-----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, G3lmCstPflwHOCY5C9jJQlUiG1HcTw3hRid9f5g/ZcwBVjEPFpbZKKqjSPtxibhs bV0R6XRYZztd7E8ZTwDOPQ== 0001047469-98-000178.txt : 19980107 0001047469-98-000178.hdr.sgml : 19980107 ACCESSION NUMBER: 0001047469-98-000178 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980106 SROS: NASD SUBJECT COMPANY: 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: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-44351 FILM NUMBER: 98501323 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 FILED BY: 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: SC 14D9 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 SC 14D9 1 SCHEDULE 14D9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- SCHEDULE 14D-9 --------------- SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 HOLMES PROTECTION GROUP, INC. (Name of Subject Company) HOLMES PROTECTION GROUP, INC. (Name of Person(s) Filing Statement) COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class of Securities) 436419105 (CUSIP Number of Class of Securities) GEORGE V. FLAGG PRESIDENT AND CHIEF EXECUTIVE OFFICER HOLMES PROTECTION GROUP, INC. 440 NINTH AVENUE NEW YORK, NEW YORK 10001 (212) 760-0630 (Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications on Behalf of the Person(s) Filing Statement) COPIES TO: CORNELIUS T. FINNEGAN, III, ESQ. WILLKIE FARR & GALLAGHER ONE CITICORP CENTER 153 EAST 53RD STREET NEW YORK, NEW YORK 10022 (212) 821-8000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY. The name of the subject company is Holmes Protection Group, Inc., a Delaware corporation (the "Company"), and the address of the principal executive offices of the Company is 440 Ninth Avenue, New York, New York 10001. The title of the class of equity securities to which this Statement relates is the common stock, par value $.01 per share (the "Common Stock"), of the Company. ITEM 2. TENDER OFFER OF PURCHASER. This Statement relates to the tender offer disclosed in a Tender Offer Statement on Schedule 14D-1 dated January 6, 1998 (the "Schedule 14D-1") of T9 Acquisition Corp., a Delaware corporation ("Purchaser"), to purchase all of the outstanding shares ("Shares") of Common Stock at a price of $17.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated January 6, 1998 (the "Offer to Purchase") and the related Letter of Transmittal and any supplement thereto (which together constitute the "Offer"). The Offer is being made pursuant to an Agreement and Plan of Merger dated as of December 28, 1997 (the "Merger Agreement") among the Company, Tyco International Ltd., a Bermuda company ("Tyco"), and Purchaser, which is an indirect wholly owned subsidiary of Tyco. According to the Schedule 14D-1, the address of the principal executive office of Tyco is The Gibbons Building, 10 Queen Street, Hamilton HM11 Bermuda, and the address of the principal executive office of Purchaser is One Tyco Park, Exeter, New Hampshire 03833. ITEM 3. IDENTITY AND BACKGROUND. (a) The name and business address of the Company, which is the person filing this Statement, are set forth in Item 1 above. (b)(i) Certain contracts, agreements, arrangements or understandings between the Company or its affiliates and certain of its directors and executive officers are, except as noted below, described in the sections entitled "Compensation of Directors," "Security Ownership of Certain Beneficial Owners and Management," "Executive Compensation," "Certain Relationships and Related Transactions," "Employment Agreements" and "Compensation Committee Report to Stockholders" in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders held on May 22, 1997 (the "Proxy Statement"). A copy of the relevant sections of the Proxy Statement has been filed with the Securities and Exchange Commission (the "Commission" or the "SEC") as Exhibit 1 to this Statement and is incorporated herein by reference. Except as described herein (including in Schedule II hereto) or incorporated by reference herein, to the knowledge of the Company, as of the date hereof there exists no material contract, agreement, arrangement or understanding and no actual or potential conflict of interest between the Company or its affiliates and (i) the Company's executive officers, directors or affiliates or (ii) Tyco or Purchaser or the executive officers, directors or affiliates of Tyco or Purchaser. (ii) The Merger Agreement. The following is a summary of certain portions of the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement, a copy of which has been filed with the Commission as Exhibit 2 to this Statement. Capitalized terms not otherwise defined below shall have the meanings set forth in the Merger Agreement. THE OFFER. The Merger Agreement provides that the Purchaser will commence the Offer and that, upon