-----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, QhYwJ9sjg9VbXDbiCQHCA9wz7g3HlvgC5w/0EWJl/I/DPnzV4Rvt/uvhXvqKJD4A T9hnd619o1oR1pk3EM8RlA== 0000950116-97-000747.txt : 19970421 0000950116-97-000747.hdr.sgml : 19970421 ACCESSION NUMBER: 0000950116-97-000747 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970418 EFFECTIVENESS DATE: 19970418 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLMES PROTECTION GROUP INC CENTRAL INDEX KEY: 0000926764 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 061070719 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: 1933 Act SEC FILE NUMBER: 333-25467 FILM NUMBER: 97583660 BUSINESS ADDRESS: STREET 1: 440 9TH AVE CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2127600630 MAIL ADDRESS: STREET 1: 440 9TH AVENUE CITY: NEW YORK STATE: NY ZIP: 10001 S-8 1 Registration No. 333-_____ As filed with the Securities and Exchange Commission on April 18, 1997 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM S-8 Registration Statement Under The Securities Act of 1933 ------------------ HOLMES PROTECTION GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 06-1070719 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) George V. Flagg Holmes Protection Group, Inc. 440 Ninth Avenue New York, NY 10001-1695 (212) 760-0650 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices and agent for service) HOLMES PROTECTION GROUP, INC. AMENDED AND RESTATED SENIOR EXECUTIVES' OPTION PLAN and HOLMES PROTECTION GROUP, INC. 1996 STOCK INCENTIVE PLAN (Full title of the Plans) Copy to: Jeffrey W. Rubin, Esq. Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 (212) 661-6500 CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- Proposed Proposed Amount Maximum Maximum Amount of Title of Securities To Be Offering Price Aggregate Registration To Be Registered Registered(1) Per Share Offering Price Fee - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 31,431 shares(4) $7.28(2) $228,817.68 $69.34 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 175,000 shares(5) $5.50(2) $962,500.00 $291.67 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 125,000 shares $5.56 $695,000.00 $210.61 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 91,000 shares $6.00 $546,000.00 $165.45 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 91,000 shares $7.00 $637,000.00 $193.03 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 91,000 shares $8.00 $728,000.00 $220.61 - ---------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------- Proposed Proposed Amount Maximum Maximum Amount of Title of Securities To Be Offering Price Aggregate Registration To Be Registered Registered(1) Per Share Offering Price Fee - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 91,000 shares $9.00 $819,000.00 $248.18 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 91,000 shares $10.00 $910,000.00 $275.76 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 25,000 shares(5) $7.50(2) $187,500.00 $56.82 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 50,000 shares(5) $8.50(2) $425,000.00 $128.79 - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share 172,500 shares(5) $12.00(2) $2,070,000.00 $627.27 - --------------------------------------------------------------------------------------------------------------------------------- Common stock, par value $0.01 per share 997,500 shares(5) $14.88(3) $14,842,800.00 $4,497.82 - --------------------------------------------------------------------------------------------------------------------------------- TOTALS $23,051,619.96 $6,985.35 =================================================================================================================================
(1) Plus such indeterminate number of shares pursuant to Rule 416 as may be issued in respect of stock splits, stock dividends and similar transactions. (2) Based upon the actual prices at which the 1,033,931 shares subject to options currently outstanding under the Amended and Restated Senior Executives' Option Plan (the "1994 Plan") and the 1996 Stock Incentive Plan (the "1996 Plan") are exercisable. (3) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(h) under the Securities Act of 1933, as amended, on the average high and low prices for the Common Stock, as reported on the Nasdaq National Market on April 14, 1997. (4) The number of shares of Common Stock being registered represents the number of shares of Common Stock that may be issued on the date hereof under the 1994 Plan pursuant to options issued under the 1994 Plan. (5) The number of shares of Common Stock being registered represents the number of shares of Common Stock that may be issued on the date hereof under the 1996 Plan pursuant to options issued or to be issued under the 1996 Plan. - 2 - PART I INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS The document(s) containing information specified by Part I of this Form S-8 Registration Statement (the "Registration Statement") has been or will be sent or given to participants in the 1994 Plan and the 1996 Plan (collectively, the "Plans") as specified in Rule 428(b)(1) promulgated by the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933 (the "Securities Act"). Such document(s) are not being filed with the Commission but constitute (along with the documents incorporated by reference into the Registration Statement pursuant to Item 3 of Part II hereof) a prospectus that meets the requirements of Section 10(a) of the Securities Act. EXPLANATORY NOTE This Registration Statement includes a Prospectus, prepared in accordance with the requirements of Form S-3, which, pursuant to General Instruction C of Form S-8, may be used for (i) the offer and sale by certain officers and directors of the Company who may be deemed to be "affiliates" of the Company, as that term is defined in Rule 405 under the Securities Act, of securities registered hereunder and (ii) reoffers and resales by certain participants in the 1994 Plan and the 1996 Plan of shares of Common Stock, which shares are "restricted securities" as defined in Rule 144 under the Securities Act, issued upon the exercise of options granted pursuant to the 1994 Plan and the 1996 Plan. - 3 - HOLMES PROTECTION GROUP, INC. ---------- COMMON STOCK (Par Value $0.01 Per Share) ---------- UP TO 31,431 SHARES OF COMMON STOCK UNDER HOLMES PROTECTION GROUP, INC. AMENDED AND RESTATED SENIOR EXECUTIVES' PLAN AND UP TO 2,000,000 SHARES OF COMMON STOCK UNDER HOLMES PROTECTION GROUP, INC. 1996 STOCK INCENTIVE PLAN This Prospectus relates to (i) offers and sales of shares of Common Stock, par value $0.01 per share (the "Common Stock"), of Holmes Protection Group, Inc., a Delaware corporation (the "Company" or "Holmes"), that have been or will be acquired by certain officers and directors (the "Management Selling Security Holders") who may be deemed to be "affiliates" of the Company, as defined in Rule 405 under the Securities Act of 1933 (the "Securities Act"), upon exercise of options (the "Options") granted pursuant to the Holmes Protection Group, Inc. Amended and Restated Senior Executives' Plan (the "1994 Plan") and the Holmes Protection Group, Inc. 1996 Stock Incentive Plan (the "1996 Plan") and (ii) reoffers and resales by certain participants (the "Plan Selling Security Holders," and, together with the Management Selling Security Holders, the "Selling Security Holders") in the 1994 Plan and the 1996 Plan of shares of Common Stock, which shares are "restricted securities" as defined in Rule 144 under the Securities Act, issued upon the exercise of Options granted pursuant to the 1994 Plan and the 1996 Plan. The Common Stock is quoted on the Nasdaq National Market(R) (the "Nasdaq National Market") under the symbol "HLMS." The closing sales price for the Common Stock on April 14, 1997 was $15.00 per share. Shares of Common Stock covered by this Prospectus (the "Shares") may be offered and sold from time to time directly by the Selling Security Holders or through brokers on the Nasdaq National Market or otherwise at the prices prevailing at the time of such sales. No specified brokers or dealers have been designated by the Selling Security Holders, and no agreement has been entered into in respect of brokerage commissions or for the exclusive or coordinated sale of any securities which may be offered pursuant to this Prospectus. The net proceeds to the Selling Security Holders will be the proceeds received by them upon such sales, less brokerage commissions, if any. The Company will pay all expenses of preparing and reproducing this Prospectus, but will not receive any of the proceeds from sales by any of the Selling Security Holders. The Selling Security Holders, and any broker-dealers, agents, or underwriters through whom the Shares are sold, may be deemed "underwriters" within the meaning of the Securities Act with respect to securities offered by them, and any profits realized or commissions received by them may be deemed underwriting compensation. See "Plan of Distribution." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE COMMON STOCK OFFERED HEREBY INVOLVES A SUBSTANTIAL DEGREE OF RISK. SEE "RISK FACTORS." No dealer, salesman, or any other person has been authorized to give any information or to make any representation other than as contained or incorporated by reference herein and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy securities by anyone in any jurisdiction in which such offering may not lawfully be made. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or the information herein since the date hereof. See "Risk Factors." ---------- The date of this Prospectus is April 18, 1997 AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration Statement (the "Registration Statement") under the Securities Act with respect to the offering and sale from time to time of the Shares. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto, as permitted by the rules and regulations of the Commission. For further information, reference is made to the Registration Statement and to the exhibits filed therewith. Statements contained in this Prospectus as to the contents of any contract or other document which has been filed or incorporated by reference as an exhibit to the Registration Statement are qualified in their entirety by reference to such exhibits for a complete statement of their terms and conditions. Additionally, the Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements, and other information statements with the Commission. Copies of such materials may be inspected without charge at the offices of the Commission, and copies of all or any part thereof may be obtained from the Commission's public reference facilities at 450 Fifth Street, N.W., Washington D.C. 20549 or at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission. The Registration Statement has been filed electronically with the Commission. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. In addition, the Common Stock is quoted on the Nasdaq National Market. Reports and other information concerning the Company may be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Incorporated herein by reference and made a part of this Prospectus are the following (1) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and (2) the description of the Common Stock, which is registered under Section 12 of the Exchange Act, contained in the Company's Registration Statement on Form 10, as amended, originally filed with the Commission on July 12, 1994. All documents subsequently filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering made hereby will be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in any document incorporated by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. All information appearing in this Prospectus is qualified in its entirety by the information and financial statements (including notes thereto) appearing in the documents incorporated herein by reference, except to the extent set forth in the immediately preceding statement. The Company will provide without charge to each person who receives a prospectus, upon written or oral request of such person, a copy of the information that is incorporated by reference herein (not including exhibits to the information that is incorporated by reference herein). Requests for such information should be directed to: Holmes Protection Group, Inc., 440 Ninth Avenue, New York, NY 10001-1695; Attention: Secretary. The Company's telephone number is: (212) 760-0650. