or Section 412 of the Code. No Plan (other than a Plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA) has incurred an "accumulated funding deficiency" within the meaning of Section 412 of the Code or Section 302 of ERISA. IV.19 ENVIRONMENT, HEALTH AND SAFETY. (a) The Company (as used in this Section 4.19, Company shall include the Company's Subsidiaries and its predecessor) has complied and is in compliance in all 13 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 18 material respects with all Environmental and Safety Requirements that are applicable to the Company's business. (b) The Company has not received any written notice, report or other information regarding any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to the Company or its facilities and arising under Environmental and Safety Requirements. (c) The Company has not, either expressly or by operation of law, assumed or undertaken any liability, including without limitation any obligation for corrective or remedial action, of any other person relating to Environmental and Safety Requirements. IV.20 TRANSACTIONS WITH AFFILIATES. Except as disclosed in filings made by the Company with the SEC pursuant to the Securities Act and the Exchange Act, neither the Company nor any Subsidiary is party to any agreement, arrangement or transaction with any Affiliate which is material to the Company's and its Subsidiaries business, taken as a whole. IV.21 TAXES. (a) Each of the Company, its predecessor and its Subsidiaries has filed all Tax Returns that it was required to file, and has paid all Taxes shown thereon as owing, except where the failure to file Tax Returns or to pay Taxes would not have a Material Adverse Effect on the financial condition of the Company and its Subsidiaries taken as a whole. (b) None of the Company and its Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal Tax Return (other than a group the common parent of which was the Company) or (B) has any Liability for the Taxes of any Person (other than any of the Company and its Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (c) Each of the Company, its predecessor and its Subsidiaries has withheld and paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (d) There is no dispute or claim concerning any Tax Liability of any of the Company and its Subsidiaries either (A) claimed or raised by any authority in writing or (B) as to which any of the directors and officers (and employees responsible for Tax matters) of the Company and its Subsidiaries has knowledge based upon personal contact with any agent of such authority and which is material to the Company and its Subsidiaries taken as a whole. IV.22 OTHER INVESTORS. Set forth on SCHEDULE 4.22 is a list of all shareholders of the 14 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 19 Company who as of the date hereof, based upon Schedule I hereto and SEC filings of shareholders, after giving effect to the terms hereof, own more than 5% of the fully diluted common equity of the Company and sets forth such percentage ownership. IV.23 YEAR 2000 REPRESENTATIONS. (a) None of the computer software, computer firmware, computer hardware (whether general or special purpose) or other similar or related items of automated, computerized or software systems that are used or relied on by Company or by any of its Subsidiaries in the conduct of their respective businesses will malfunction, will cease to function, will generate incorrect data or will produce incorrect results when processing, providing or receiving (i) date-related data from, into and between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries. (b) None of the products and services sold, licensed, rendered, or otherwise provided by the Company or by any of its Subsidiaries in the conduct of their respective businesses will malfunction, will cease to function, will generate incorrect data or will produce incorrect results when processing, providing or receiving (i) date-related data from, into and between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries; and, accordingly, neither the Company nor any of its Subsidiaries is or will be subject to any claim, demand, action, suit, liability, damage, material loss, or material expense arising from, or related to, circumstances where such products and services malfunction, cease to function, generate incorrect data, or produce incorrect results when processing, providing or receiving (i) date-related data from, into and between the twentieth and twenty-first centuries or (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries. (c) Neither the Company nor any of its Subsidiaries has made any other representations or warranties regarding the ability of any product or service sold, licensed, rendered, or otherwise provided by the Company or by any of its Subsidiaries in the conduct of their respective businesses to operate without malfunction, to operate without ceasing to function, to generate correct data or to produce correct results when processing, providing or receiving (i) date-related data from, into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries. IV.24 SENIORITY. No class of equity securities of the Company is senior to the Preferred Shares in right of payment, whether upon liquidation, dissolution or otherwise. IV.25 INVESTMENT COMPANY. The Company is not, and is not controlled by or under common control with an affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 15 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 20 IV.26 CERTAIN FEES. Other than fees and expenses due and payable to Lehman Brothers, no fees or commissions will be payable by the Company to any broker, financial advisor, finder, investment banker, or bank with respect to the transactions contemplated by this Agreement. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of Lehman Brothers or other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold harmless each of the Purchasers, its employees, officers, directors, agents and partners, and their respective affiliates (as such term is defined under Rule 405 promulgated under the Securities Act), from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect to any such claimed or existing fees. IV.27 SOLICITATION MATERIALS. The Company has not (i) distributed any offering materials in connection with the offering and sale of the Preferred Shares other than the disclosure materials delivered to Purchasers (the "Disclosure Materials") or (ii) solicited any offer to buy or sell the Preferred Shares by means of any form of general solicitation or advertising. None of the Disclosure Materials or any other information provided to the Purchasers by or on behalf of the Company contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. IV.28 FORM S-3 ELIGIBILITY. No later than May 1, 1998, the Company will be eligible to register securities for resale with the SEC under Form S-3 promulgated under the Securities Act. IV.29 LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. (i) The Company has not received notice (written or oral) from the American Stock Exchange that the Company is not in compliance with the listings or maintenance requirements of such Exchange. (ii) Upon conversion of the Preferred Shares into shares of Common Stock and upon the affirmative vote of the Company's shareholders approving the issuance of the Preferred Shares and the Conversion Shares, which vote shall occur not later than July 31, 1998, all Conversion Shares shall be listed on the American Stock Exchange. IV.30 REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as described on Schedule 4.30 hereto, (A) the Company has not granted or agreed to grant to any Person any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the SEC or any other governmental authority which has not been satisfied and (B) no Person, including, but not limited to, current or former shareholders of the Company, underwriters, brokers or agents, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by this Agreement or any other related document which has not been waived. IV.31 RECENT RESULTS OF OPERATIONS. Set forth on SCHEDULE 4.31 is (i) the 16 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 21 Company's monthly recurring revenues for the month of December 1997 and (ii) the Company's number of subscribers as of December 31, 1997, each as prepared and calculated in the Ordinary Course of Business. IV.32 SMALL BUSINESS MATTERS. The Company acknowledges that each SBIC Holder is a federally licensed SBIC under the SBIC Act. The Company, together with its "affiliates" (as that term is defined in 13 CFR ss.121.103), is a "small business concern" within the meaning of the SBIC Regulations, including 13 CFR ss.121.301. The information regarding the Company and its affiliates set forth in SBA Form 480, Form 652 and Parts A and B of Form 1031 delivered at the Closing will be accurate and complete. Neither the Company nor any of its subsidiaries will use the proceeds of the Financing directly or indirectly for any purpose, for which an SBIC is prohibited from providing funds by SBIC Regulations (including 13 CFR ss.107.720). ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser hereby represents and warrants to the Company as follows: V.1 AUTHORIZATION AND ENFORCEABILITY. Such Purchaser has taken all action necessary to permit it to execute and deliver this Agreement and the other documents and instruments to be executed by it pursuant hereto and to carry out the terms hereof and thereof. This Agreement and each such other document and instrument, when duly executed and delivered by such Purchaser, will constitute a valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms. V.2 GOVERNMENT APPROVALS. Such Purchaser is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency in connection with the execution and delivery of this Agreement and the other documents and instruments to be executed by it pursuant hereto or the consummation of the transactions contemplated hereby and thereby, except for such order, consent, approval, authorization, declaration or filing as which has been or will be obtained or made. ARTICLE VI COMPLIANCE WITH SECURITIES LAWS VI.1 INVESTMENT INTENT OF PURCHASER. Each Purchaser represents and warrants to the Company that it is acquiring the Preferred Shares for its own account, with no present intention of selling or otherwise distributing the same to the public. VI.2 STATUS OF PREFERRED SHARES. Each Purchaser has been informed by the Company that the Preferred Shares have not been and will not be registered under the Securities 17 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 22 Act or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering. VI.3 SOPHISTICATION AND FINANCIAL CONDITION OF PURCHASER. Each Purchaser represents and warrants to the Company that it is an "Accredited Investor" as defined in Regulation D under the Securities Act and that it considers itself to be an experienced and sophisticated investor and to have such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Preferred Shares. VI.4 TRANSFER OF PREFERRED SHARES AND CONVERSION SHARES. (a) Preferred Shares and Conversion Shares may be transferred pursuant to (i) public offerings registered under the Securities Act, (ii) Rule 144 of the SEC (or any similar rule then in force), (iii) to an Affiliate of the transferor, or (iv) subject to the conditions set forth in Section 6.4(b), any other legally-available means of transfer. (b) In connection with any transfer of any Preferred Shares or Conversion Shares (other than a transfer described in Section 6.4(a)(i), (ii) or (iii)), the holder of such shares shall deliver written notice to the Company describing in reasonable detail the proposed transfer, together with an opinion of counsel (Kirkland & Ellis or such other counsel which, to the Company's reasonable satisfaction, is knowledgeable in securities law matters) to the effect that such transfer may be effected without registration of such shares under the Securities Act. The holder of the shares being transferred shall not consummate the transfer until (i) the prospective transferee has confirmed to the Company in writing its agreement to be bound by the provisions of this Section 6.4 or (ii) such holder shall have delivered to the Company an opinion of such counsel that no subsequent transfer of such Preferred Shares or Conversion Shares shall require registration under the Securities Act. Promptly upon receipt of any opinion described in clause (ii) of the preceding sentence, the Company shall prepare and deliver in connection with the consummation of the proposed transfer, new certificates for the Preferred Shares or Conversion Shares being transferred that do not bear the legend set forth in Section 6.4(c). Notwithstanding anything to the contrary contained herein, Preferred Shares may not be transferred to any of the Company's competitors listed on SCHEDULE 6.4(B) hereto without the Company's written consent (other than pursuant to clauses (a)(i) or (a)(ii) above or a tender offer made to each holder of the Company's Common Stock). (c) Except as provided