the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, the Purchaser will purchase all Shares validly tendered pursuant to the Offer. The Merger Agreement provides that, without the written consent of the Company, the Purchaser will not (i) decrease the Per Share Amount or 1 change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought in the Offer, (iii) amend or waive satisfaction of the condition (the "Minimum Condition") that at least 51% of all shares of Common Stock outstanding, on a fully diluted basis, shall have been tendered and not withdrawn in the Offer or (iv) impose additional conditions to the Offer or amend any other term of the Offer in any manner adverse to the holders of Shares, except that if on the initially scheduled Expiration Date all conditions to the Offer shall not have been satisfied or waived, the Purchaser may, from time to time, in its sole discretion, extend the Expiration Date. The Merger Agreement provides that if, immediately prior to the Expiration Date, as it may be extended, the Shares tendered and not withdrawn pursuant to the Offer equal less than 90% of the outstanding Common Stock, the Purchaser may extend the Offer for a period not to exceed 10 business days. THE MERGER. The Merger Agreement provides that, following the consummation of the Offer and subject to the terms and conditions thereof, at the effective time of the Merger (the "Effective Time") the Purchaser shall be merged with and into the Company and, as a result of the Merger, the separate corporate existence of the Purchaser shall cease, and the Company shall continue as the surviving corporation (the "Surviving Corporation") and an indirect subsidiary of Tyco. The respective obligations of Tyco and the Purchaser, on the one hand, and the Company, on the other hand, to effect the Merger are subject to the satisfaction at or prior to the Effective Time of each of the following conditions: (i) Tyco or the Purchaser or their affiliates shall have consummated the Offer, unless such failure to purchase is a result of a breach of Tyco's or the Purchaser's obligations under the Merger Agreement, (ii) the Merger, the Merger Agreement and the transactions contemplated thereby (the "Company Proposals") shall have been approved by the requisite vote of the stockholders, if required by applicable law, in order to consummate the Merger, (iii) no order, statute, rule, regulation, executive order, stay, decree, judgment or injunction shall have been enacted, entered, promulgated or enforced by any court or other governmental authority which prohibits or prevents the consummation of the Merger which has not been vacated, dismissed or withdrawn prior to the Effective Time, and (iv) all consents of any governmental authority required for the consummation of the Merger and the transactions contemplated by the Merger Agreement shall have been obtained other than those consents the failure to obtain which will not have a material adverse effect on the business, assets, condition (financial or other), liabilities or results of operations (a "Material Adverse Effect") of the Surviving Corporation and its subsidiaries taken as a whole. At the Effective Time of the Merger, (i) each issued and outstanding Share (other than Shares that are held by stockholders properly exercising dissenters' rights under Delaware law) shall be canceled and extinguished and be converted into the right to receive the highest per Share amount paid in the Offer (the "Per Share Amount") in cash payable to the holder thereof, without interest, (ii) each Share held in the treasury of the Company and each Share owned by Tyco or any direct or indirect wholly owned subsidiary of Tyco immediately before the Effective Time shall be canceled and extinguished, and no payment or other consideration shall be made with respect thereto and (iii) the shares of Purchaser common stock outstanding immediately prior to the Merger shall be converted into 1,000 shares of the common stock of the Surviving Corporation which shares shall constitute all of the issued and outstanding capital stock of the Surviving Corporation and shall be owned by an indirect subsidiary of Tyco. THE COMPANY'S BOARD OF DIRECTORS. The Merger Agreement provides that promptly upon the purchase by Tyco of Shares pursuant to the Offer (and provided that the Minimum Condition has been satisfied), Tyco shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Tyco, subject to compliance with Section 14(f) of the Securities Exchange Act, representation on the Board of Directors of the Company equal to at least that number of directors which equals the product of the total number of directors on the Board of Directors of the Company (giving effect to the directors appointed or elected pursuant to this sentence and including current directors serving as officers of the