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference into this Prospectus constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; cancellation rates of subscribers; competitive factors in the industry, including additional competition from existing competitors or future entrants to the industry; social and economic conditions; local, state and federal regulations; changes in business strategy or development plans; the Company's indebtedness; availability, terms and deployment of capital; availability of qualified personnel; and other factors referenced in this Prospectus and in the Company's filings with the Commission. - 2 - THE COMPANY The following summary is qualified in its entirety by reference to the more detailed information and the financial statements and the related notes appearing elsewhere in this Prospectus or incorporated herein by reference. Each prospective investor is urged to read this Prospectus in its entirety. Investment in the securities offered hereby involves a high degree of risk. See "Risk Factors." Holmes Protection Group, Inc. (the "Company" or "Holmes") provides security alarm monitoring services and designs, sells, installs and services electronic security systems for commercial and mid- to high-end residential subscribers. These systems include event detection devices, surveillance equipment and access control devices which restrict access to specified areas. The Company currently provides its services in New York, New Jersey, Pennsylvania, Texas, Tennessee, California, Massachusetts and Florida, and conducts its operations primarily through 16 branch offices, six central monitoring station and 69 independent alarm service dealers and franchisees. According to the latest available survey, published in May 1996, the Company was the twelfth largest provider of electronic security services in the United States in terms of total 1995 revenues. Following an internal management transition and reorganization in 1995, the Company, in 1996, engaged the services of several former senior executives of The National Guardian Corporation, a large national electronic security alarm services company which was acquired by Ameritech Monitoring Services, Inc., in October 1995. Among the executives hired by the Company was George V. Flagg, the Company's President and Chief Executive Officer, who served as the President and Chief Executive Officer of National Guardian from 1986 to 1995. Under the direction of the Company's new management team, the Company is implementing a business strategy involving a combination of strategic acquisitions and internal growth. In regard to strategic acquisitions, the Company intends to pursue both (i) fold-in acquisitions, which consist of businesses or portfolios of alarm monitoring accounts that can be readily combined with the Company's existing branch offices and management structure and (ii) new market acquisitions, which consist of companies in the electronic security services industry located outside the Company's current geographic market. In regard to its internal growth strategy, the Company intends to capitalize on public recognition of the historic Holmes brand name (which has been utilized in the security services industry since 1858) in connection with (i) expanding its security services product offerings, including the HolmesNet system for wireless data communications; (ii) strengthening its national accounts program; (iii) increasing its sales and marketing efforts; and (iv) expanding its dealer operations. The Company's revenues consist primarily of recurring payments under written contracts for security alarm monitoring activities and associated services, which represented approximately 70% of total revenues in 1996. The Company monitors digital alarm signals arising from various activities, including burglaries, fires and other events, through security systems installed at subscribers' premises. These signals are received and processed at the Company's relevant central monitoring station. In order to reduce overall manpower requirements, achieve economies of scale and other cost efficiencies, and enhance the quality of service being provided, the Company consolidated its central monitoring stations in the Northeast into one facility located in Edison, New Jersey, with monitoring capacity of approximately 60,000 accounts. In addition, the Company has acquired several businesses with central monitoring stations with the capacity to process approximately 60,000 additional accounts. An additional 21% of the Company's total revenues in 1996 was comprised of direct sales and installation of security equipment. The balance of the Company's revenues in 1996 was derived from (i) jewelry vault rentals, (ii) insured parcel delivery services for the jewelry trade and (iii) royalty fees and product sales relating to its franchise and dealer operations. Approximately 80% of the Company's business is derived from commercial customers, including financial institutions, jewelry and fine art dealers, corporate headquarters, manufacturers, distribution facilities and health care and education facilities. The Company's residential business focuses principally on mid- to high-end customers. Electronic security services is a consolidating but still a highly fragmented industry, consisting of a large number of local and regional companies and several integrated national companies. The fragmented nature of the industry can be attributed to the low capital requirements associated with performing basic installation and maintenance of electronic security systems. However, the business of a full service, integrated electronic security services company providing central station monitoring services is capital intensive, and the Company believes that the high fixed costs of establishing both central monitoring stations and full service operations contribute to the small number of national competitors. The low marginal cost of monitoring additional customers has been one of the principal factors leading full service, integrated electronic security services companies to seek acquisitions of other electronic security businesses to consolidate into their existing operations. The principal focus of the Company's business strategy is to pursue acquisitions in this environment. - 3 - RISK FACTORS This Prospectus contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain uncertainties set forth below and elsewhere in this Prospectus. An investment in the Shares is highly speculative, involves a high degree of risk. Prospective investors, prior to making an investment decision, should carefully consider the following risk factors, in addition to the other information set forth in this Prospectus, in connection with an investment in the Common Stock offered hereby. Recent Net Losses and Accumulated Deficit The Company incurred a net loss in 1996 and 1995 of $2,452,000 and $1,197,000, respectively. The losses reflect non-recurring charges of $700,000 and $2,074,000 in 1996 and 1995, respectively and the cumulative effect of the change in the method of accounting for non-refundable payments received from customers for company-owned systems resulting in a net credit after tax of $2,477,000 in 1995. The Company had net income of $404,000 in 1994. At December 31, 1996, the Company had an accumulated deficit of $72,829,000 up from $70,188,000 at December 31, 1995 and a working capital deficit of $2,171,000 down from $5,246,000 at December 31, 1995. For a further discussion of the effect of the non-recurring charge and the cumulative effect of the change in the method of accounting for non-refundable payments, see Notes 4 and 5 to Notes to the Consolidated Financial Statements. Geographic Concentration The Company's existing subscriber base is geographically concentrated predominantly in New York, New Jersey and Pennsylvania. Accordingly, the performance of the Company may be adversely affected by regional or local economic conditions. The Company may from time to time make acquisitions in regions outside of its current operating area. The acquisition of companies in other regions, or in metropolitan areas in which the Company does not currently have subscribers, requires an investment by the Company. In order for the Company to expand successfully into a new area, the Company must acquire companies with a sufficient number and density of subscriber accounts in such area to support the investment. There can be no assurance that the Company will find such opportunities or that an expansion into new geographic areas will generate operating profits. Risk Related to Growth Through Acquisitions One of the Company's primary strategies is to increase its revenues and the markets it serves through the acquisition of other companies in the electronic security services industry and portfolios of alarm monitoring accounts. There can be no assurance that the Company will be able to acquire or profitably manage suitable acquisition candidates or successfully integrate such businesses into its operations without substantial costs, delays or other problems. In addition, there can be no assurance that any businesses acquired will be profitable at the time of their acquisition or will achieve sales and profitability that justify the investment therein or that the Company will be able to realize expected operating and economic efficiencies following such acquisitions. Acquisitions may involve a number of special risks, including adverse effects on the Company's reported operating results, diversion of management's attention, increased burdens on the Company's management resources and financial controls, dependence on retention and hiring of key personnel, risks associated with unanticipated problems or legal liabilities, and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company's operations and financial performance. Customer Cancellation Rates The Company is heavily dependent on its recurring monitoring and service revenues. Given the relatively fixed nature of monitoring and service expenses, increases and decreases in monitoring and service revenues have a significant impact on the Company's profitability. Substantially all of the Company's monitoring and service revenues are derived from recurring charges to subscribers for the provision of various services. Although no single subscriber represents more than one-half of one percent of the Company's recurring revenue base, the Company is vulnerable to subscribers canceling their contracts. In recent years, lost recurring revenues from such cancellations have exceeded the new recurring revenues added by the Company's sales efforts. However, the Company's cancellation rate (as defined in detail below), representing lost recurring revenues from cancellations as a percentage of gross recurring revenues, decreased significantly from 15.2% in 1991 to 10.8% in 1996. Although the Company's rate of subscriber cancellations has been - 4 - substantially reduced since 1991, there can be no assurance that this rate may not increase in the future for a variety of reasons associated with general economic conditions, market competition and the level of customer satisfaction with the Company's services. As described herein, the "cancellation rate" means the gross recurring revenues lost through cancellation in a given period; less those recurring revenues derived from subscribers who cancel their service with the Company in order to move and then contract for the Company's services at their new premises; and less those recurring revenues derived from new subscribers who occupy a vacant premises where the Company has an existing company-owned system and who contract for the Company's services using that equipment; divided by the gross recurring revenues in force at the beginning of the period, annualized and expressed as a percentage. Competition The electronic security services industry is highly competitive and fragmented. The Company competes with national and regional companies, as well as smaller local companies, in all of its operations. Furthermore, new competitors are continuing to enter the industry and the Company may encounter additional competition from such future industry entrants. Subject to regulatory compliance, certain companies engaged in the telephone and cable business are competing in the electronic security services industry and other such companies may, in the future, enter the industry. Certain of the Company's current competitors have, and new competitors may have, substantially greater financial resources than the Company. Significant Ownership of Common Stock by Certain Stockholders The Company believes that at March 27, 1997, seven U.S. insurance companies and other institutions (the "Institutions") owned approximately 26% (28% including warrants to purchase an aggregate of 193,150 shares of Common Stock at $10.68 per share (the "Institution Warrants")) of the Company's outstanding shares of Common Stock. The Institution Warrants are in the process of being adjusted in accordance with anti-dilution provisions contained therein to increase the number of shares purchasable and to reduce the exercise price thereof. Such adjustment will reflect the issuance of the New Bank Warrants (as defined below) and the stock options granted under the 1996 Plan. The Company does not believe that upon such adjustment the number of shares purchasable will exceed 210,000 or the exercise price thereof will be reduced below $10.00 per share. Pursuant to the Exchange Agreement, dated as of December 18, 1991, which agreement was amended as of January 31, 1992, May 24, 1992 and June 30, 1992 (the "Exchange Agreement"), between the Institutions and the Company, the Institutions are entitled to nominate two directors (the "Institution-Nominees") to the Company's Board of Directors (the "Board") based on their ownership of Common Stock. At March 27, 1997, HP Partners L.P., a Delaware limited partnership (the "Investor"), owned approximately 26% (34% including warrants to purchase 685,714 shares of Common Stock at an exercise price of $4.58 per share (the "Investor Warrants")) of the Company's outstanding shares of Common Stock. Pursuant to the Investment Agreement, dated