in Section 6.4(b), until transferred pursuant to clauses (a)(i) or (a)(ii) above, each certificate for Preferred Shares or Conversion Shares shall be imprinted with a legend substantially in the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON FEBRUARY 2, 1998 [OR FEBRUARY 13, 1998 IN THE CASE OF PREFERRED SHARES ISSUED ON THE ADVANCE CLOSING DATE] AND HAVE NOT BEEN 18 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 23 REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY 2, 1998 BETWEEN THE ISSUER (THE "COMPANY") AND THE PURCHASERS LISTED ON SCHEDULE I THERETO. THE COMPANY RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE COMPANY. VI.5 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it is not relying upon any person, firm or corporation (including without limitation any other Purchaser), other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no other Purchaser (acting in such capacity) nor the respective controlling persons, officers, directors, partners, agents or employees of any such other Purchaser shall be liable to any other Purchaser in connection with this investment for any action taken or omitted to be taken by any of them prior to the date hereof in connection with the Preferred Shares. ARTICLE VII CONDITIONS PRECEDENT VII.1 CLOSING DELIVERIES TO THE PURCHASERS. The following documents and items shall be delivered to the Purchasers at or prior to the Closing: (a) Evidence acceptable to the Purchasers of adoption by the Company of the Certificate of Designations; (b) A fully executed and delivered counterpart of the Registration Rights Agreement; (c) The written opinion of Robinson & Cole LLP, counsel for the Company, in the form of EXHIBIT D hereto dated as of the Closing Date; (d) certificates of a duly authorized officer of the Company dated as of the Closing Date: (A) stating that the following conditions have been satisfied as of the Closing Date, 19 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 24 (i) the representations and warranties of the Company contained herein and in any writing delivered pursuant hereto shall be true and correct when made and at and as of the time of the Closing; (ii) No action, suit, investigation or proceeding shall be pending or threatened before any court or Governmental Agency to restrain, prohibit, collect damages as a result of or otherwise challenge this Agreement or any Related Document or any transaction contemplated hereby or thereby; (iii) All acts or covenants required hereunder to be performed by the Company prior to the Closing shall have been fully performed by it; (iv) No Material Adverse Change shall have occurred between the date of the Current Balance Sheet and the Closing Date; and (B) setting forth the resolutions of the board of directors of the Company authorizing the execution and delivery of this Agreement and the Related Documents (including the Certificate of Designations) and the consummation of the transactions contemplated hereby and thereby and certifying that such resolutions were duly adopted and have not been rescinded or amended; (e) such other documents relating to the transactions contemplated hereby as Advance or other Purchasers may reasonably request; and (f) to each SBIC Holder, (i) duly completed and executed SBA Forms 480, 652 and Parts A and B of 1031, and (ii) a written certification from the Company regarding its intended use of the proceeds of the Financing. VII.2 CLOSING DELIVERIES TO THE COMPANY. At Closing, each Purchaser other than Advance will deliver to the Company the aggregate purchase price for the Preferred Shares purchased by it. At the Advance Closing, Advance will deliver to the Company the aggregate purchase price for the Preferred Shares purchased by it. ARTICLE VIII COVENANTS OF THE COMPANY VIII.1 RESTRICTED ACTIONS. Without the prior written consent of the holders of two-thirds of the then outstanding Preferred Shares the Company shall not, and shall not permit 20 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 25 any Subsidiary to: (a) become subject to any agreement or instrument which by its terms would (under any circumstances) restrict the Company's right to comply with the terms of this Agreement or any of the Related Documents; (b) use the proceeds from the sale of the Preferred Shares other than (i) primarily for acquisitions of assets or businesses reasonably related to the Company's existing business, and repayment of indebtedness, and (ii) the remainder for other working capital purposes of the Company; (c) enter into any transaction or series of transactions with any stockholder, director, officer, employee or Affiliate which would require disclosure pursuant to Rule 404 of Regulation S-K under the Securities Act unless such transaction is approved by the Company's disinterested directors; or (e) expand the Company's Board of Directors to greater than nine members. VIII.2 REQUIRED ACTIONS. For so long as at least 20% of the Preferred Shares remain outstanding, the Company shall, and shall cause each Subsidiary to: (a) cause all properties owned by the Company or any of its Subsidiaries or used or held for use in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Board of Directors may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that the foregoing shall not prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the management of the Company, desirable in the conduct of its business or the business of any of its Subsidiaries and is not disadvantageous in any material respect to the holders of Preferred Shares; (b) preserve and keep in full force and effect the corporate existence, rights (charter and statutory), licenses and franchises of the Company and each of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the holders of Preferred Shares; (c) maintain the books, accounts and records of the Company and its Subsidiaries in accordance with past custom and practice as used in the preparation of the 21 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 26 Financial Statements except to the extent permitted or required by GAAP; (d) keep all of its and its Subsidiaries' properties which are of an insurable nature insured with insurers, believed by the Company in good faith to be financially sound and responsible, against loss or damage to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties (which may include self-insurance, if reasonable and in comparable form to that maintained by companies similarly situated); (e) comply with all material legal requirements and material contractual obligations applicable to the operations and business of the Company and its Subsidiaries and pay all applicable Taxes as they become due and payable; (f) permit representatives of the holders of Preferred Shares (upon the request of holders of Preferred Shares aggregating 12.5% or more of the Preferred Shares originally issued hereunder) and their agents (including their counsel, accountants and consultants) to have reasonable access during business hours to the Company's books, records, facilities, key personnel, officers, directors, customers, independent accountants and legal counsel; (g) at all times file all reports (including annual reports, quarterly reports and the information, documentation and other reports) required to be filed by the Company under the Exchange Act and Sections 13 and 15 of the rules and regulations adopted by the SEC thereunder, and the Company shall use its best efforts to file each of such reports on a timely basis, and take such further action as any holder or holders of Securities may reasonably request, all to the extent required to enable such holders to sell Securities pursuant to Rule 144 adopted by the SEC under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the SEC and to enable the Company to register securities with the SEC on Form S-3 or any similar short-form registration statement and upon the filing of each such report deliver a copy thereof to each holder of the Preferred Shares (or, if the Company is no longer subject to the requirements of the Exchange Act, provide reports in substantially the same form and at the same times as would be required if it were subject to the Exchange Act); (h) maintain at all times a valid listing for the Common Stock on a national securities exchange or the Nasdaq National Market System; (i) maintain all material Intellectual Property Rights necessary to the conduct of its business and own or have a valid license to use all right, title and interest in and to, such material Intellectual Property Rights; (j) within fifteen (15) days after the Advance Closing Date (but not before) and at each subsequent election of directors, (and each Purchaser agrees to use its best efforts) elect to the Board of Directors of the Company pursuant to Section 5A of the 22 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 27 Certificate of Designations (x) one individual designated by Advance as long as Advance owns any Preferred Shares and (y) one individual elected by the holders of a plurality of the Series A Preferred and Series B Preferred, voting together as a single class; and (k) on the Closing Date, have executed and delivered the Credit Agreement on substantially the same principal terms and conditions as set forth in the commitment letter issued by the lenders a party thereto dated January 7, 1998; and (l) deliver Conversion Shares in accordance with the terms and conditions, and time periods, set forth in the Certificate of Designations. VIII.3 RESERVATION OF COMMON STOCK. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purposes of issuance upon conversion of the Preferred Shares, such number of shares of Common Stock as are issuable upon the conversion of all outstanding shares of the Preferred Shares. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all Taxes, liens and charges. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately transmitted by the Company upon issuance). VIII.4 PURCHASERS' RIGHTS IF TRADING IN COMMON STOCK IS SUSPENDED OR DELISTED. If at any time while any Purchaser (or any assignee thereof) owns any Preferred Shares or Conversion Shares, trading in the shares of the Common Stock is suspended on or delisted from the American Stock Exchange or any other principal market or exchange for such shares (other than as a result of the suspension of trading in securities on such market or exchange generally or temporary suspensions pending the release of material information) for more than five business days in the aggregate, at the option of any Purchaser exercisable by written notice to the Company delivered after such suspension or delisting, the Company shall redeem, in cash, one-twentieth of the Preferred Shares and Conversion Shares then held by such Purchaser, at an aggregate purchase price equal to the sum of (i) the number of Preferred Shares to be redeemed multiplied by the product of (1) the average per share market value for the five (5) business days immediately preceding (a) the day of such notice or (b) the date of payment in full of the redemption price calculated under this Section, whichever is greater and (2) a fraction, the numerator of which is 1,000 and the denominator of which is the Conversion Price on (a) the date of the repurchase notice, or (b) the date of payment in full of the redemption price pursuant to this Section, whichever is lower, (ii) the aggregate of all accrued but unpaid dividends payable in respect of all Preferred Shares to be redeemed, (iii) the number of Conversion Shares then held by such Purchaser multiplied by the average per share market value for the five (5) business days immediately preceding (A) the date of the notice or (B) the date of payment in full by the Company of the redemption price calculated under this Section, whichever is greater, and (iv) interest on the amounts set forth in (i) - (iii) above accruing from the 5th business day after such notice until the repurchase price under this Section is paid in full at the rate of 14% per annum. 