Company) multiplied by the percentage that the aggregate number of Shares beneficially owned by Tyco or any affiliate of Tyco (including such Shares as 2 are accepted for payment pursuant to the Offer, but excluding Shares held by the Company) bears to the number of Shares outstanding. At such time, if requested by Tyco, the Company will also cause each committee of the Board of Directors of the Company to include persons designated by Tyco constituting the same percentage of each such committee as Tyco's designees are of the Board of Directors of the Company. The Company shall, upon request by Tyco, promptly increase the size of the Board of Directors of the Company or exercise reasonable best efforts to secure the resignations of such number of directors as is necessary to enable Tyco's designees to be elected to the Board of Directors of the Company in accordance with the terms of this section and to cause Tyco's designees so to be elected; PROVIDED, HOWEVER, that, in the event that Tyco's designees are appointed or elected to the Board of Directors of the Company, until the Effective Time the Board of Directors of the Company shall have at least two directors who are directors on the date of the Merger Agreement and each of whom is neither an officer of the Company nor a designee, shareholder, affiliate or associate (within the meaning of the federal securities laws) of Tyco (such directors, the "Independent Directors"); PROVIDED FURTHER, that if no Independent Directors remain, the other directors shall designate one person to fill one of the vacancies who shall be neither an officer of the Company nor a designee, shareholder, affiliate or associate of Tyco, and such person shall be deemed to be an Independent Director for purposes of the Merger Agreement. Notwithstanding anything in the Merger Agreement to the contrary, prior to the Effective Time, the affirmative vote of a majority of the Independent Directors shall be required to (i) amend or terminate the Merger Agreement on behalf of the Company, (ii) exercise or waive any of the Company's rights or remedies thereunder, (iii) extend the time for performance of Tyco's obligations thereunder, (iv) take any other action by the Company in connection with the Merger Agreement required to be taken by the Board of Directors of the Company or (v) amend the Company's Certificate of Incorporation or the Company's Bylaws, each as in effect on December 28, 1997. STOCKHOLDERS' MEETING. Pursuant to the Merger Agreement, the Company will, if required by applicable law in order to consummate the Merger, duly call, give notice of, convene and hold a special meeting of its stockholders as promptly as practicable following the consummation of the Offer for the purpose of voting upon the Company Proposals. The Merger Agreement provides that the Company will, if required by applicable law in order to consummate the Merger, prepare and file with the Commission and, when cleared by the Commission, will mail to stockholders, a proxy statement in connection with a meeting of the Company's stockholders to vote upon the Company Proposals, or an information statement, as appropriate, satisfying all requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Purchaser acquires at least a majority of the outstanding shares of Common Stock, it will have sufficient voting power to approve the Merger, even if no other stockholder votes in favor of the Merger. The Merger Agreement provides that in the event that Tyco or the Purchaser acquires at least 90% of outstanding shares of Common Stock, pursuant to the Offer or otherwise, Tyco, the Purchaser and the Company will take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after such acquisition, without a meeting of stockholders of the Company, in accordance with Delaware law. OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. The Merger Agreement provides that each of the Company and Tyco shall take all reasonable actions necessary to provide that all then outstanding options to purchase Shares, whether or not then exercisable or vested (i) under the Company's 1996 Stock Incentive Plan and (ii) if and to the extent required by the terms of the Company Option Plans (as hereinafter defined) other than the Company's 1996 Stock Incentive Plan, under such other Company Option Plans, shall become fully exercisable and vested upon the consummation of the Offer. Holders of options under the Company Option Plans ("Company Options") that become fully exercisable and vested upon the consummation of the Offer in accordance with the provisions of the preceding sentence will have a period of sixty days following the consummation of the Offer to surrender their options to the Company in exchange for cash equal to the excess of (A) the aggregate value of the Shares underlying the options, 3 