as of June 29, 1994, between the Investor and the Company (the "Investment Agreement"), the number of directors the Investor is entitled to nominate to the Board (the "Investor-Nominees") is three. The size of the Board is currently fixed at nine members; however, there exists one vacant seat on the Board. As of a result of these separate agreements with the Company, the Institution-Nominees and the Investor-Nominees constitute a majority of the Company's directors and are therefore in a position to control the Company. Liability for Employee Acts and Defective Equipment The nature of the security services provided by the Company potentially exposes it to greater risk of liability claims for employee acts or omissions or system failure than may be inherent in many other service businesses. Although (i) substantially all of the Company's customers have subscriber agreements which contain provisions for limited liability and predetermined liquidated damages and (ii) the Company carries insurance which it believes provides adequate coverage for businesses of the Company's type, there can be no assurance that such existing arrangements will prevent the Company from being adversely affected as a result of damages arising from the acts of its employees, defective equipment or because some jurisdictions prohibit or restrict limitations on liabilities and liquidated damages. In addition, certain of the Company's insurance policies and the laws of some states may limit or prohibit insurance coverage for punitive damages and for certain other kinds of damages arising from employee misconduct. Possible Adverse Effects of Government Regulations - 5 - The Company's operations are subject to a variety of federal, state, county and municipal laws, regulations and licensing requirements. Many of the states in which Holmes operates, as well as certain local authorities, require Holmes to obtain licenses or permits to conduct a security alarm services business. Certain governmental entities also require persons engaged in the security alarm services business to be licensed and to meet certain standards in the selection and training of employees and in the conduct of business. The loss of such licenses, or the imposition of conditions on the granting or retention of such licenses, could have a material adverse effect on the Company. The Company believes that it holds the required licenses and is in substantial compliance with all licensing and regulatory requirements in each jurisdiction in which it operates. Dependence upon Senior Management The success of the Company's business is dependent upon the active participation of the executive officers of the Company, most of whom have only recently been employed by the Company. In the event that the services of certain of such officers are lost for any reason, the Company's business may be materially and adversely affected. Possible Anti-takeover Effects of Delaware Law The Company is subject to the provisions of Section 203 of the General Corporation Law of Delaware. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person becomes an interested stockholder, unless the business combination is approved in a prescribed manner or unless the interested stockholder acquires at least 85% of the corporation's voting stock (excluding shares held by certain designated stockholders) in the transaction in which it becomes an interested stockholder. A "business combination" includes mergers, asset sales, and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the previous three years did own, 15% or more of the corporation's voting stock. This provision of the Delaware law could delay and make more difficult a business combination even if the business combination could be beneficial, in the short term, to the interests of the stockholders. This provision of the Delaware law could also limit the price certain investors might be willing to pay in the future for shares of Common Stock. Classified Board of Directors; No Stockholder Action by Written Consent; Supermajority Voting Certain provisions of the Restated Certificate of Incorporation could have an anti-takeover effect by making it more difficult to acquire the Company by means of (i) a tender offer, a proxy contest or otherwise and (ii) the removal of incumbent officers and directors. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company to negotiate first with the Company. However, these provisions could also delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by the Company's stockholders. The Company's Restated Certificate of Incorporation and By-Laws provide for the division of the Board into three classes of directors serving staggered three-year terms. The By-Laws provide that the size of the Board shall be nine, provided that the Board, by vote of three-quarters of the directors then in office, may increase or decrease the number of directors in any class. The classified board provision may prevent any party who acquires control of a majority of the outstanding voting stock of the Company from obtaining control of the Board until the second annual stockholders meeting following the date the acquiror obtains the controlling interest. The Restated Certificate of Incorporation of the Company also provides that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of meeting. Additionally, the Restated Certificate of Incorporation requires an affirmative vote of three-quarters of the Company's voting power (unless three-quarters of the total number of directors then in office shall have approved the amendment) to amend the provisions of the Restated Certificate of Incorporation with respect to the number and classification of the Board, stockholder action without written consent, director liability, indemnification and amendments to the Restated Certificate of Incorporation. - 6 - Possible Adverse Effect of "False Alarms" Ordinances According to an article published in American City and Country Magazine in 1996, police officers respond to more than 13.7 million alarm activations annually. Approximately 94% to 98% of these activations are false. Concern has arisen in certain municipalities about this high incidence of false alarms. A number of local governmental authorities have considered or adopted various measures aimed at reducing the number of false alarms. Such measures include (i) subjecting alarm monitoring companies to fines or penalties for transmitting false alarms, (ii) licensing individual alarm systems and the revocation of such licenses following a specified number of false alarms, (iii) imposing fines on alarm subscribers for false alarms, (iv) imposing limitations on the number of times the police will respond to alarms at a particular location after a specified number of false alarms and (v) requiring further verification of an alarm signal before the police will respond. Enactment of such measures could adversely affect the Company's future business and operations. Possible Volatility of Stock Price The stock market has from time to time experienced extreme price and volume fluctuations that have been unrelated to the operating performance of particular companies. The market price of the Company's Common Stock may be significantly affected by quarterly variations in the Company's operating results, changes in financial estimates by securities analysts or failure by the Company to meet such estimates, litigation involving the Company, general trends in the security alarm industry, actions by governmental agencies, national economic and stock market conditions, industry reports and other factors, many of which are beyond the control of the Company. Shares Eligible for Future Sale; Registration Rights As of March 27, 1997, the Company had 5,828,062 shares of Common Stock outstanding. In addition, 878,864 shares of Common Stock are reserved for issuance upon the exercise of outstanding Investor Warrants and Institution Warrants (subject to adjustment as described above in "Significant Ownership of Common Stock by Certain Stockholders"), 166,666 shares of Common Stock are reserved for issuance upon exercise of outstanding warrants issued to Merita Bank Ltd. and Bank of Boston Connecticut (the "New Bank Warrants"), 2,196,860 shares of Common Stock are reserved for issuance upon exercise of outstanding options including 165,429 shares of Common Stock which are reserved for issuance upon exercise of options which have been granted under the Company's 1992 Directors' Option Plan, 31,431 shares of Common Stock which are reserved for issuance upon exercise of options which have been granted under the 1994 Plan, 1,002,500 shares of Common Stock which are reserved for issuance upon exercise of options which have been granted under the 1996 Plan and 997,500 shares of Common Stock which are reserved for issuance upon exercise of options which may be granted pursuant to the 1996 Plan. Currently, substantially all of the shares of Common Stock outstanding are freely tradeable, except for (i) any such shares held at any time by an "affiliate" of the Company, as such term is defined under Rule 144 promulgated under the Securities Act ("Rule 144") and (ii) certain shares subject to the Registration Rights Agreements described below. The possibility that substantial amounts of Common Stock may be sold in the public market could have a material adverse effect on prevailing market prices of the Common Stock and could impair the Company's ability to raise capital or make acquisitions through the sale of its equity securities. Pursuant to the terms of their respective registration rights agreements, the Investor and each Institution have been granted certain registration rights with respect to their shares of Common Stock presently held or shares of Common Stock issuable upon exercise of their warrants. Similarly, pursuant to the terms of their respective registration rights agreements, each of Merita Bank Ltd. and Bank of Boston Connecticut have been granted certain registration rights with respect to shares of Common Stock issuable upon exercise of the New Bank Warrants. Finally, in connection with an acquisition that the Company made in 1996, the Company issued restricted shares of Common Stock and entered into substantially similar registration rights agreements with each of the various parties that acquired such restricted shares of Common Stock with respect thereto. The Company may experience added costs and complexity in the event such registration rights are exercised. In addition, the exercise of such rights could have an adverse effect on the market price of the Common Stock. - 7 - USE OF PROCEEDS The Company is unable to predict the time, if ever, when the Options will be exercised and, therefore, is unable to estimate the net proceeds from the exercise of the Options. Accordingly, it is expected that the net proceeds from the sale of the Common Stock underlying the Options will be used by the Company for general corporate purposes. The Company will not receive any proceeds from the sale of the Common Stock by the Selling Security Holders. SELLING SECURITY HOLDERS The following table sets forth (i) the name and principal position(s) over the past three years with the Company of each of the Selling Security Holders, (ii) the number of shares of Common Stock beneficially owned by each Selling Security Holder as of April 14, 1997; and (iii) the number of shares of Common Stock available to be acquired by each Selling Security Holder pursuant to the Plans being registered hereby, some or all of which shares may be sold pursuant to this Prospectus. Since any or all of the shares of Common Stock listed below may be offered for sale by the Selling Security Holders from time to time, no estimate can be given as to the number of shares of Common Stock (or the percentage of the total class of Common Stock outstanding) that will be held by the Selling Security Holders upon termination of this offering. Also included among the Selling Security Holders may be certain unnamed non-affiliates of the Company, each of whom holds less than the lesser of 1000 shares or 1% of the shares issuable under each Plan. When and if further information becomes available with respect to the names of additional Selling Security Holders or the amounts of securities to be acquired pursuant to the Plans and sold by the Selling Security Holders, such information will be included in a prospectus supplement. Except as otherwise indicated, the Selling Security Holders listed on the table have sole voting and investment power with respect to the shares of Common Stock indicated. - 8 -
NUMBER OF NUMBER SHARES OF OF SHARES COMMON OF STOCK COMMON SUBJECT TO STOCK OPTIONS OWNED NUMBER OWNED BEFORE OF NAME OF SELLING POSITION WITH BEFORE THE THE SHARES SECURITY HOLDER THE COMPANY OFFERING OFFERING OFFERED ============================================================================================================== Pierre Besuchet Director 25,000 44,048(1)(2) 25,000 James L. Boehme Executive Vice President-Sales 195,000 78,000(2) 195,000(3) and Marketing Daniel T. Carroll Director 25,000 27,000(2) 25,000 George V. Flagg President, Chief Executive Officer 260,000 110,000(2) 260,000(3) and Director Lawrence R. Glenn Director 25,000 25,000(2) 25,000 Mark S. Hauser Director and Vice Chairman of the 40,000 2,241,600(2)(4) 40,000 Board Lawrence R. Irving Vice President-Finance 25,000 10,000(2) 25,000(3) William P. Lyons Director and Chairman of the 85,000 2,305,600(2)(4) 85,000 Board David Jan Mitchell Director 55,000 2,259,600(2)(4) 55,000 Edward L. Palmer Director 25,000 26,464(2) 25,000 Glenn C. Riker Senior Vice President-Human 18,854 6,427(5)(6) 18,854(3) Resources and Assistant Secretary Dennis M. Stern Senior Vice President, General 25,000 5,000(2) 25,000(3) Counsel and Secretary William Spier see footnote 4 40,000 2,249,600(2) 40,000