23 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 28 The Company shall provide written notice of any redemption demand made pursuant to this Section to each other holder of Preferred Shares or Conversion Shares within 24 hours of its receipt thereof. VIII.5 USE OF PROCEEDS. At the same time the Company files its annual report on Form 10-K and at such other times as any SBIC Holder reasonably requests, the Company shall deliver to each SBIC Holder a written statement certified by the Company's president or chief financial officer describing in reasonable detail the use of the proceeds of the Financing hereunder by the Company and its Subsidiaries. In addition to any other rights granted hereunder, the Company shall grant such SBIC Holder and the SBA access to the Company's books and records for the purpose of verifying the use of such proceeds and verifying the certifications made by the Company in SBA Forms 480 and 652 delivered pursuant to Section 7.1(f) above and for the purpose of determining whether the principal business activity of the Company and its Subsidiaries continues to constitute an eligible business activity (within the meaning of the SBIC Regulations). ARTICLE IX SURVIVAL IX.1 SURVIVAL. The representations and warranties of the parties hereto contained herein, or in any writing delivered pursuant hereto, shall survive the Closing and expire 30 days following the filing of the Company's annual report on Form 10-K with the SEC for the Company's fiscal year that ends in 1999, except that, notwithstanding anything to the contrary contained herein, the representations of the Company contained in Section 4.23 hereof shall survive the Closing and expire on December 31, 2001. ARTICLE X INDEMNIFICATION X.1 INDEMNIFICATION. In consideration of each Purchaser's execution and delivery of this Agreement and acquiring the Preferred Stock hereunder and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless each Purchaser and each other holder of Preferred Stock and all of their officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses (including, without limitation, costs of suit and attorneys' fees and expenses) in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought) (the "Indemnified Liabilities"), incurred by the Indemnitees or any of them as a result of, or arising out of, or relating to (a) the breach of any representation of warranty contained in any agreement 24 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 29 relating to any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Preferred Stock, (b) the execution, delivery, performance or enforcement of this Agreement and any other instrument, document or agreement executed pursuant hereto by any of the Indemnitees or (c) resulting from any breach of any representation, warranty, covenant or agreement made by the Company herein or in any Related Document. The Company shall reimburse the Indemnitees for the Indemnified Liabilities as such Indemnified Liabilities are incurred. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. ARTICLE XI GENERAL PROVISIONS XI.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, including each subsequent holder of Preferred Shares or Conversion Shares. Except as otherwise specifically provided herein, this Agreement shall not be assignable by any party without the prior written consent of the other parties hereto. XI.2 ENTIRE AGREEMENT. This Agreement and the other writings referred to herein or delivered pursuant hereto constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior arrangements or understandings. XI.3 NOTICES. All notices, requests, consents and other communications provided for herein shall be in writing and shall be (i) delivered in person, (ii) transmitted by telecopy, (iii) sent by first-class, registered or certified mail, postage prepaid, or (iv) sent by reputable overnight courier service, fees prepaid, to the recipient at the address or telecopy number set forth below, or such other address or telecopy number as may hereafter be designated in writing by such recipient. Notices shall be deemed given upon personal delivery, seven days following deposit in the mail as set forth above, upon acknowledgment by the receiving telecopier or one day following deposit with an overnight courier service. (a) If to the Company: Alarmguard Holdings, Inc. 125 Frontage Road Orange, Connecticut 06477 Telecopy: (203) 799-9636 Attention: Russell R. MacDonnell 25 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 30 with a copy to: Robinson & Cole LLP 695 East Main Street Stamford, Connecticut 06904 Telecopy: (203) 462-7599 Attention: Richard A. Krantz, Esq. (b) If to Advance: Advance Capital Partners, L.P. 660 Madison Avenue 15th Floor New York, New York 10021 Telecopy: (212) 835-2020 Attention: Robert A. Bernstein with a copy to: Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Telecopy: (212) 446-4900 Attention: Joshua N. Korff, Esq. (c) If to any other Purchaser to the address set forth opposite such Purchaser's name on Schedule I hereto. XI.4 PURCHASERS FEES AND EXPENSES. The Company shall reimburse the Purchasers for the reasonable fees and expenses of Kirkland & Ellis incurred in connection with the documentation, negotiation and consummation of the transactions contemplated by this Agreement and the Related Documents (including any future amendments or waivers thereto) and for reasonable due diligence expenses incurred by the Purchasers. XI.5 AMENDMENT AND WAIVER. No amendment of any provision of this Agreement shall be effective, unless the same shall be in writing and signed by the Company and the holders of two-thirds of the Preferred Shares and Conversion Shares held by holders of Series A Preferred and Series B Preferred, taken together. Any failure of the Company to comply with any provision hereof may only be waived in writing by the holders of two-thirds of the Preferred Shares and Conversion Shares held by holders of Series A Preferred and Series B Preferred, taken together, and any failure of any holder of Preferred Shares or Conversion Shares to comply with any provision hereof may only be waived in writing by the Company. No such waiver shall operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No failure by any party to take any action against any breach of this Agreement or default by any other party shall 26 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 31 constitute a waiver of such party's right to enforce any provision hereof or to take any such action. Notwithstanding anything to the contrary contained herein, no amendment to or waiver of Section 8.2(j) without the prior written consent of Advance shall be permitted. No amendment of any provision of this Agreement shall be effective prior to the Advance Closing. 11.6 LIKE TREATMENT OF HOLDERS. Neither the Company nor any of its affiliates shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee, payment for the redemptions or exchange of Preferred Shares, or otherwise, to any holder of Preferred Shares, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment of any terms or provisions of the Preferred Shares or this Agreement or the Registration Rights Agreement, unless such consideration is required to be paid to all holders of Preferred Shares bound by such consent, waiver or amendment whether or not such holders so consent, waive or agree to amend and whether or not such holders tender their Preferred Shares for redemption or exchange. The Company shall not, directly or indirectly, redeem any Preferred Shares unless such offer of redemption is made pro rata to all holders of Preferred Shares on identical terms. 11.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement. 11.8 HEADINGS. The headings of the various sections of this Agreement have been inserted for reference only and shall not be deemed to be a part of this Agreement. 11.9 SPECIFIC PERFORMANCE. The Company, on the one hand, and the Purchasers, on the other hand, acknowledge that money damages would not be a sufficient remedy for any breach of this Agreement. It is accordingly agreed that the parties shall be entitled to specific performance and injunctive relief as remedies for any such breach, these remedies being in addition to any of the remedies to which they may be entitled at law or equity. 11.10 REMEDIES CUMULATIVE. Except as otherwise provided herein, the remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any other remedies against any other party hereto. 11.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF NEW YORK OR OF ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF ANY LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK. 11.12 NO THIRD PARTY BENEFICIARIES. Except as specifically set forth or referred to herein, nothing herein is intended or shall be construed to confer upon any person or entity other than the parties hereto and their successors or assigns, any rights or remedies under or by reason 27 X:\LEGAL\393LMM\DOC\AFHM_1.DOC 32 of this Agreement. 11.13 SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction 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. * * * * * IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Agreement as of the date first above written. ALARMGUARD HOLDINGS, INC. By: ----------------------------------- Name: Title: ADVANCE CAPITAL PARTNERS, L.P. By: Advance Capital Associates, L.P., its General Partner By: Advance Capital Management, LLC, its General Partner By: ----------------------------------- Name: Robert A. Bernstein Title: Principal ADVANCE CAPITAL OFFSHORE PARTNERS, L.P. By: Advance Capital Offshore Associates, LDC, its General Partner By: Advance Capital Associates, L.P., its Sole Director By: Advance Capital Management, LLC, its General Partner 28 33 By: ----------------------------------- Name: Robert A. Bernstein Title: Principal CANAAN EQUITY, L.P. By: Canaan Equity Partners, L.L.C. By: ----------------------------------- Name: Stephen L. Green Title: Member/Manager EXETER CAPITAL PARTNERS IV, L.P. By: Exeter IV Advisors, L.P. its General Partner By: Exeter IV Advisors, Inc., its General Partner By: ----------------------------------- Name: Keith R. Fox Title: President LB I GROUP INC. By: ----------------------------------- Name: Alan H. Washkowitz Title: Senior Vice President ELLIOTT ASSOCIATES, L.P. By: ----------------------------------- Name: Paul E. Singer Title: General Partner WESTGATE INTERNATIONAL, L.P. By: Martley International, Inc. as Attorney-in-Fact By: ----------------------------------- Name: Paul E. Singer Title: President 34 ZIFF ASSET MANAGEMENT, L.P. By: ----------------------------------- Name: Philip B. Korsant Title: President OZ MASTER FUND, LTD. By: ----------------------------------- Name: Daniel S. Och Title: Managing Member OZ Management, L.L.C. IBJS CAPITAL CORPORATION By: ----------------------------------- Name: Kevin P. Falvey Title: Director CREDIT SUISSE (GUERNSEY) LIMITED as trustee of the Dynamic Growth Fund II By: ----------------------------------- Name: M. E. Zunino Title: Associate AETNA LIFE INSURANCE COMPANY By: ----------------------------------- Name: Alan Vartelas Title: Assistant Vice President GRANITE PROPERTIES MANAGEMENT CORP. By: ----------------------------------- 35 Name: Daren J. Wells Title: Director, Private Equity By: ----------------------------------- Name: Paul Finkelstein 393LMM1355/1.486634-1 EX-4 5 PREFERRED STOCK TERMS 1 EXHIBIT 4 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A PREFERRED STOCK, $.0001 PAR VALUE AND SERIES B PREFERRED STOCK, $.0001 PAR VALUE OF ALARMGUARD HOLDINGS, INC. Alarmguard Holdings, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of said corporation, and pursuant to the provisions of Section 151 of Title 8 of the Delaware Code of 1953, said Board of Directors adopted resolutions providing for as follows: RESOLVED, that the Board of Directors does hereby create, establish and authorize the issuance of a new series of the Company's Preferred Stock and does hereby fix the designation, rights, preferences, amounts payable in the event of voluntary or involuntary liquidation, qualifications and restrictions of said series as follows: (1) the designation of said new series of the Company's Common Stock shall be "Series A Preferred Stock, $.0001 par value per share", and each share of Series A Preferred Stock shall be equal to every other share of Series A Preferred Stock in every respect; (2) the Series A Preferred Stock is hereby authorized to be issued in the amount of up to thirty-five thousand seven hundred (35,700) shares; (3) the Series A Preferred Stock shall have such additional rights, preferences, amounts payable in the event of voluntary or involuntary liquidation, qualifications and restrictions as set forth in Exhibit A attached hereto; and further, RESOLVED, that the Board of Directors does hereby create, establish and authorize the issuance of a new series of the Company's Preferred Stock and does hereby fix the designation, rights, preferences, amounts payable in the event of voluntary or involuntary liquidation, qualifications and restrictions of said series as follows: 2 (1) the designation of said new series of the company's Common Stock shall be "Series B Preferred Stock, $.0001 par value per share", and each share of Series B Preferred Stock shall be equal to every other share of Series B Preferred Stock in every respect; (2) the Series B Preferred Stock is hereby authorized to be issued in the amount of up to five thousand (5,000) shares; (3) the Series B Preferred Stock shall have such additional rights, preferences, amounts payable in the event of voluntary or involuntary liquidation, qualifications and restrictions as set forth in Exhibit A attached hereto. IN WITNESS WHEREOF, Alarmguard Holdings, Inc. has caused this certificate to be signed by Russell R. MacDonnell, its Chief Executive Officer, this 2nd day of February, 1998. ALARMGUARD HOLDINGS, INC. By: /s/ Russell R. MacDonnell ------------------------- Russell R. MacDonnell Chief Executive Officer 3 EXHIBIT A ALARMGUARD HOLDINGS, INC. (THE "CORPORATION") PREFERRED STOCK TERMS Section 1. DIVIDENDS. 1A. GENERAL OBLIGATION. When and as declared by the Corporation's Board of Directors and to the extent permitted under the General Corporation Law of Delaware, the Corporation shall pay preferential dividends in cash to the holders of the Series A Preferred Stock (the "Series A Preferred") as provided in this Section 1. No preferential dividends shall be paid to the holders of the Series B Preferred Stock (the "Series B Preferred"). Except as otherwise provided herein, dividends on each share of the Series A Preferred (a "Series A Share", and, collectively with each share of the Series B Preferred, a "Share") shall accrue, whether or not declared or paid, on a daily basis at the rate of 5% per annum of the sum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share by the Corporation, (ii) the date on which such Share is converted into shares of Conversion Stock hereunder or (iii) the date on which such Share is otherwise acquired by the Corporation. Such dividends shall accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends, and such dividends shall be cumulative such that all accrued and unpaid dividends shall be fully paid before any dividends, distributions, redemptions or other payments may be made with respect to any Junior Securities. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. 1B. DIVIDEND PAYMENT DATES. All dividends which have accrued on the Series A Preferred shall be payable on January 1, April 1, July 1 and October 1 of each year, beginning April 1, 1998 (the "Dividend Payment Dates"); provided, however, that incremental dividends over and above the rate of 5% per annum payable pursuant to clause (i) of Paragraph 9B hereof need not be paid on the Dividend Payment Dates and shall accrue until otherwise payable pursuant to the terms hereof. 1C. DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as otherwise provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series A Preferred, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Shares held by each such holder. 4 1D. PARTICIPATING DIVIDENDS. In the event that the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property) other than dividends payable solely in shares of Common Stock, the Corporation shall also declare and pay to the holders of the Series A Preferred and the Series B Preferred at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Series A Preferred and Series B Preferred had all of the outstanding Series A Preferred and Series B Preferred been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 2. LIQUIDATION. Upon any liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), each holder of Series A Preferred or Series B Preferred (collectively referred to herein as the "Preferred Stock") shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder (plus all accrued and unpaid dividends thereon), and the holders of Preferred Stock shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Corporation the Corporation's assets to be distributed among the holders of the Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid under this Section 2, then the entire assets available to be distributed to the Corporation's stockholders shall be distributed pro rata among such holders based upon the aggregate Liquidation Value (plus all accrued and unpaid dividends) of the Preferred Stock held by each such holder. Prior to the liquidation, dissolution or winding up of the Corporation, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Preferred Stock, but only to the extent of funds of the Corporation legally available for the payment of dividends. Not less than 60 days prior to the payment date stated therein, the Corporation shall mail written notice of any such liquidation, dissolution or winding up to each record holder of Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock in connection with such liquidation, dissolution or winding up. Section 3. PRIORITY OF PREFERRED STOCK ON DIVIDENDS AND REDEMPTIONS. 3A. NO PAYMENTS WITH RESPECT TO JUNIOR SECURITIES. So long as any Preferred Stock remains outstanding, without the prior written consent of the holders of two-thirds of the outstanding shares of Preferred Stock, taken together as a single series, the Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Corporation directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities. -4- 5 3B. NO ISSUANCE OF SENIOR OR PARI PASSU SECURITIES. For so long as any Preferred Stock remains outstanding, without the prior written consent of the holders of two-thirds of the outstanding shares of the Preferred Stock, taken together as a single series, the Company shall not amend its Restated Certificate of Incorporation or take any other action to approve or issue any capital stock (including increasing the number of authorized shares of Series A Preferred or Series B Preferred) of the Company that is senior or pari passu in right to the payment of dividends, payment upon liquidation, redemption or otherwise to the Preferred Stock. Additionally, so long as any Preferred Stock remains outstanding, without the prior written consent of the holders of two-thirds of the outstanding shares of Preferred Stock, taken together as a single series, the Company shall not amend its Restated Certificate of Incorporation or take any other action that would alter the rights, preferences or privileges of the Preferred Stock as in effect on the date of the original issuance of the Preferred Stock. Section 4. REDEMPTIONS. 4A. SCHEDULED REDEMPTION. On February 2, 2003 (the "Scheduled Redemption Date"), the Corporation shall redeem all outstanding Preferred Stock at a price per Share equal to the Liquidation Value thereof (plus accrued and unpaid dividends thereon). 4B. REDEMPTION PAYMENTS. For each Share which is to be redeemed hereunder, the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Share) an amount in cash in immediately available funds equal to the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon and any premium payable with respect thereto). If the funds of the Corporation legally available for redemption of Shares on any Redemption Date are insufficient to redeem the total number of Shares to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of Shares pro rata among the holders of the Shares to be redeemed based upon the aggregate Liquidation Value of such Shares held by each such holder (plus all accrued and unpaid dividends thereon and any premium payable with respect thereto). At any time thereafter when additional funds of the Corporation are legally available for the redemption of Shares, such funds shall immediately be used to redeem the balance of the Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. Prior to any redemption of Preferred Stock, the Corporation shall declare for payment all accrued and unpaid dividends with respect to the Shares which are to be redeemed, but only to the extent of funds of the Corporation legally available for the payment of dividends. 4C. NOTICE OF REDEMPTION. The Corporation shall mail written notice of each redemption of any Preferred Stock (other than a redemption at the request of a holder or holders of Preferred Stock) to each record holder thereof not more than 60 nor less than 30 days prior to the date on which such redemption is to be made. In case fewer than the total number of -5- 6 Shares represented by any certificate are redeemed, a new certificate representing the number of unredeemed Shares shall be issued to the holder thereof without cost to such holder within five business days after surrender of the certificate representing the redeemed Shares. 4D. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be entitled to any dividends accruing after the date on which the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon) is paid to the holder of such Share. On such date, all rights of the holder of such Share shall cease, and such Share shall no longer be deemed to be issued and outstanding. 4E. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which are redeemed or otherwise acquired by the Corporation shall be canceled and retired to authorized but unissued shares and shall not be reissued, sold or transferred. 4F. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any Shares of Preferred Stock, except as expressly authorized herein or pursuant to a purchase offer made pro rata to all holders of Preferred Stock on the basis of the number of Shares owned by each such holder. 4G. PAYMENT OF ACCRUED DIVIDENDS. The Corporation may not redeem any Series A Preferred, unless all dividends accrued on the outstanding Series A Preferred through the immediately preceding Dividend Payment Date have been declared and paid in full. 4H. CHANGE OF CONTROL. (i) If a Change of Control has occurred or the Corporation obtains knowledge that a Change of Control is proposed to occur, the Corporation shall give prompt written notice of such Change of Control describing in reasonable detail the material terms and date of consummation thereof to each holder of Preferred Stock, but in any event such notice shall not be given later than five days after the occurrence of such Change of Control, and the Corporation shall give each holder of Preferred Stock prompt written notice of any material change in the terms or timing of such transaction. Any holder of Preferred Stock may require the Corporation to redeem all or any portion of the Preferred Stock owned by such holder at a price per Share equal to the greater of (a) $1,300 if the Change of Control occurs prior to February 2, 1999 or $1,500 if the Change of Control occurs thereafter or (b) the Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by giving written notice to the Corporation of such election prior to the later of (a) 21 days after receipt of the Corporation's notice and (b) five days prior to the consummation of the Change of Control (the "Expiration Date"). The Corporation shall give prompt written notice of any such election to all other holders of Preferred Stock within five days after the receipt thereof, and each such holder shall have until the later of (a) the Expiration Date or (b) ten days after receipt of such second notice to request redemption hereunder (by giving written notice to the Corporation) of all or any portion of the Preferred Stock owned by such holder. Upon receipt of such election(s), the Corporation shall be obligated to redeem the aggregate number of Shares specified therein on the occurrence of the Change of Control. If any -6- 7 proposed Change of Control does not occur, all requests for redemption in connection therewith shall be automatically rescinded, or if there has been a material change in the terms or the timing of the transaction, any holder of Preferred Stock may rescind such holder's request for redemption by giving written notice of such rescission to the Corporation. The term "Change of Control" means (a) any sale, transfer or issuance or series of sales, transfers and/or issuances of Common Stock by the Corporation or any holders thereof which results in any Person or group of Persons (as the term "group" is used under the Securities Exchange Act of 1934), other than the holders of Preferred Stock as of the date of issuance of such Shares, beneficially owning (as such term is used in the Securities Exchange Act of 1934) more than 50% of the Common Stock outstanding at the time of such sale, transfer or issuance or series of sales, transfers and/or issuances, (b) any sale or transfer of more than 50% of the assets of the Corporation and its Subsidiaries on a consolidated basis (measured either by book value in accordance with generally accepted accounting principles consistently applied or by fair market value determined in the reasonable good faith judgment of the Corporation's Board of Directors) in any transaction or series of transactions (other than sales in the ordinary course of business) and (c) any merger or consolidation to which the Corporation is a party, except for a merger in which the Corporation is the surviving corporation, the terms of the Preferred Stock are not changed and the Preferred Stock is not exchanged for cash, securities or other property, and after giving effect to such merger, the holders of the Corporation's outstanding capital stock possessing a majority of the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors immediately prior to the merger shall continue to own the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors. (ii) Redemptions made pursuant to this paragraph 4H shall not relieve the Corporation of its obligation to redeem the Preferred Stock on the Scheduled Redemption Date pursuant to paragraph 4A above. Section 5. VOTING RIGHTS. 5A. ELECTION OF DIRECTORS. In the election of directors of the Corporation, the holders of the Preferred Stock, voting separately as a single class to the exclusion of all other classes of the Corporation's capital stock and with each Share of Preferred Stock entitled to one vote, shall be entitled to elect two directors to serve on the Corporation's Board of Directors until their successors are duly elected by the holders of the Preferred Stock or they are removed from office by the holders of the Preferred Stock. If the holders of the Preferred Stock for any reason fail to elect anyone to fill any such directorship, such position shall remain vacant until such time as the holders of the Preferred Stock elect a director to fill such position and shall not be filled by resolution or vote of the Corporation's Board of Directors or the Corporation's other stockholders. 