- --------------------- (1) Excludes vested options to purchase 17,884 shares of Common Stock granted to Mr. Besuchet under the Company's 1992 Directors' Option Plan (the "Directors Plan"). Grants of stock options are no longer permitted under the Directors Plan. Such options have a current exercise price of $13.97 per share, however, they become exercisable only if the price per share of the Common Stock on the Nasdaq National Market is not less than $24.45 for 30 consecutive trading days. Such condition had not been met as of April 14, 1997. (2) Includes options granted under the 1996 Plan to each of Messrs. Besuchet, Carroll, Glenn, Hauser, Lyons, Mitchell, Palmer and Spier to purchase 25,000, 25,000, 25,000, 40,000, 85,000, 55,000, 25,000 and 40,000 shares of Common Stock, respectively, at exercise prices ranging from $5.50 to $5.56 per share. Excludes options granted under the 1996 Plan which have not yet vested to each of Messrs. Flagg, Boehme, Irving and Stern to purchase 156,000, 117,000, 15,000 and 20,000 shares of Common Stock, respectively, in accordance with their respective employment agreements. (3) Includes shares of Common Stock underlying options which have been granted to such Selling Security Holder but which have not yet vested and are not exercisable within 60 days of the date hereof. See footnote 2 above and 6 below. (4) Includes 1,515,886 shares of Common Stock and warrants to purchase 685,714 shares of Common Stock owned by HP Partners L.P. Messrs. Hauser, Mitchell and Spier (a former director of the Company who resigned on September 30, 1996) are stockholders and directors of the general partner of HP Partners L.P. and Messrs. Mitchell and Spier are also limited partners of HP Partners L.P. Messrs. Hauser, Mitchell and Spier are also the sole stockholders of the special limited partner of HP Partners L.P. which is entitled to various rights relating to 285,714 of the partnership's warrants. Pursuant to HP Partners L.P.'s partnership agreement, Mr. Lyons has an arrangement to participate in any economic benefit which Mr. Spier obtains as a result of Mr. Spier's shareholding interest in such general partner. (5) Includes vested options granted under the 1994 Plan to Mr. Riker to purchase 4,427 shares of Common Stock at an exercise price of $7.28 per share. These options become exercisable only if the price per share of the Common Stock on the Nasdaq National Market is not less than $13.30 for 30 consecutive trading days. Such condition had been met as of April 14, 1997. Also includes vested options granted under the 1996 Plan to purchase 2,000 shares of Common Stock at an exercise price of $12.00 per share. - 9 - (6) Excludes options which have not yet vested granted under the 1994 Plan to purchase 4,427 shares of Common Stock at $7.28 per share, and options which have not yet vested granted under the 1996 Plan to purchase 8,000 shares of Common Stock at $12.00 per share. DESCRIPTION OF CAPITAL STOCK Description of Securities The following summary of the terms of the Company's capital stock does not purport to be complete and is qualified in its entirety by reference to the applicable provisions of Delaware law, the Company's Restated Certificate of Incorporation and the Company's By-Laws. As set forth in the Restated Certificate of Incorporation of the Company, the Company's authorized capital stock consists of 12,000,000 shares of Common Stock, par value $.01 per share, of which 5,828,062 shares were outstanding as of March 27, 1997, and 1,000,000 shares of undesignated Preferred Stock, par value $1.00 per share, of which no shares are outstanding. On March 27, 1995, the Company effected a reverse stock split pursuant to which one new share of Common Stock, $.01 par value, was exchanged for every fourteen (14) whole shares of Common Stock, $.25 par value, then issued or outstanding and shareholders received a cash payment in lieu of any fractional shares. All share amounts and related share price information contained in this Prospectus or incorporated by reference herein have been adjusted to give effect to such reverse stock split. Common Stock The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Subject to the prior right of any holders of Preferred Stock with respect to dividends, the holders of Common Stock are entitled to receive ratably such dividends as are declared by the Board out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock have the right to a ratable portion of assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of Preferred Stock. Except with respect to the Institutions pursuant to the Exchange Agreement (as hereinbefore defined in "Risk Factors--Significant Ownership of Common Stock by Certain Stockholders"), the holders of Common Stock have no preemptive rights or rights to convert their Common Stock into any other securities and are not subject to future calls or assessments by the Company. All outstanding shares of Common Stock are fully paid and non-assessable. Preferred Stock The Board has the authority to issue the Preferred Stock in one or more series and to determine the rights, preferences, privileges and restrictions, including the dividend rights, dividend rate, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or the designations of such series, without any further vote or action by the stockholders, except that (i) any voting rights conferred on such Preferred Stock require the consent of three-quarters of the entire Board and a majority of the shares of Common Stock then outstanding and (ii) no regular dividends may be paid with respect to the Preferred Stock without the consent of the holders of a majority of the shares of Common Stock then outstanding. These rights and privileges of the Preferred Stock could adversely affect the voting power of holders of Common Stock or their rights to receive dividends or liquidation proceeds. The Company has no present plans to issue any shares of Preferred Stock. It should be noted, however, that pursuant to the terms of the Institution Warrants and the Investor Warrants, the Company is prohibited from issuing any capital stock of any class which has the right to more than one vote per share or which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding up of the Company. Warrants Investor Warrants. The Investor Warrants entitle the holder thereof to purchase 685,714 shares of Common Stock and are exercisable at an exercise price of $4.58 per share at any time prior to expiration, subject to adjustment upon certain dilutive events. The Investor Warrants expire on August 1, 2004. Institution Warrants. The Institution Warrants initially entitled the holders thereof to purchase an aggregate of 147,572 shares of Common Stock, subject to adjustment upon certain dilutive events. The Institution Warrants expire - 10 - on August 13, 2002. The Institution Warrants are exercisable at any time prior to expiration at an exercise price which is subject to adjustment upon certain dilutive events. As a result of the antidilution provisions contained in the Institution Warrants, upon the issuance of the Investor Shares and Investor Warrants to the Investor pursuant to the Investment Agreement, the Institution Warrants were adjusted to provide for an increase in the number of shares purchasable to 193,150 and a reduction in the exercise price from $13.97 to $10.68. Additionally, the Institution Warrants are in the process of being adjusted in accordance with antidilution provisions contained therein to increase the number of shares purchasable and to reduce the exercise price thereof. Such adjustment will reflect the issuance of the New Bank Warrants and the stock options granted under the 1996 Plan. The Company does not believe that upon such adjustment the number of shares purchasable will exceed 210,000 or the exercise price thereof will be reduced below $10.00 per share. The material provisions of the Investor Warrants and the Institution Warrants (collectively the "Warrants") are substantially similar. Each of the Warrants provides that the exercise price and the number of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment, from time to time, upon issuance of shares of Common Stock below certain specified prices, payment of dividends by the Company in shares of Common Stock or extraordinary cash dividends, subdivision by the Company of its Common Stock, combination by the Company of the outstanding shares of Common Stock into a smaller number of shares of Common Stock, issuance by the Company of certain rights, options, warrants, evidences of its indebtedness or assets, or in case of any consolidation, merger or sale of substantially all of the assets of the Company. Also, as stated above, the terms of the Warrants prohibit the Company from issuing preferred stock. New Bank Warrants. The New Bank Warrants entitle the holders thereof to purchase 166,666 shares of Common Stock and are exercisable at an exercise price of $9.75 per share at any time prior to the expiration, subject to adjustment upon certain dilutive events. The New Bank Warrants expire on the later of August 30, 2002 or one year after the date on which repayment is made in full on any indebtedness incurred pursuant to the Credit Facility. Each of the New Bank Warrants provides that the exercise price and the number of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment, from time to time, upon issuance of shares of Common Stock below certain specified prices, payment of dividends by the Company in shares of Common Stock or extraordinary cash dividends, subdivision by the Company of its Common Stock, combination by the Company of the outstanding shares of Common Stock into a smaller number of shares of Common Stock, issuance by the Company of certain rights, options, warrants, evidences of its indebtedness or assets, or in case of any consolidation, merger or sale of substantially all of the assets of the Company. Delaware Law and Certain Charter and By-Law Provisions The Company is subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless (i) before such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; (ii) upon consummation of the transaction that resulted in the interested stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) following the transaction in which such person becomes an interested stockholder, the business consummation is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of 66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. The Company's Amended and Restated By-Laws (the "By-Laws") and its Restated Certificate of Incorporation were amended in 1994 to provide for the division of the Board into three classes of directors serving staggered three-year terms. The By-Laws provide that the Board, by vote of three-quarters of the directors then in office, may increase or decrease the size of the Board and the number of directors in any class. Currently, the size of the Board is fixed at - 11 - nine members; however, there exists one vacant seat on the Board. The Restated Certificate of Incorporation also provides that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's Certificate of Incorporation or By-Laws, unless a corporation's Certificate of Incorporation or By-Laws, as the case may be, requires a greater percentage. The Restated Certificate of Incorporation requires an affirmative vote of three-quarters of the Company's voting power (unless three-quarters of the total number of directors then in office shall have approved the amendment) to amend the provisions of the Restated Certificate of Incorporation with respect to the number and classification of the Board, stockholder action without written consent, director liability, indemnification and amendments to the Restated Certificate of Incorporation. The Restated Certificate of Incorporation contains certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The provisions eliminate a Director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances, such as the breach of a Director's duty of loyalty or acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law. Further, the Restated Certificate of Incorporation contains provisions to indemnify the Company's Directors and officers. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as Directors. Transfer Agent and Registrar ChaseMellon Shareholder Services, L.L.C. serves as Transfer Agent and Registrar for the Common Stock. PLAN OF DISTRIBUTION The Shares offered by this Prospectus may be sold from time to time by the Selling Security Holders or by transferees thereof. No underwriting arrangements have been entered into by the Selling Security Holders. The distribution of the Shares by the Selling Security Holders may be effected in one or more transactions that may take place in the over-the-counter market, including ordinary broker's transactions, privately negotiated transactions, or through sales to one or more dealers for resale of such shares as principals, at prevailing market prices at the time of sale, prices related to prevailing market prices, or negotiated prices. Underwriter's discounts and usual and customary or specifically negotiated brokerage fees or commissions may be paid by a Selling Security-Holder in connection with sales of the Shares. In order to comply with certain state securities laws, if applicable, the Shares will be sold in such jurisdictions only through registered or licensed brokers or dealers. In certain states, the Shares may not be sold unless such Shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of the Shares may not simultaneously engage in market-making activities with respect to such Shares for a period of two or nine business days prior to the commencement of such distribution. In addition to, and without limiting, the foregoing, each of the Selling Security Holders and any other person participating in a distribution will be subject to the applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Rules 10b-2, 10b-6, and 10b-7 (and, upon its effectiveness, Regulation M, which has been promulgated by the Commission to replace such rules), which provisions may limit the timing of purchases and sales of any of the Shares by the Selling Security Holders or any such other person. All of the foregoing may affect the marketability of the Shares. The Company will bear all expenses of the offering, except that the Selling Security Holders will pay any applicable brokerage fees or commissions and transfer taxes. LEGAL MATTERS The validity of the Shares has been passed upon for the Company by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York. - 12 - EXPERTS The consolidated financial statements and schedule incorporated by reference in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in giving said report. - 13 - ================================================================================ No dealer, salesman, or any other person has been authorized to give any information or to make any representation not contained in this Prospectus in connection with the offering made hereby, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the dates as of which such information is furnished. -------------------- TABLE OF CONTENTS Page ---- Available Information.........................................2 Incorporation of Certain Documents by Reference...............2 Special Note Regarding Forward Looking Statements.............2 The Company...................................................3 Risk Factors..................................................4 Use of Proceeds...............................................8 Selling Security Holders......................................8 Description of Capital Stock.................................10 Plan of Distribution.........................................12 Legal Matters................................................12 Experts......................................................13 ================================================================================ ============================== _________________ HOLMES PROTECTION GROUP, INC. Common Stock _________________ PROSPECTUS _________________ April 18, 1997 ============================== PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT Item 3. Incorporation of Certain Documents by Reference Incorporated herein by reference and made a part of the Registration Statement are the following documents filed by the Company with the Commission: (1) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996; (2) the Company's Proxy Statement on Schedule 14A filed with the Commission on November 13, 1996; and (3) the description of the Company's Common Stock contained in the Company's Registration Statement on Form 8-A filed with the Commission on July 12, 1994. All documents subsequently filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering made hereby will be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. A copy of any and all of the information included in documents (but not exhibits thereto except to the extent exhibits have been incorporated in such documents) that have been incorporated by reference in this Prospectus but which are not delivered with this Prospectus will be provided by the Company without charge to any person to whom this Prospectus is delivered, upon the oral or written request of such person. Such requests should be directed to Holmes Protection Group, Inc., 440 Ninth Avenue, New York, NY 10001-1695, Attention: Secretary. Item 4. Description of Securities Not Applicable. Item 5. Interests of Named Experts and Counsel The validity of the Common Stock issuable upon the exercise of options granted pursuant to the Plans will be passed upon by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York 10176. Item 6. Indemnification of Directors and Officers Delaware General Corporation Law (the "DGCL"), Section 102(b)(7), enables a corporation in its original certificate of incorporation, or an amendment thereto validly approved by stockholders, to eliminate or limit personal liability of members of its Board for violations of a director's fiduciary duty of care. However, the elimination of limitation shall not apply where there has been a breach of the duty of loyalty, failure to act in good faith, intentional misconduct or a knowing violation of a law, the payment of a dividend or approval of a stock repurchase which is deemed illegal or an improper personal benefit is obtained. The Company's Restated Certificate of Incorporation eliminates the liability of directors to the extent permitted by Section 102(b)(7) of the DGCL. Reference is made to Section 145 of the DGCL which provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgement, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative(other than an action by or in the right of the corporation (a "derivative action")); if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) incurred in connection with defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provided that it is not exclusive of other indemnification that may be granted by a corporation's charter, by-laws, disinterested director vote, stockholder vote, agreement or otherwise. The Restated Certificate of Incorporation of the Company provides for such indemnification of its directors and officers as permitted by Delaware law. II-1 Reference is made to Article Eleventh of the Restated Certificate of Incorporation of the Company for certain indemnification rights of officers and directors of the Company. In addition, the Company maintains a directors' and officers' liability insurance policy. Item 7. Exemption from Registration Claimed Not Applicable. Item 8. Exhibits 3.1 Restated Certificate of Incorporation.(1) 3.2 Amended and Restated By-Laws.(1) 4.3 Holmes Protection Group, Inc. Amended and Restated Senior Executives' Option Plan.(2) 4.4 Holmes Protection Group, Inc. 1996 Stock Incentive Plan. (*) 4.5 Employment Agreement between the Company and George V. Flagg, dated January 8, 1996. (3) 4.6 Employment Agreement between the Company and James L. Boehme, dated January 8, 1996. (3) 4.7 Amendment to Employment Agreement between the Company and James L. Boehme, dated June 5, 1996. (4) 4.8 Employment Agreement between the Company and Lawrence R. Irving, dated May 13, 1996. (4) 5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP dated March 31, 1997.(*) 23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in Exhibit 5).(*) 23.2 Consent of Arthur Andersen LLP.(*) 24.1 Power of Attorney (included on the signature page hereof).(*) - -------------------- (1) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (2) Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form 10/A dated October 13, 1994. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (4) Incorporated by reference to the Company's Registration Statement on Form S-1, dated July 26, 1996. (*) Filed herewith. II-2 Item 9. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 17th day of April, 1997. HOLMES PROTECTION GROUP, INC. By: /s/ George V. Flagg ----------------------------------------------- George V. Flagg President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George V. Flagg and Lawrence R. Irving, or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all pre- or post-effective amendments to this Registration Statement, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ George V. Flagg President, Chief Executive April 17, 1997 ------------------------- Officer and Director George V. Flagg (Principal Executive Officer) /s/ Lawrence R. Irving ------------------------- Vice President /Finance April 17, 1997 Lawrence R. Irving (Principal Financial Officer) /s/ Daniel T. Carroll ------------------------- Director April 17, 1997 Daniel T. Carroll /s/ Lawrence R. Glenn ------------------------- Director April 17, 1997 Lawrence R. Glenn /s/ Mark S. Hauser ------------------------- Director, Vice Chairman April 17, 1997 Mark S. Hauser of the Board /s/ William P. Lyons -------------------------- Director, Chairman of April 17, 1997 William P. Lyons the Board II-4 /s/ David Jan Mitchell -------------------------- Director April 17, 1997 David Jan Mitchell /s/ Edward L. Palmer -------------------------- Director April 17, 1997 Edward L. Palmer II-5 Exhibit Index Exhibit Number Description ------- ----------- 3.1 Restated Certificate of Incorporation.(1) 3.2 Amended and Restated By-Laws.(1) 4.3 Holmes Protection Group, Inc. Amended and Restated Senior Executives' Option Plan.(2) 4.4 Holmes Protection Group, Inc. 1996 Stock Incentive Plan. (*) 4.5 Employment Agreement between the Company and George V. Flagg, dated January 8, 1996. (3) 4.6 Employment Agreement between the Company and James L. Boehme, dated January 8, 1996. (3) 4.7 Amendment to Employment Agreement between the Company and James L. Boehme, dated June 5, 1996. (4) 4.8 Employment Agreement between the Company and Lawrence R. Irving, dated May 13, 1996. (4) 5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP dated March 31, 1997.(*) 23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in Exhibit 5.1).(*) 23.2 Consent of Arthur Andersen LLP.(*) 24.1 Power of Attorney (included on the signature page hereof).(*) - -------------------- (1) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (2) Incorporated by reference to Amendment No. 1 to the Company's Registration Statement on Form 10/A dated October 13, 1994. (3) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (4) Incorporated by reference to the Company's Registration Statement on Form S-1, dated July 26, 1996. (*) Filed herewith. EX-4 2 EXHIBIT 4.4 HOLMES PROTECTION GROUP, INC. 1996 STOCK INCENTIVE PLAN 1. Purpose: The purpose of this Plan is to strengthen Holmes Protection Group, Inc. (the "Company") by providing (i) an incentive to its key employees, consultants and directors, and thereby encouraging them to devote their abilities and industry to the success of the Company's business enterprise; and (ii) an inducement essential to attracting, securing and retaining the services of persons best qualified to serve as key employees, consultants and directors of the Company. It is intended that this purpose be achieved by extending to all such persons an added long-term incentive for high levels of performance and unusual efforts through the grant of Incentive Stock Options, Nonqualified Stock Options and Restricted Stock (as each term is hereinafter defined). 2. Effect on Other Plans: Upon approval of this Plan by the stockholders of the Company pursuant to Section 19 hereof, no further stock options or other awards shall be granted under the Company's 1994 Amended and Restated Senior Executives' Option Plan (formerly the "1992 Senior Executives' Option Plan"), (the "1994 Plan") or the Company's 1992 Directors' Stock Option (the "1992 Director Plan"). All stock options outstanding under the 1994 Plan and the 1992 Director Plan shall continue to be governed by the terms of the 1994 Plan and the 1992 Director Plan, and the relevant stock option agreement pertaining to each such stock option. 3. Definitions: For purposes of the Plan, unless otherwise specified, capitalized terms shall have the following meanings: 3.1 "Adjusted Fair Market Value" means, in the event of a Change in Control, the greater of (i) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Change in Control or (ii) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. 3.2 "Agreement" means the written agreement between the Company and an Optionee or Awardee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof. 3.3 "Award" means a grant of Restricted Stock. 3.4 "Awardee" means a person to whom any Restricted Stock has been granted under the Plan. 3.5 "Board" means the Board of Directors of the Company. 