5B. OTHER VOTING RIGHTS. The holders of the Preferred Stock shall be entitled -7- 8 to notice of all stockholders meetings in accordance with the Corporation's bylaws, and except as otherwise required by applicable law, the holders of the Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single class with each share of Common Stock entitled to one vote per share and each Share of Preferred Stock entitled to one vote for each share of Common Stock issuable upon conversion of such Share of Preferred Stock as of the record date for such vote or, if no record date is specified, as of the date of such vote. Section 6. CONVERSION. 6A. CONVERSION PROCEDURE. (i) At any time and from time to time, any holder of Series A Preferred may convert all or any portion of the Series A Preferred (including any fraction of a Series A Share) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Series A Shares to be converted by $1,000 and dividing the result by the Series A Conversion Price then in effect and any holder of Series B Preferred may convert all or any portion of the Series B Preferred (including any fraction of a Series B Share) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Series B Shares to be converted by $1,000 and dividing the result by the Series B Conversion Price then in effect. (ii) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Preferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (iii) The conversion rights of any Share subject to redemption hereunder shall terminate on the Redemption Date for such Share unless the Corporation has failed to pay to the holder thereof the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon and any premium payable with respect thereto). (iv) Notwithstanding any other provision hereof, if a conversion of Preferred Stock is to be made in connection with a Change of Control or other transaction affecting the Corporation, the conversion of any Shares of Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case such conversion shall not be deemed to be effective until such transaction has been consummated. (v) As soon as possible after a conversion has been effected (but in any event within three (3) business days after notice of such conversion has been delivered to the -8- 9 Corporation, provided that such conversion has been effected by such date, in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all accrued dividends with respect to each Share converted which have not been paid prior thereto, plus the amount payable under subparagraph (x) below with respect to such conversion; and (c) a certificate representing any Shares which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (vi) The Corporation shall declare the payment of all dividends payable under subparagraph (v)(b) above. If the Corporation is not permitted under applicable law to pay any portion of the accrued and unpaid dividends on the Preferred Stock being converted, the Corporation shall pay such dividends to the converting holder as soon thereafter as funds of the Corporation are legally available for such payment. At the request of any such converting holder, the Corporation shall provide such holder with written evidence of its obligation to such holder. If for any reason the Corporation is unable to pay any portion of the accrued and unpaid dividends on Preferred Stock being converted, such dividends may, at the converting holder's option, be converted into an additional number of shares of Conversion Stock determined by dividing the amount of the unpaid dividends to be applied for such purpose, by the lesser of (a) the Conversion Price then in effect and (b) the Market Price of a share of Common Stock. (vii) The issuance of certificates for shares of Conversion Stock upon conversion of the Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each Share, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. (viii) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). -9- 10 (ix) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of Preferred Stock, such number of shares of Conversion Stock issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action which would cause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of Preferred Stock. (x) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon any conversion of Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (xi) If the shares of Conversion Stock issuable by reason of conversion of Preferred Stock are convertible into or exchangeable for any other stock or securities of the Corporation, the Corporation shall, at the converting holder's option, upon surrender of the Shares to be converted by such holder as provided herein together with any notice, statement or payment required to effect such conversion or exchange of Conversion Stock, deliver to such holder or as otherwise specified by such holder a certificate or certificates representing the stock or securities into which the shares of Conversion Stock issuable by reason of such conversion are so convertible or exchangeable, registered in such name or names and in such denomination or denominations as such holder has specified. 6B. CONVERSION PRICE. (i) The initial Series A Conversion Price shall be $8.25 and the initial Series B Conversion Price shall be $7.75. As used herein, the term "Conversion Price" shall refer to the Series A Conversion Price and/or the Series B Conversion Price, as applicable. In order to prevent dilution of the conversion rights granted under this Section 6, the Conversion Price shall be subject to adjustment from time to time pursuant to this paragraph 6B. (ii) If and whenever on or after the original date of issuance of the Preferred Stock the Corporation issues or sells, or in accordance with paragraph 6C is deemed to have issued or sold, any shares of its Common Stock for a consideration per share less than the Series A Conversion Price in effect immediately prior to the time of such issue or sale, then immediately upon such issue or sale or deemed issue or sale the Series A Conversion Price shall be reduced to the Series A Conversion Price determined by dividing (a) the sum of (1) the product derived by multiplying the Series A Conversion Price in effect immediately prior to such -10- 11 issue or sale by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the consideration, if any, received by the Corporation upon such issue or sale, by (b) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. (iii) Notwithstanding the foregoing, there shall be no adjustment in the Series A Conversion Price as a result of any issue or sale (or deemed issue or sale) of up to an aggregate of 770,000 shares of Common Stock to employees of the Corporation and its Subsidiaries pursuant to stock option plans and stock ownership plans approved by the Corporation's Board of Directors (as such number of shares is proportionately adjusted for subsequent stock splits, combinations and dividends affecting the Common Stock and as such number includes all such stock options and purchase rights outstanding at the time of the issuance of the Preferred Stock). (iv) Whenever the Series A Conversion Price is adjusted pursuant to this paragraph 6B, the Series B Conversion Price shall be reduced to the Series B Conversion Price determined by multiplying (a) the Series B Conversion Price in effect immediately prior to such adjustment by (b) a fraction the numerator of which is the Series A Conversion Price in effect immediately following such adjustment and the denominator of which is the Series A Conversion Price in effect immediately prior to such adjustment. 6C. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of determining the adjusted Series A Conversion Price under paragraph 6B, the following shall be applicable: (i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Series A Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Series A Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when -11- 12 Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Series A Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Series A Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 6, no further adjustment of the Series A Conversion Price shall be made by reason of such issue or sale. (iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Series A Conversion Price in effect at the time of such change shall be immediately adjusted to the Series A Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; provided that if such adjustment would result in an increase of the Series A Conversion Price then in effect, such adjustment shall not be effective until 30 days after written notice thereof has been given by the Corporation to all holders of the Preferred Stock. For purposes of paragraph 6C, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change; provided that no such change shall at any time cause the Series A Conversion Price hereunder to be increased. (iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE SECURITIES. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Series A Conversion Price then in effect hereunder shall be adjusted immediately to the Series A Conversion Price -12- 13 which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued; provided that if such expiration or termination would result in an increase in the Series A Conversion Price then in effect, such increase shall not be effective until 30 days after written notice thereof has been given to all holders of the Preferred Stock. For purposes of paragraph 6C, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock shall not cause the Series A Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Preferred Stock. (v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor (net of discounts, commissions and related expenses). If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of a majority of the outstanding Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of a majority of the outstanding Preferred Stock. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. (vi) INTEGRATED TRANSACTIONS. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $.01. (vii) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) RECORD DATE. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in -13- 14 Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 6D. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. 6E. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation's assets or other transaction, in each case which is effected in such a manner that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, is referred to herein as an "Organic Change". Prior to the consummation of any Organic Change, the Corporation shall make appropriate provisions (in form and substance satisfactory to the holders of a majority of the Preferred Stock then outstanding) to insure that each of the holders of Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Conversion Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions (in form and substance satisfactory to the holders of a majority of the Preferred Stock then outstanding) to insure that the provisions of this Section 6 and Sections 7 and 8 hereof shall thereafter be applicable to the Preferred Stock (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, an immediate adjustment of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Conversion Stock acquirable and receivable upon conversion of Preferred Stock, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the holders of a majority of the Preferred Stock then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. -14- 15 6F. CERTAIN EVENTS. If any event occurs of the type contemplated by the provisions of this Section 6 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Corporation's Board of Directors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of Preferred Stock; provided that no such adjustment shall increase the Conversion Price as otherwise determined pursuant to this Section 6 or decrease the number of shares of Conversion Stock issuable upon conversion of each Share. 6G. NOTICES. (i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Preferred Stock at least 20 days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. (iii) The Corporation shall also give written notice to the holders of Preferred Stock at least 20 days prior to the date on which any Organic Change shall take place. Section 7. LIQUIDATING DIVIDENDS. If the Corporation declares or pays a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Corporation shall pay to the holders of Preferred Stock at the time of payment thereof the Liquidating Dividends which would have been paid on the shares of Conversion Stock had such Preferred Stock been converted immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Section 8. PURCHASE RIGHTS. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then each holder of Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the -15- 16 number of shares of Conversion Stock acquirable upon conversion of such holder's Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Section 9. EVENTS OF NONCOMPLIANCE. 9A. DEFINITION. An Event of Noncompliance shall have occurred if: (i) the Corporation fails to pay on any two consecutive Dividend Payment Dates the full amount of dividends then accrued on the Series A Preferred, whether or not such payments are legally permissible or are prohibited by any agreement to which the Corporation is subject; (ii) the Corporation fails to make any redemption payment with respect to the Preferred Stock which it is required to make hereunder, whether or not such payment is legally permissible or is prohibited by any agreement to which the Corporation is subject; (iii) the Corporation breaches or otherwise fails to perform or observe the covenants set forth in Section 8.2(j) and (k) of the Purchase Agreement; (iv) the Corporation or any material Subsidiary makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Corporation or any material Subsidiary bankrupt or insolvent; or any order for relief with respect to the Corporation or any material Subsidiary is entered under the Federal Bankruptcy Code; or the Corporation or any material Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Corporation or any material Subsidiary or of any substantial part of the assets of the Corporation or any material Subsidiary, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of a Subsidiary) relating to the Corporation or any material Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Corporation or any material Subsidiary and either (a) the Corporation or any such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein or (b) such petition, application or proceeding is not dismissed within 60 days; (v) a judgment in excess of $5,000,000 is rendered against the Corporation or any material Subsidiary and, such judgment is not (a) discharged, bonded or otherwise satisfied within 60 days from the entry thereof, (b) covered by adequate insurance, or (c) the execution of such judgment is not stayed pending appeal or, within 60 days after the expiration of such stay, discharged or otherwise satisfied; or (vi) the Corporation or any material Subsidiary defaults in the performance of any obligation or agreement if the effect of such default is to cause an amount exceeding -16- 17 $10,000,000 to become due prior to its stated maturity or the holder or holders of any obligation causes an amount exceeding $10,000,000 to become due prior to its stated maturity. 9B. CONSEQUENCES OF EVENTS OF NONCOMPLIANCE. (i) If an Event of Noncompliance has occurred and is continuing, the dividend rate on the Series A Preferred shall increase immediately by an increment of two percentage point(s). Thereafter, until such time as no Event of Noncompliance exists, the dividend rate shall increase automatically at the end of each succeeding 90-day period by an additional increment of two percentage point(s) (but in no event shall the dividend rate exceed 13%). Any increase of the dividend rate resulting from the operation of this subparagraph shall terminate as of the close of business on the date on which no Event of Noncompliance exists, subject to subsequent increases pursuant to this paragraph. (ii) If an Event of Noncompliance other than an Event of Noncompliance of the type described in subparagraphs 9A(i) or 9A(iv) has occurred and is continuing, the holders of a majority of the Preferred Stock then outstanding may demand (by written notice delivered to the Corporation) immediate redemption of all or any portion of the Preferred Stock owned by such holder or holders at a price per Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon). The Corporation shall give prompt written notice of such election to the other holders of Preferred Stock (but in any event within five days after receipt of the initial demand for redemption), and each such other holder may demand immediate redemption of all or any portion of such holder's Preferred Stock by giving written notice thereof to the Corporation within seven days after receipt of the Corporation's notice. The Corporation shall redeem all Preferred Stock as to which rights under this paragraph have been exercised within 15 days after receipt of the initial demand for redemption. (iii) If an Event of Noncompliance of the type described in subparagraph 9A(iv) has occurred, all of the Preferred Stock then outstanding shall be subject to immediate redemption by the Corporation (without any action on the part of the holders of the Preferred Stock) at a price per Share equal to the Liquidation Value thereof (plus all accrued and unpaid dividends thereon). The Corporation shall immediately redeem all Preferred Stock upon the occurrence of such Event of Noncompliance. (iv) If any Event of Noncompliance of the type described in subparagraph 9A(i) has occurred, for each such occurrence of the failure to pay on any two consecutive Dividend Payment Dates the full amount of dividends then accrued on the Series A Preferred, whether or not such payments are legally permissible or are prohibited by any agreement to which the Corporation is subject, the Series A Conversion Price shall be reduced immediately by $0.50 from the Series A Conversion Price in effect immediately prior to such adjustment. In no event shall any Series A Conversion Price adjustment be rescinded. (v) If any Event of Noncompliance of the type described in subparagraph 9A(ii) has occurred, the Series A Conversion Price and Series B Conversion Price shall be -17- 18 reduced immediately to 75% of the lesser of (a) the applicable Conversion Price in effect immediately prior to such adjustment and (b) the Market Price of a share of Common Stock. Thereafter, until such time as no Event of Noncompliance exists, the Series A Conversion Price and Series B Conversion Price shall be automatically reduced at the end of each succeeding 90-day period to 75% of the lesser of (a) the applicable Conversion Price in effect immediately prior to such adjustment and (b) the Market Price of a share of Common Stock. In no event shall any Conversion Price adjustment be rescinded. For example, assume that the initial Series A Conversion Price is $8.25. If an Event of Noncompliance of the type described in subparagraph 9A(ii) has occurred, and the Market Price of a share of Common Stock exceeds $8.25, the Series A Conversion Price would be reduced immediately to 75% of $8.25, or $6.1875. If an Event of Noncompliance exists for an additional 90 days, and the Market Price of a share of Common Stock exceeds $6.1875, the existing Series A Conversion Price would be reduced to 75% of $6.1875, or $4.640625. Then assume that there is a two-for-one stock split, in which case the Conversion Price would be decreased hereunder from $4.640625 to $2.3203125, and assume that an Event of Noncompliance exists for an additional 90 days and that the Market Price of a share of Common Stock exceeds $2.3203125. In this case, the Series A Conversion Price would be reduced to 75% of $2.3203125, or $1.740234375. (vi) If any Event of Noncompliance of the type described in subparagraph 9A(v) has occurred, for each such occurrence the Series A Conversion Price and Series B Conversion Price shall be reduced immediately by an amount equal to the quotient of (a) the amount of the judgment referred to in subparagraph 9A(v) divided by (b) the number of shares of Common Stock Deemed Outstanding. (vii) If any Event of Noncompliance exists, each holder of Preferred Stock shall also have any other rights which such holder is entitled to under the Purchase Agreement or any other contract or agreement with such holder at any time and any other rights which such holder may have pursuant to applicable law. Section 10. REGISTRATION OF TRANSFER. The Corporation shall keep at its principal office a register for the registration of Preferred Stock. Upon the surrender of any certificate representing Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Preferred Stock represented by the surrendered certificate. -18- 19 Section 11. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. Section 12. DEFINITIONS. "CHANGE OF CONTROL" has the meaning set forth in paragraph 4H hereof. "COMMON STOCK" means, collectively, the Corporation's Common Stock, $0.0001 par value per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 6C(i) and 6C(ii) hereof whether or not the Options or Convertible Securities are actually exercisable at such time. "CONVERSION STOCK" means shares of the Corporation's Common Stock, par value $0.0001 per share; provided that if there is a change such that the securities issuable upon conversion of Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term "Conversion Stock" shall mean one share of the security issuable upon conversion of Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares. "CONVERTIBLE SECURITIES" means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. "JUNIOR SECURITIES" means any capital stock or other equity securities of the Corporation, except for the Preferred Stock. -19- 20 "LIQUIDATION VALUE" of any Share as of any particular date shall be equal to $1,000. "MARKET PRICE" of any security means the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Corporation and the holders of a majority of the Series A Preferred. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of a majority of the Preferred Stock. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. "OPTIONS" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "PERSON" means an individual, a partnership, a corporation, a limited liability company, a limited liability partnership, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "PREFERRED STOCK" means collectively the Series A Preferred and Series B Preferred. "PURCHASE AGREEMENT" means the Purchase Agreement, dated as of February 2, 1998, by and among the Corporation and certain investors, as such agreement may from time to time be amended in accordance with its terms. "REDEMPTION DATE" as to any Share means the date specified in the notice of any redemption at the Corporation's option or at the holder's option or the applicable date specified herein in the case of any other redemption; provided that no such date shall be a Redemption Date unless the Liquidation Value of such Share (plus all accrued and unpaid dividends thereon and any required premium with respect thereto) is actually paid in full on such date, and if not so paid in full, the Redemption Date shall be the date on which such amount is fully paid. -20- 21 "SUBSIDIARY" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. Section 13. AMENDMENT AND WAIVER. No amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 14 hereof without the prior written consent of the holders of 66.67% of the Preferred Stock outstanding at the time such action is taken; provided that no such action shall change (a) the rate at which or the manner in which dividends on the Preferred Stock accrue or the times at which such dividends become payable or the amount payable on redemption of the Preferred Stock or the times at which redemption of Preferred Stock is to occur, without the prior written consent of the holders of at least 75% of the Preferred Stock then outstanding, (b) the Conversion Price of the Preferred Stock or the number of shares or class of stock into which the Preferred Stock is convertible, without the prior written consent of the holders of at least 75% of the Preferred Stock then outstanding, or (c) the percentage required to approve any change described in clauses (a) and (b) above, without the prior written consent of the holders of at least 75% of the Preferred Stock then outstanding; and provided further that no change in the terms hereof may be accomplished by merger or consolidation of the Corporation with another corporation or entity unless the Corporation has obtained the prior written consent of the holders of the applicable percentage of the Preferred Stock then outstanding. Section 14. NOTICES. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). -21- EX-5 6 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 5 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of February 2, 1998, between Alarmguard Holdings, Inc., a Delaware corporation (the "Company"), and the Purchasers listed on Schedule I hereto (each a "Purchaser" and collectively, the "Purchasers"). RECITALS: (a) The Purchasers and the Company have entered into a Preferred Stock Purchase Agreement, dated as of the date hereof (the "Stock Purchase Agreement") (each capitalized term used herein and not otherwise defined shall have the meaning ascribed to such term in the Stock Purchase Agreement), pursuant to which the Purchasers are simultaneously with the execution hereof purchasing from the Company the number of shares of Series A Preferred or Series B Preferred (collectively referred to herein as the "Preferred Shares") of the Company set forth opposite its name on Schedule I hereto except that Advance will purchase the Preferred Shares to be purchased by it as of the Advance Closing Date. (b) As of the date hereof, the Preferred Shares purchased by the Purchasers pursuant to the Stock Purchase Agreement entitles the holder thereof to receive, upon the conversion thereof, the number of shares of Common Stock as are set forth opposite its name on Schedule I, which number of shares are subject to adjustment as set forth in the provisions of the Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation"). (c) The Company desires to grant the Purchasers certain registration rights with respect to the Common Stock. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. DEMAND REGISTRATIONS. (a) REQUESTS FOR REGISTRATION. Subject to paragraph 1(b) below, the holders at any time of at least 50% of the Registrable Securities may request at any time registration under the Securities Act of 1933, as amended (the "Securities Act"), of all or part of their Registrable Securities on Form S-1 or any similar long-form registration ("Long-Form Registrations"), and 2 each holder of Registrable Securities may request registration under the Securities Act of all or part of their Registrable Securities on Form S-2 or S-3 or any similar short-form registration ("Short-Form Registrations") if available. Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten days after receipt of any such request, the Company will give written notice of such requested registration to all other holders of Registrable Securities and will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. All registrations requested pursuant to this paragraph 1(a) are referred to herein as "Demand Registrations". (b) LONG-FORM REGISTRATIONS. Subject to paragraph 1(a), the holders of Registrable Securities will be entitled at any time to request Long-Form Registrations in which (subject to Section 5(b)) the Company will pay all Registration Expenses ("Company-paid Long-Form Registrations"); provided that the holders of Registrable Securities may not request more than two (2) Long-Form Registrations (each a "Demand Long-Form Registration," and each of which shall be a Company-paid Long-Form Registration), such number to be reduced by the number of previously consummated Demand Long-Form Registrations. A registration will not count as one of the permitted Demand Long-Form Registrations until it has become effective, and no Company-paid Long-Form Registration will count as one of the permitted Demand Long-Form Registrations unless the holders of Registrable Securities are able to register and sell at least 85% of the Registrable Securities requested to be included in such registration; provided that in any event the Company will pay all Registration Expenses in connection with any registration initiated as a Company-paid Long-Form Registration whether or not it has become effective. (c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form Registrations provided pursuant to paragraph 1(b), each holder of Registrable Securities will be entitled to request a Short Form Registration (provided that the holders may only request up to two (2) Short-Form Registrations in any twelve-month period, which number shall be reduced by the number of previously consummated Demand Short-Form Registrations in such twelve-month period) in which the Company will pay all Registration Expenses. Demand Registrations will be Short-Form Registrations whenever the Company is permitted to use any applicable short form. The Company will use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Registrable Securities. The holders of Registrable Securities agree that they will not request a Long-Form Registration when the Company is eligible to use a Short-Form Registration; provided that the Company agrees to include in the prospectus included in any Short-Form Registration Statement, such material describing the Company and intended to facilitate the sale of securities being so registered as is reasonably requested for inclusion therein by any of the shareholders selling securities pursuant to such registration statement, whether or not the form used for such registration statement requires the inclusion of such information. 2 3 (d) PRIORITY ON DEMAND REGISTRATIONS. The Company will not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of at least 50.1% of the Registrable Securities included in such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold therein without adversely affecting the marketability of the offering, the Company will include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold without adversely affecting the marketability of the offering, pro rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each holder participating in such offering. (e) RESTRICTIONS ON LONG-FORM REGISTRATIONS AND DEMAND REGISTRATIONS. The Company will not be obligated to effect any Demand Long-Form Registration during the period starting with the date thirty (30) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred and twenty (120) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become and remain effective. The Company will not be obligated to effect any Demand Long-Form Registration within six (6) months after the effective date of a previous Long-Form Registration. The Company may postpone for up to six (6) months the filing or the effectiveness of a registration statement for a Demand Registration if the Company and the holders of at least 66.67% of the Registrable Securities to be covered thereby agree that such Demand Registration would reasonably be expected to have an adverse effect on any proposal or plan by the Company or any of its subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or similar transaction; provided that in such event, the holders of Registrable Securities initially requesting such Demand Registration will be entitled to withdraw such request and such Demand Registration will not count as one of the permitted Demand Registrations hereunder and the Company will pay all Registration Expenses in connection with such registration. The Company will not be obligated to effect any Demand Long-Form Registration unless the anticipated aggregate offering price, net of underwriting discounts and commissions, of the Common Stock to be included in such Demand Long-Form Registration equals more than ten million dollars ($10,000,000). (f) OTHER REGISTRATION RIGHTS. Except as provided in this Agreement, the Company shall not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of at least 66.67% of the Registrable Securities; provided that the Company may grant rights to employees of the Company and its Subsidiaries to participate in Piggyback Registrations so long as such rights are 3 4 subordinate to the rights of the holders of Registrable Securities with respect to such Piggyback Registrations as provided in paragraphs 2(c) and 2(d) below. (g) SELECTIONS OF UNDERWRITERS. If any Demand Registration is an underwritten offering, the selection by the Company of investment banker(s) and manager(s) for the Offering must be approved by the holders of a majority of the Registrable Securities included in such Demand Registration. Such approval will not be unreasonably withheld. 2. PIGGYBACK REGISTRATIONS. (a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to (i) a Demand Registration, (ii) a registration in connection with shares issued by the Company in connection with the acquisition of any company or companies or (iii) a registration solely of shares that have been issued pursuant to the Company's employee benefit plans) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and will include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. (b) PIGGYBACK EXPENSES. Subject to Section 5(b), the Registration Expenses of the holders of Registrable Securities will be paid by the Company in all Piggyback Registrations. (c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of Registrable Securities owned by each holder of Registrable Securities participating in such offering, and (iii) third, other securities requested to be included in such registration; provided that in any event the holders of Registrable Securities shall be entitled to register at least 20% of the securities to be included in any such registration. (d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in 4 5 such offering without adversely affecting the marketability of the offering, the Company will include in such registration (i) first, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of Registrable Securities owned by each holder of Registrable Securities participating in such offering, and (ii) second other securities requested to be included in such registration. (e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an underwritten offering, the selection by the Company of investment banker(s) and manager(s) for the offering must be approved by the holders of a majority of the Registrable Securities included in such Piggyback Registration. Such approval will not be unreasonably withheld. (f) OTHER REGISTRATIONS. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to Paragraph 1 or pursuant to this Paragraph 3, and if such previous registration has not been withdrawn or abandoned, the Company will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least six months has elapsed from the effective date of such previous registration. 3. HOLDBACK AGREEMENTS. (a) Each holder of Registrable Securities agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the ninety (90)-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration in which Registrable Securities are included (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. (b) The Company agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the ninety (90)-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each holder of at least 5% (on a fully-diluted basis) of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 5 6 4. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof including the registration of common stock that may be obtained upon conversion of Preferred Shares held by a holder of Registrable Securities requesting registration as to which the Company has received reasonable assurances that only Registrable Securities will be distributed to the public, and pursuant thereto the Company will as expeditiously as possible: (a) prepare and file (in the case of a Demand Registration not more than sixty (60) days after request therefor) with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that as far in advance as practicable before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel); (b) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than one hundred and eighty (180) days (subject to Paragraph (a) above) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); 6 7 (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the National Association of Securities Dealers automated quotation system; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; (k) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company will promptly notify the holders of Registrable Securities and will use its reasonable best efforts promptly to obtain the withdrawal of such order; and 7 8 (l) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request; and (m) in connection with an underwritten public offering, (i) cooperate with the selling holders of Registrable Securities, the underwriters participating in the offering and their counsel in any due diligence investigation reasonably requested by the selling holders or the underwriters in connection therewith and (ii) participate, to the extent reasonably requested by the managing underwriter for the offering or the selling holder, in efforts to sell the Registrable Securities under the offering (including, without limitation, participating in "roadshow" meetings with prospective investors) that would be customary for underwritten primary offerings of a comparable amount of equity securities by the Company. 5. REGISTRATION EXPENSES. (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), will be borne as provided in this Agreement, except that the Company will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the National Association of Securities Dealers automated quotation system. The Company shall not be required to pay an underwriting discount with respect to any shares being sold by any party other than the Company in connection with an underwritten public offering of any of the Company's securities pursuant to this Agreement. (b) In connection with each Company-paid Demand Registration, the Company will reimburse the holders of Registrable Securities covered by such registration for the reasonable fees and expenses (including the fees and expenses of counsel chosen by the holders of a majority of the Registrable Securities initially requesting such registration) incurred by such holders in connection with such registration. To the extent that there are any unreimbursed expenses incurred by the holders of Registrable Securities, each holder shall bear his or her pro rata share of such expenses based upon the number of shares of Registrable Securities held by such holder that are included in such registration relative to the number of all Registrable Securities included in such registration. 8 9 (c) The Company will reimburse the holders of Registrable Securities for the reasonable fees and expenses (including the fees and expenses of counsel chosen by the holders of a majority of the Registrable Securities) incurred by such holders in enforcing any of their rights under this Agreement. 6. INDEMNIFICATION. (a) INDEMNIFICATION OF SELLING STOCKHOLDERS BY THE COMPANY. The Company agrees to indemnify and hold harmless each holder of Registrable Securities which are registered pursuant hereto (each a "Selling Stockholder") and each person, if any, who controls any Selling Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, 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 whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided, that subject to Section 6(c) below any such settlement is effected with the prior written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by such Selling Stockholder), 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 whatsoever 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; provided, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Selling Stockholder expressly for use in the registration statement (or any amendment thereto), or any preliminary prospectus or the prospectus (or any amendment or supplement thereto). 9 10 (b) INDEMNIFICATION OF COMPANY BY THE SELLING STOCKHOLDERS. Each Selling Stockholder, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the registration statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 6(a) above, as incurred, but only with respect to untrue or alleged untrue statements or omissions made in the registration statement (or any amendment thereto), or any preliminary prospectus or any prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder with respect to such Selling Stockholder expressly for use in the registration statement (or any amendment or supplement thereto); provided, that such Selling Stockholder's aggregate liability under this Section 6 shall be limited to an amount equal to the net proceeds (after deducting the underwriting discount, but before deducting expenses) received by such Selling Stockholder from the sale of Registrable Securities pursuant to a registration statement filed pursuant to this Agreement. (c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a), counsel to the indemnified parties shall be selected by the Selling Stockholders (by majority vote based on the number of Registrable Securities included in a registration hereunder) and, in the case of parties indemnified pursuant to Section 6(b), counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. 10 11 (d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) CONTRIBUTION. (i) If a claim for indemnification under Section 6(a) or 6(b) is unavailable to an indemnified party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the actions, statements or omissions that resulted in such losses as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any losses shall be deemed to include, subject to the limitations set forth in this Section, any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. (ii) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(f) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 6(f), a holder shall not be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such holder from the sale of the Registrable Securities subject to the proceeding exceeds the amount of any damages that the holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 11 12 (iii) The indemnity and contribution agreements contained in this Section are in addition to any liability that the indemnifying parties may have to the indemnified parties. 7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 8. DEFINITIONS. "Common Stock" means the Common Stock of the Company, par value $0.0001 per share. "Registrable Securities" means (i) any Common Stock issued upon the conversion of any Preferred Shares issued pursuant to the Stock Purchase Agreement (whether held by a Purchaser or any successor or assignee of a Purchaser), and (ii) any Common Stock issued or issuable with respect to the securities referred to in clause (i) by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force). For purposes of this Agreement, a Person will be deemed to be a holder of Registrable Securities whenever such Person has the right to acquire directly or indirectly such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. For purposes of calculating the percentage of Registrable Securities for voting purposes, the Preferred Shares shall be deemed to have been converted at the then applicable conversion price. "Registration Expenses" has the meaning set forth in Section 5(a) hereof. 9. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. The Company has not entered and will not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not take 12 13 any action, or permit any change to occur, with respect to its securities which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) REMEDIES. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement. (d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of at least 66.67% of the Registrable Securities. (e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the permitted respective successors and assigns of the parties hereto whether so expressed or not. (f) NOTICES. Except as otherwise expressly provided herein, any and all notices, designations, consents, offers, acceptances or other communications provided for herein shall be given in writing and shall be mailed by first class registered or certified mail, postage prepaid, sent by a nationally recognized overnight courier service or transmitted via telecopier as follows: If to the Company: Alarmguard Holdings, Inc. 125 Frontage Road Orange, Connecticut 06477 Telecopy: (203) 799-9636 Attention: Russell R. MacDonnell 13 14 with a copy to: Robinson & Cole LLP 695 East Main Street Stamford, Connecticut 06904 Telecopy: (203) 462-7599 Attention: Richard A. Krantz, Esq. If to Advance: Advance Capital Partners, L.P. 660 Madison Avenue 15th Floor New York, New York 10021 Telecopy: (212) 835-2020 Attention: Robert A. Bernstein with a copy to: Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Telecopy: (212) 446-4900 Attention: Joshua N. Korff, Esq. If to any other Purchaser to the address set forth opposite such Purchaser's name on Schedule I hereto. Notice shall be deemed given, for all purposes, when deposited in the United States mail as registered or certified mail, in which event the fifth day following the date of postmark on the receipt of such registered or certified mail shall conclusively be deemed the date of giving of such notice, on the first Business Day following collection by the courier service or when acknowledged by the receiving telecopier. (g) INTERPRETATION OF AGREEMENT; SEVERABILITY. The provisions of this Agreement shall be applied and interpreted in a manner consistent with each other so as to carry out the purposes and intent of the parties hereto, but if for any reason any provision hereof is determined to be unenforceable or invalid, such provision or such part thereof as may be unenforceable or invalid shall be deemed severed from the Agreement and the remaining provisions carried out with the same force and effect as if the severed provision or part thereof had not been a part of this Agreement. 14 15 (H) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS (AND NOT THE CONFLICTS OF LAW) OF THE STATE OF NEW YORK. (i) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Agreement. (j) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all previous agreements. * * * * * [SIGNATURE PAGES FOLLOW] 15 16 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first written above. ALARMGUARD HOLDINGS, INC. By: ---------------------------------- Name: Title: ADVANCE CAPITAL PARTNERS, L.P. By: Advance Capital Associates, L.P., its General Partner By: Advance Capital Management, LLC, its General Partner By: ----------------------------------- Name: Robert A. Bernstein Title: Principal ADVANCE CAPITAL OFFSHORE PARTNERS, L.P. By: Advance Capital Offshore Associates, LDC, its General Partner By: Advance Capital Associates, L.P., its Sole Director By: Advance Capital Management, LLC, its General Partner By: ------------------------------------- Name: Robert A. Bernstein Title: Principal 17 CANAAN EQUITY, L.P. By: Canaan Equity Partners, L.L.C. By: ------------------------------- Name: Stephen L. Green Title: Member/Manager EXETER CAPITAL PARTNERS IV, L.P. By: Exeter IV Advisors, L.P. its General Partner By: Exeter IV Advisors, Inc., its General Partner By: --------------------------------- Name: Keith R. Fox Title: President LB I GROUP INC. By: --------------------------------- Name: Alan H. Washkowitz Title: Senior Vice President 18 ELLIOTT ASSOCIATES, L.P. By: -------------------------- Name: Paul E. Singer Title: General Partner WESTGATE INTERNATIONAL, L.P. By: Martley International, Inc. as Attorney-in-Fact By: ---------------------------- Name: Paul E. Singer Title: President ZIFF ASSET MANAGEMENT, L.P. By: ---------------------------- Name: Philip B. Korsant Title: President OZ MASTER FUND, LTD. By: ----------------------------- Name: Daniel S. Och 19 Title: Managing Member OZ Management, L.L.C. IBJS CAPITAL CORPORATION By: ------------------------- Name: Kevin P. Falvey Title: Director CREDIT SUISSE (GUERNSEY) LIMITED as trustee of the Dynamic Growth Fund II By: -------------------------- Name: M.E. Zunino Title: Associate AETNA LIFE INSURANCE COMPANY By: --------------------------- Name: Alan Vartelas Title: Assistant Vice President GRANITE PROPERTIES MANAGEMENT CORP. 20 By: --------------------------------- Name: Daren J. Wells Title: Director, Private Equity By: --------------------------------- Name: Paul Finkelstein 21 SCHEDULE I
---------------- -------------------- -------------------- --------------------------- Name, Address and Shares of Shares of Shares of Common Stock Telecopier Number Series A Convertible Series B Convertible initially issuable upon Preferred Stock Preferred Stock Conversion of Convertible Preferred Stock Advance Capital Partners, L.P. 5,524 -- 669,575.76 660 Madison Avenue, 15th Floor New York, NY 10021 (212) 835-2020 Attn: Robert Bernstein Advance Capital Offshore 1,726 -- 209,212.12 Partners, L.P. c/o CITCO Fund Services (Cayman Islands) Limited Safehaven Corporate Centre Leward Building P.O. Box 31106 SMB West Bay Road Grand Cayman Cayman Islands B.W.I. 345-949-3877 Attn: Robert Bernstein Elliott Associates, L.P. 2,000 -- 242,424.24 712 Fifth Avenue, 35th Floor New York, NY 10019 (212) 974-2092 Attn: Jeffrey Kaplan Westgate International, L.P. 2,000 -- 242,424.24 c/o Stonington Management Corp. 712 Fifth Avenue, 36th Floor New York, NY 10019 (212) 974-2092 Attn: Jeffrey Kaplan Exeter Capital Partners IV, L.P. 2,500 -- 303,030.30 10 E. 53rd Street, 32nd Floor New York, NY 10022 (212) 872-1198 Attn: Keith Fox Aetna Life Insurance Company 5,000 -- 606,060.60 151 Farmington Avenue RC21 Hartford, CT 06516 (860) 273-8650 Attention: Private Equity Group Ziff Asset Management, L.P. 7,250 --- 878,787.88
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---------------- -------------------- -------------------- --------------------------- Name, Address and Shares of Shares of Shares of Common Stock Telecopier Number Series A Convertible Series B Convertible initially issuable upon Preferred Stock Preferred Stock Conversion of Convertible Preferred Stock c/o Och-Ziff Management, L.L.C. 153 E. 53rd Street, 43rd Floor New York, NY 10022 (212) 292-5950 Attn: Danny Och/Joel Frank Oz Master Fund, Ltd. 2,000 --- 242,424.24 c/o Och-Ziff Management, L.L.C. 153 E. 53rd Street, 43rd Floor New York, NY 10022 (212) 292-5950 Attn: Danny Och/Joel Frank Canaan Equity L.P. -- 5,000 645,161.29 105 Rowayton Avenue Rowayton, CT 06853 (203) 854-9117 Attn: Stephen Green LB I Group Inc. 5,000 --- 606,060.60 c/o Lehman Brothers 3 World Financial Center 6th Floor New York, NY 10285 (212) 528-8821 Attn: Stephen Berkenfeld IBJS Capital Corporation 200 --- 24,242.42 One State Street New York, NY 10004 (212) 858-2768 Attn: Kevin Falvey Granite Properties 1,500 --- 181,818.18 Management Corp. 1 Cablevision Center P.O. Box 311 Liberty, NY 12754 (914) 295-2741 Attn: Daren Wells Credit Suisse (Guernsey) Limited 200 --- 24,242.42 as trustee for the Dynamic Growth Fund II P.O. Box 122, Helvetia Court South Esplanade, St. Peter Port Guernsey Channel Islands GY1 4EE ###-##-#### 710934 Attn: David Preston
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---------------- -------------------- -------------------- --------------------------- Name, Address and Shares of Shares of Shares of Common Stock Telecopier Number Series A Convertible Series B Convertible initially issuable upon Preferred Stock Preferred Stock Conversion of Convertible Preferred Stock Paul Finkelstein 100 --- 12,121.21
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