3.6 "Cause" means (a) for purposes of Sections 6.5 and 7.6 hereof, the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets of the Company or any Subsidiary, and (b) for all other purposes, the commission of an act of fraud, dishonesty, unlawful or illegal conduct, gross negligence, insubordination, failure to substantially perform one's duties with the Company or any Subsidiary, or intentional misrepresentation, or a violation of the Company's Code of Business Ethics and Policies or similar set of standards of conduct and business practices adopted by the Board, or an act of embezzlement, 1 misappropriation or conversion of assets or opportunities of the Company or any Subsidiary, or a determination by the Board that there is a reasonable basis for concern that any governmental agency or regulatory authority, or similar authority in any jurisdiction in which the Company or any Subsidiary conducts or intends to conduct business, seek licensing or submit a proposal to conduct business may find the person unsuitable or unfit, or the failure of the person to provide appropriate information to, or cooperate with any regulatory or other governmental authority. 3.7 "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, a change in value) in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise. 3.8 A "Change in Control" shall mean the occurrence during the term of the Plan of: a. The "acquisition" by any "Person" (as the term "person" is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of any securities of the Company which generally entitles the holder thereof to vote for the election of directors of the Company (the "Voting Securities") which, when added to the Voting Securities then "Beneficially Owned" by such person, would result in such Person "Beneficially Owning" forty percent (40%) or more of the combined voting power of the Company's then outstanding Voting Securities; provided, however, that for purposes of this paragraph (a), a Person shall not be deemed to have made an acquisition of Voting Securities if such Person: (i) acquires Voting Securities as a result of a stock split, stock dividend or other corporate restructuring in which all stockholders of the class of such Voting Securities are treated on a pro rata basis; (ii) acquires the Voting Securities directly from the Company; (iii) becomes the Beneficial Owner of more than the permitted percentage of Voting Securities solely as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Person; (iv) is the Company or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Controlled Entity") or (v) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined in paragraph (c) below); or b. The individuals who, as of April 1, 1996, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if either the election of any new director or the nomination for election of any new director by the Company's stockholders was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or c. The consummation or effectiveness of: 2 i. A merger, consolidation or reorganization involving the Company (a "Business Combination"), unless (1) the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination, and (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and (3) no Person (other than the Company or any Controlled Entity, a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Controlled Entity, or any Person who, immediately prior to the Business Combination, had Beneficial Ownership of forty percent (40%) or more of the then outstanding Voting Securities) has Beneficial Ownership of forty percent (40%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities (a transaction described in this subparagraph i shall be referred to as a "Non-Control Transaction"); ii. a complete liquidation or dissolution of the Company; or iii. the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Controlled Entity). Notwithstanding the foregoing, (x) a Change in Control shall not be deemed to occur solely because forty percent (40%) or more of the then outstanding Voting Securities is Beneficially Owned by (A) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company or any Controlled Entity or (B)any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition; and (y) if an Eligible Employee's employment is. terminated and the Eligible Employee reasonably demonstrates that such termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (B) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes hereof, the date of a Change in Control with respect to the Eligible Employee shall mean the date immediately prior to the date of such termination of employment. 3.9 "Code" means the Internal Revenue Code of 1986, as amended. 3 3.10 "Committee" means a committee consisting of at least two (2) directors who are Disinterested Directors and Outside Directors appointed by the Board to administer the Plan and to perform the functions set forth herein. 3.11 "Company" means Holmes Protection Group, Inc. 3.12 "Director Option" means an Option granted pursuant to Section 6 hereof. 3.13 "Disability" means a physical or mental infirmity which impairs the Optionee's or Awardee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 3.14 "Disinterested Director" means a director of the Company who is "disinterested" within the meaning of Rule 16b-3 under the Exchange Act. 3.15 "Division" means any of the operating units or divisions of the Company designated as a Division by the Committee. 3.16 "Eligible Employee" means any officer or other employee or consultant of the Company or a Subsidiary designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein. 3.17 "Employee Option" means an Option granted pursuant to Section 7 hereof. 3.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 3.19 "Fair Market Value" on any date means the average of the high and low sales prices of the Shares on such date on the principal national securities exchange on which such Shares are listed or admitted to trading, or if such Shares are not so listed or admitted to trading, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and in accordance with Section 422 of the Code. 3.20 "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. 3.21 "Nonemployee Director" means a director of the Company who is not an employee of the Company or any Subsidiary and who is first elected or appointed to serve as a director of the Company after April 1, 1996. 3.22 "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. 3.23 "Option" means an Employee Option, a Director Option, or either or both of them. 3.24 "Optionee" means a person to whom an Option has been granted under the Plan. 4 3.25 "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the Treasury Regulations promulgated thereunder. 3.26 "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 3.27 "Plan" means the Holmes Protection Group, Inc. 1996 Stock Incentive Plan. 3.28 "Pooling Period" means, with respect to a Pooling Transaction, the period ending on the day after the first date on which the combined entity resulting from the Pooling Transaction publishes thirty days of combined operating results or, if the Board makes a determination, such other period following the Pooling Transaction which the Board reasonably determines is appropriate in connection with the Pooling Transaction as a means of qualifying for and preserving "pooling of interests" accounting treatment. 3.29 "Pooling Transaction" means an acquisition of or by the Company in a transaction which is intended to be treated as a "pooling of interests" under generally accepted accounting principles. 3.30 "Restricted Stock" means Shares issued or transferred to an Eligible Employee pursuant to Section 9 hereof, which are subject to restrictions which lapse over time without regard to the performance of the Company, a Subsidiary or a Division. 3.31 "Retirement" shall mean the termination of employment with the Company by reason of the attainment of the age which the Company, by policy or otherwise, has established as the age at which salaried employees may or shall be required to terminate their employment and receive retirement benefits. 3.32 "Shares" means the common stock, par value $.01 per share, of the Company. 3.33 "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. 3.34 "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. 3.35 "Ten-Percent Stockholder" means an Eligible Employee, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent or a Subsidiary. 4. Administration: 4.1 The Plan shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not less than two members of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called 5 and held. Each member of the Committee shall be a Disinterested Director and an Outside Director. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder, except for liability arising from his or her own willful misfeasance, gross negligence or reckless disregard of his or her duties. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiating for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering this Plan or in authorizing or denying authorization to any transaction hereunder. 4.2 Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to: a. determine those individuals to whom Employee Options shall be granted under the Plan and the number of Incentive Stock Options and/or Non qualified Stock Options to be granted to each Eligible Employee and to prescribe the terms and conditions (which need not be identical) of each Employee Option, including the purchase price per Share subject to each Employee Option, and make any amendment or modification to any Agreement consistent with the terms of the Plan; and b. select those Eligible Employees to whom Awards shall be granted under the Plan and to determine the number of Shares of Restricted Stock to be granted pursuant to each Award and the terms and conditions of each Award, and make any amendment or modification to any Agreement consistent with the terms of the Plan. 4.3 Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time: a. to construe and interpret the Plan and the Options and Awards granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and Awardees and all other persons having any interest therein; b. to determine the duration and purposes for leaves of absence which may be granted to an Optionee or Awardee on an individual basis without constituting a termination of employment or service for purposes of the Plan; c. to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and d. generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 6 5. Stock Subject to the Plan: 5.1 The maximum number of Shares that may be made the subject of Options and Awards granted under the Plan is 2,000,000. Upon a Change in Capitalization, the maximum number of Shares shall be adjusted in number and kind pursuant to Section 11 hereof; provided, however, that the maximum number of Shares that any Eligible Employee may receive pursuant to the Plan in respect of Options and Awards may not exceed 500,000 Shares. The Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. 5.2 Whenever any outstanding Option or Award or portion thereof expires, is canceled or is otherwise terminated for any reason, the Shares allocable to the canceled or otherwise terminated portion of the Option or Award may again be the subject of Options or Awards granted hereunder. 6. Option Grants for Nonemployee Directors: 6.1 Eligibility: The class of individuals eligible to receive grants of options under this Section 6 of the Plan shall be directors of the Company who are not employees of the Company or its affiliates and who have not, within one (1) year immediately preceding the determination of such director's eligibility, received any award under any other plan of the Company or its affiliates that entitles the participants therein to acquire stock, stock options or stock appreciation rights of the Company or its affiliates (other than options granted under any other plan under which participants' entitlements are governed by provisions meeting the requirements of Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act) ("Eligible Directors"). 6.2 Grant: a. Effective December 4, 1995, subject to approval of the Plan by the stockholders of the Company and availability of an adequate number of Shares designated under the Plan, each Eligible Director then in office will be granted an option to purchase 25,000 Shares. b. Upon first election or appointment to the Board, each newly elected or appointed Eligible Director will be granted an option to purchase 25,000 Shares. c. Immediately following each Annual Stockholders Meeting, commencing with the meeting following the close of fiscal year 1996, each Eligible Director, other than an Eligible Director first elected to the Board within the twelve (12) months immediately preceding and including such meeting, will be granted an option to purchase 1,000 Shares (such option together with the options referenced in paragraphs (a) and (b) above, each a "Director Option"). 6.3 Purchase Price: The purchase price for Shares under each Director Option shall be equal to 100% of the Fair Market Value of such Shares on the date of the grant. 6.4 Vesting: Subject to Sections 6.5 and 8.4 hereof, each Director Option shall vest and become exercisable in whole or in part at any time from the date of the grant. 7 6.5 Duration: Each Director Option shall terminate on the date which is the fifth anniversary of the grant date, unless terminated earlier as follows: a. If an Optionee's service as a Director terminates for any reason other than Disability, death or Cause, the Optionee may, for a period of three (3) months after such termination, exercise his or her Option, after which time the Option shall automatically terminate in full. b. If an Optionee's service as a Director terminates by reason of the Optionee's resignation or removal from the Board, in either case, due to Disability, the Optionee may, for a period of one (1) year after such termination, exercise his or her Option, after which time the Option shall automatically terminate in full. c. If an Optionee's service as a Director terminates for Cause, the Option granted to the Optionee hereunder shall immediately terminate in full and no rights thereunder may be exercised. d. If an Optionee dies while a Director or within three (3) months after termination of service as a Director as described in clause (a) or (b) of this Section 6.5, the Option granted to the Optionee may be exercised at any time within twelve (12) months after the Optionee's death by the person or person to whom such rights under the Option shall pass by will, or by the laws of descent or distribution, after which time the Option shall terminate in full; provided, however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination of the Optionee's services as a Director. 6.6 Formula Award Plan: For purposes of this Section 6, the Plan is intended to be an ongoing formula award plan (as described in Rule 16b-3(c) (2) (ii) under the Exchange Act), such that the awards granted hereunder shall not affect the recipient's disinterested status for purposes of administering any stock related plans of the Company established pursuant to Rule 16b-3 under the Exchange Act. 7. Option Grants for Eligible Employees: 7.1 Authority of Committee: Subject to the provisions of the Plan and to Section 5.1 hereof, the Committee shall have full and final authority to select those Eligible Employees who will receive Options (each, an "Employee Option"), the terms and conditions of which shall be set forth in an Agreement; provided, however, that no person shall receive any Incentive Stock Options unless he or she is an employee of the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is granted. 7.2 Purchase Price: The purchase price or the manner in which the purchase price is to be determined for Shares under each Employee Option shall be determined by the Committee and set forth in the Agreement, provided that the purchase price per Share under each Employee Option shall not be less than 100% of the Fair Market Value of a Share on the date the Employee Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). 7.3 Maximum Duration: Employee Options granted hereunder shall be for such term as the Committee shall determine, provided that an Incentive Stock Option shall not be 8 exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted. The Committee may, subsequent to the granting of any Employee Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. 7.4 Vesting: Subject to Section 8.4 hereof, each Employee Option shall vest and become exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Employee Option expires. The Committee may accelerate the exercisability of any Employee Option or portion thereof at any time. 7.5 Termination of Employment Due to Death, Disability or Retirement: In the event the employment of the Optionee is terminated by reason of death, Disability or Retirement, the Committee may provide in the Agreement that any outstanding Options granted to the Optionee shall become immediately exercisable and shall thereafter be fully exercisable at any time prior to the expiration date of the Options or within twelve (12) months after such date of termination of employment, whichever period is the shorter. However, in the case of Incentive Stock Options, the favorable tax treatment prescribed under Section 422 of the Code shall not be available if such Options granted to the Optionee are not exercised within three (3) months after such date of termination due to Retirement. 7.6 Termination of Employment Other Than for Death, Disability or Retirement: If the employment of the Optionee shall terminate for any reason other than death, Disability or Retirement or, if the Committee does not provide in the Option Agreement the treatment described in Section 7.5 hereof upon the termination of the employment of the Optionee by reason of death, Disability or Retirement, the rights under any then outstanding Option granted to the Optionee pursuant to the Plan shall, to the extent not then exercisable, terminate immediately and, to the extent then exercisable, terminate upon the expiration date of the Option or three (3) months after such date of termination of employment, whichever first occurs, subject to such exceptions (which shall be set forth in the Agreement) as the Committee may, in its sole discretion, approve. Notwithstanding the foregoing, if the employment of the Optionee is involuntarily terminated by the Company (other than by reason of death, Disability or Retirement), any then outstanding Option granted pursuant to the Plan to the Optionee shall terminate immediately upon the termination of employment; provided, that the Committee may, in its sole discretion, waive, in whole or in part, the automatic forfeiture of such Employee Options or may condition such forfeiture upon whether the termination of employment was for Cause and may set forth such waiver or condition in the Agreement or at any other time, including following the termination of employment. 7.7 Modification or Substitution. The Committee may, in its discretion, modify outstanding Employee Options or accept the surrender of outstanding Employee Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Employee Option shall adversely alter or impair any rights or obligations under the Employee Option without the Optionee's consent. 8. Terms and Conditions Applicable to All Options: 9 8.1 Non-transferability: No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. 8.2 Method of Exercise: The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise by any one or a combination of the following: (i) cash or (ii) transferring Shares to the Company upon such terms and conditions as determined by the Committee. Until such person has been issued the Shares subject to such exercise, he or she shall possess no rights as a stockholder with respect to such Shares. Notwithstanding the foregoing, the Committee shall have discretion to determine at the time of grant of each Employee Option or at any later date (up to and including the date of exercise) the form of payment acceptable in respect of the exercise of such Employee Option and may establish cashless exercise procedures which provide for the exercise of the Option and sale of the underlying Share by a designated broker or dealer. In that connection, the written notice pursuant to this Section 8.2 may also provide instructions from the Optionee to the Company that upon receipt of appropriate instructions from the Optionee's broker or dealer, designated as such on the written notice, the Company shall issue such Shares directly to the designated broker or dealer. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 8.3 Rights of Optionees: No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Optionee and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. 8.4 Effect of Change in Control: Notwithstanding anything contained in the Plan or an Agreement to the contrary (other than the last sentence of this Section 8.4), in the event of a Change in Control, (i) all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable, (ii) the termination of an Optionee's employment following the Change in Control shall not affect his rights under this Section 8.4, and (iii) an Optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control, any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (x) (A) in the case of a Nonqualified Stock Option, the greater of (1) the Fair Market Value, on the date preceding the date of surrender, of the Shares subject 10 to the Option or portion thereof surrendered or (2) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered or (B) in the case of an Incentive Stock Option, the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered, over (y) the aggregate purchase price for such Shares under the Option or portion thereof surrendered; provided, however, that in the case of an Option granted within six (6) months prior to the Change in Control to any Optionee who may be subject to liability under Section 16(b) of the Exchange Act, such Optionee shall be entitled-to surrender for cancellation his or her Option during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. In the case of a Change in Control which also constitutes a Pooling Transaction and notwithstanding anything contained in the Plan or an Agreement to the contrary, the Committee may, and with respect to Director Options shall, take such actions which are specifically recommended by an independent accounting firm retained by the Company, to the extent reasonably necessary in order to assure that the Pooling Transaction will qualify as such, including, but not limited to, providing that (i) all Options or, in the alternative, such Options held by Optionees specifically identified by the Committee, shall not become immediately and fully exercisable on the date of the Change in Control but rather shall become immediately and fully exercisable on the date following the last day on which the Pooling Period expires (whether or not the Optionee is then an employee or director of the Company) and the holders of such Options shall only have the right to surrender for cancellation Options or portion thereof for the cash payment specified in clause (ii) of the first sentence of this Section 8.4 after the day following the expiration of the Pooling Period and for a period of sixty (60) days thereafter (in which case, whether or not the Optionee holding any such Options remains an employee or director of the Company, any such Option shall not terminate and shall remain exercisable for the greater of sixty (60) days after the expiration of the Pooling Period and the date such Option would otherwise terminate in accordance with the Plan and the relevant Agreement), and/or (ii) the payment specified in this Section 8.4 shall be paid in the form of cash, Shares or securities of a successor or acquirer of the Company, or a combination of the foregoing, as designated by the Committee. 9. Restricted Stock: 9.1 Grant: The Committee may grant to Eligible Employees Awards of Restricted Stock, which shall be evidenced by an Agreement between the Company and the Awardee. Each Agreement shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the terms and provisions set forth below in this Section 9. 9.2 Rights of Awardee: Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Awardee as soon as reasonably practicable after the Award is granted, provided that the Awardee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Shares. If an Awardee shall fail to execute the Agreement evidencing a Restricted Stock Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, 11 Shares issued in connection with a Restricted Stock Award shall be deposited together with the stock powers with an escrow agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise and as set forth in the Agreement, upon delivery of the Shares to the escrow agent, the Awardee shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares. 9.3 Non-transferability: Until any restrictions upon the Shares of Restricted Stock awarded to an Awardee shall have lapsed in the manner set forth in Section 9.4 hereof, such Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Awardee. 9.4 Lapse of Restrictions: a. Generally: Subject to Section 14 hereof, restrictions upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms and conditions as the Committee may determine, which restrictions shall be set forth in the Agreement evidencing the Award. b. Effect of Change in Control: Notwithstanding anything contained in the Plan, unless the Agreement evidencing the Award provides to the contrary, in the event of a Change in Control, all restrictions upon any Shares of Restricted Stock shall lapse immediately and all such Shares shall become fully vested in the Awardee. 9.5 Modification or Substitution: Subject to the terms of the Plan, the Committee may modify outstanding Awards of Restricted Stock or accept the surrender of outstanding Awards of Restricted Stock (to the extent not exercised) and grant new Awards in substitution for them. Notwithstanding the foregoing, no modification of an Award shall adversely alter or impair any rights or obligations under the Agreement without the Awardee's consent. 9.6 Treatment of Dividends: At the time the Award of Shares of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Awardee of dividends, or a specified portion thereof, declared or paid on such Shares by the Company shall be (i) deferred until the lapsing of the restrictions imposed upon such Shares and (ii) held by the Company for the account of the Awardee until such time. If dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in Shares (which shall be held as additional shares of Restricted Stock) or held in cash. If deferred dividends are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends, together with interest accrued thereon, shall be made upon the lapsing of restrictions imposed on such Shares, and any dividends deferred (together with any interest accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited upon the forfeiture of such Shares. 9.7 Delivery of Shares: Upon the lapse of the restrictions on Shares of Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Awardee with respect to such Shares, free of all restrictions hereunder. 10. Effect of a Termination of Employment: 12 The Agreement evidencing the grant of each Employee Option and each Award shall set forth the terms and conditions applicable to such Employee Option or Award upon a termination or change in the status of the employment of the Optionee or Grantee by the Company, a Subsidiary or a Division (including a termination or change by reason of the sale of a Subsidiary or a Division), as the Committee may, in its discretion, determine at the time the Employee Option or Award is granted or thereafter. 11. Adjustment Upon Changes in Capitalization: a. In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the (i) maximum number and class of Shares or other stock or securities with respect to which Options or Awards may be granted under the Plan, (ii) the maximum number of Shares with respect to which Options or Awards may be granted to any Eligible Employee during the term of the Plan, (iii) the number and class of Shares or other stock or securities which are subject to Director Options issuable under Section 6 hereof; (iv) the number and class of Shares or other stock or securities which are subject to outstanding Options or Awards granted under the Plan, and the purchase price therefor, if applicable; and (v) the Performance Objectives. b. Any such adjustment in the Shares or other-stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. c. Any stock adjustment in the Shares or other stock or securities subject to outstanding Director Options (including any adjustments in the purchase price) shall be made only to the extent necessary to maintain the proportionate interest of the Optionee and preserve, without exceeding, the value of such Director Option. d. If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to, or an Optionee shall be entitled to exercise an Option with respect to, new, additional or different shares of stock or securities, such new additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares subject to the Award or Option, as the case may be, prior to such Change in Capitalization. 12. Effect of Certain Transactions: Subject to Sections 8.4 and 9.4(b) hereof, in the event of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options and Awards issued hereunder shall continue in effect in accordance with their respective terms and each Optionee and Awardee shall be entitled to receive in respect of each Share subject to any outstanding Options or Awards, as the case may be, upon exercise of any Option or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction. 13. Termination and Amendment of the Plan: 13 The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option or Award may be granted thereafter. The Board may sooner terminate the Plan and the Board may at any time and from time to time amend, modify or suspend the Plan; provided, however, that: a. No such amendment, modification, suspension or termination shall impair or adversely alter any Options or Awards theretofore granted under the Plan, except with the consent of the Optionee or Awardee, nor shall any amendment, modification, suspension or termination deprive any Optionee or Awardee of any Shares which he or she may have acquired through or as a result of the Plan; b. To the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder or other applicable law, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations; and c. The provisions of Section 6 hereof shall not be amended more often than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations promulgated thereunder. 14. Certain Limitations: Notwithstanding any other provision of the Plan to the contrary: a. stockholder approval shall be required for any material amendment of the Plan to become effective (with materiality as determined for purposes of Section 16(b) of the Exchange Act, the rules and regulations promulgated thereunder, and the interpretations of the Securities and Exchange Commission and its staff in connection therewith); b. no amendment or adjustment of the exercise price of an Option (whether through amendment, cancellation or replacement grants, or other means of repricing of such Options), in respect of an Option having an exercise price greater than the Fair Market Value of a Share as of the date of such amendment or adjustment, shall be authorized under the Plan unless stockholder approval of such repricing is obtained; c. stockholder approval shall be required for any lapse or waiver of restrictions on Shares of Restricted Stock not expressly specified in the Agreement evidencing the Award; and d. an Award of Shares of Restricted Stock shall provide for the lapse of restrictions in no less than three years after the date of the Award in respect of at least 50% of the Shares subject to that Award. However, the Committee shall have the discretion to act in respect of Options or Awards in a manner not in compliance with the requirements of this Section 14, provided that the number of Shares which are the subject of such Options or Awards does not exceed in the aggregate three percent (3%) of the maximum number of Shares that may be made the subject of Options and Awards under the Plan as set forth in Section 5.1 hereof. 14 15. Non-Exclusivity of the Plan: Except as provided in Section 2 hereof, the adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 16. Limitation of Liability: As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: a. give any person any right to be granted an Option or Award other than at the sole discretion of the Committee; b. give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; c. limit in any way the right of the Company to terminate the employment of any person at any time; or d. be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 17. Regulations and Other Approvals; Governing Law: 17.1 Except as to matters of federal law, this Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts-of-law principles. 17.2 The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. 17.3 The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. 17.4 The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 17.5 Each Option and Award is subject to the requirement that, if at any time the' Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, 15 or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or Award or the issuance of Shares, no Options or Awards shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. 17.6 Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to an Option or Award granted under the Plan, as a condition precedent to receipt of such Shares, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. 18. Miscellaneous: 18.1 Multiple Agreements: The terms of each Option or Award may differ from other Options or Awards granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Employee. 18.2 Withholding of Taxes: a. The Company shall have the right to deduct from any distribution of cash to any Optionee or Awardee, an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any Option or Award. If an Optionee or Awardee is to experience a taxable event in connection with the receipt of Shares pursuant to an Option exercise or payment of an Award (a "Taxable Event"), the Optionee or Awardee shall pay the Withholding Taxes to the Company prior to the issuance, or release from escrow, of such Shares. In satisfaction of the obligation to pay Withholding Taxes to the Company, the Optionee or Awardee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares then issuable to him or her having an aggregate Fair Market Value, on the date preceding the date of such issuance, equal to the Withholding Taxes, provided that in respect of an Optionee or Awardee who may be subject to liability under Section 16(b) of the Exchange Act either: (i) in the case of a Taxable Event involving an Option or an Award (A) the Tax Election is made at least six (6) months prior to the date of the Taxable Event and (B) the Tax Election is irrevocable with respect to all Taxable Events of a similar nature occurring prior to the expiration of six (6) months following a revocation of the Tax Election; or (ii) in the case of the exercise of an Option (A) the Optionee makes the Tax Election at least six (6) months after the date the 16 Option was granted, (B) the Option is exercised during the ten (10) day period beginning on the third business day and ending on the twelfth business day following the release for publication of the Company's quarterly or annual statement of sales and earnings (a "Window Period") and (C) the Tax Election is made during the Window Period in which the related Option is exercised or prior to such Window Period and subsequent to the immediately preceding Window Period; or (iii) in the case of a Taxable Event relating to the payment of an Award (A) the Awardee makes the Tax Election at least six (6) months after the date the Award was granted and (B) the Tax Election is made (x) in the case of a Taxable Event occurring within a Window Period, during the Window Period in which the Taxable Event occurs, or (y) in the case of a Taxable Event not occurring within a Window Period, during the Window Period immediately preceding the Taxable Event relating to the Award. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, (i) modify the provisions of this Section 18.2 (other than as regards Director Options) or impose such other restrictions or limitations on Tax Elections as may be necessary to ensure that the Tax Elections will be exempt transactions under Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be made at such other times and subject to such other conditions as the Committee determines will constitute exempt transactions under Section 16(b) of the Exchange Act. b. If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office. c. The Committee shall have the authority, at the time of grant of an Employee Option under the Plan or at any time thereafter, to award tax bonuses to designated Optionees, to be paid upon their exercise of Employee Options granted hereunder. The amount of any such payments shall be determined by the Committee. The Committee shall have full authority in its absolute discretion to determine the amount of any such tax bonus and the terms and conditions affecting the vesting and payment thereof. 18.3 Interpretation: Unless otherwise expressly stated in the relevant Agreement, any grant of Options or an Award is intended to be performance-based compensation within the meaning of Section 162(m)(4)(C) of the Code. The Committee shall not be entitled to exercise any discretion otherwise authorized hereunder with respect to such Options or Awards if the ability to exercise such discretion or the exercise of such discretion itself would cause the compensation attributable to such Options or Awards to fail to qualify as performance-based compensation. 19. Effective Date: The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative vote of the holders of a majority of the securities of the Company 17 present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption. 18 EX-5 3 EXHIBIT 5.1 Squadron, Ellenoff, Plesent & Sheinfeld, LLP 551 Fifth Avenue New York, New York 10176 April 17, 1997 Holmes Protection Group, Inc. 440 Ninth Avenue New York, NY 10001-1695 Re: Registration Statement on Form S-8 ---------------------------------- Ladies and Gentlemen: You have requested our opinion, as counsel for Holmes Protection Group, Inc., a Delaware corporation (the "Company"), in connection with the registration statement on Form S-8 (the "Registration Statement"), filed with the Securities and Exchange Commission under the Securities Act of 1933 (the "Act"). The Registration Statement relates to, among other things, an offering by the Company of an aggregate of 31,431 shares of common stock, par value $.01 per share, of the Company (the "Common Stock") pursuant to the Holmes Protection Group, Inc. Amended and Restated Senior Executives' Option Plan and 2,000,000 shares of Common Stock pursuant to the Holmes Protection Group, Inc. 1996 Stock Incentive Plan. We have examined such records and documents and made such examinations of law as we have deemed relevant in connection with this opinion. It is our opinion that when there has been compliance with the Act and the applicable state securities laws, the shares of Common Stock to be sold by the Company, when issued, delivered, and paid for in the manner described in the Registration Statement, will be legally issued, and the shares of Common Stock, when so issued, delivered and paid for, will also be fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In so doing, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, /s/ Squadron, Ellenoff, Plesent & Sheinfeld, LLP EX-23 4 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated February 28, 1997 (except with respect to the matter discussed in Note 15, as to which the date is March 12, 1997) included in the Holmes Protection Group, Inc.'s Form 10-K for the year ended December 31, 1996 and to all references to our Firm included in this registration statement on Form S-8. /s/ ARTHUR ANDERSEN, LLP New York, New York April 16, 1997 -----END PRIVACY-ENHANCED MESSAGE-----