based on the Per Share Amount, over (B) the aggregate exercise price for the Shares underlying the options. Each of the Company and Tyco shall take all reasonable actions necessary to provide that, upon consummation of the Merger, all then outstanding Company Options, whether or not then exercisable or vested if and to the extent so provided in the applicable Company Option Plan, shall be converted into the right to receive, at the election of the holder, either (1) in cash, the aggregate value of the Shares underlying the options, based on the Per Share Amount, less the aggregate exercise price for the Shares underlying the options, or (2) options, exercisable on the same terms and conditions as the surrendered options (except that the option received in exchange shall be immediately exercisable) to acquire that number of common shares, par value $.20, of Tyco ("Tyco Shares") determined by multiplying, in the case of each option, (a) the number of Shares for which the surrendered option was exercisable immediately prior to the Effective Time by (b) a fraction, the numerator of which is the Per Share Amount and the denominator of which is the closing price per Tyco Share on the New York Stock Exchange on the trading day immediately preceding the Closing Date. The exercise price per Tyco Share for each new option issued pursuant to the foregoing clause (2) shall be an amount equal to the aggregate exercise price for the Shares underlying the surrendered option divided by the number of Tyco Shares for which such new option is exercisable. "Company Option Plans" shall mean the Company's Amended and Restated Senior Executives' Option Plan, the Company's 1992 Directors' Option Plan and the Company's 1996 Stock Incentive Plan. The Merger Agreement provides that each of the Company and Tyco shall take all reasonable actions necessary so that the warrants expiring August 30, 2002 (except as otherwise provided therein) to purchase 166,666 shares of Company Stock at a price of $9.75 per Share, subject to adjustment (the "Bank Warrants"), shall be exercisable, from and after the Effective Time, for an amount of cash equal in the aggregate to the Per Share Amount multiplied by the number of Shares for which such warrants were exercisable immediately prior to the Effective Time. Each of the Company and Tyco shall take all reasonable actions necessary so that the warrants expiring August 13, 2002 to purchase 203,033 shares of Company Stock at a price of $10.16 per Share, subject to adjustment, and the warrants expiring August 1 2004 to purchase 685,714 shares of Company Stock at a price of $4.58 per Share, subject to adjustment (collectively, the "Other Warrants" and, with the Bank Warrants, the "Company Warrants"), shall be exercisable, from and after the Effective Time, at the election of the holder as provided in the applicable Other Warrant, for either (i) an amount of cash equal in the aggregate to the Per Share Amount multiplied by the number of Shares for which such warrants were exercisable immediately prior to the Effective Time or (ii) a number of Tyco Shares equal to the product of (A) the number of Shares for which such warrants were exercisable immediately prior to the Effective Time and (B) a fraction, the numerator of which is the Per Share Amount and the denominator of which is the Current Market Price (as defined in the applicable Other Warrant) of the Tyco Shares on the trading day immediately preceding the Closing Date. The exercise price per Tyco Share under each Other Warrant, as adjusted pursuant to the foregoing clause (ii), shall be an amount equal to the aggregate exercise price for the Shares for which such warrant was exercisable prior to such adjustment divided by the number of Tyco Shares for which such warrant is exercisable as a result of such adjustment. Notwithstanding the forgoing provisions, any holder exercising Company Warrants for cash in accordance with the provisions of this paragraph shall not be required to pay the exercise price thereof and instead may receive in the aggregate upon exercise the difference between (A) the Per Share Amount multiplied by the number of Shares for which such warrants were exercisable immediately prior to the Effective Time and (B) the aggregate exercise price for the Shares underlying such warrants. The Merger Agreement provides that each of the Company and Tyco shall take all reasonable actions necessary so that the Company's Subordinated Convertible Debentures convertible into 24,810 shares of Company Stock, subject to adjustment (the "Company Debentures"), shall be convertible, from and after the Effective Time, into an amount of cash equal to the product of the number of Shares into which such Company Debentures were convertible immediately prior to the Effective Time multiplied by the Per Share Amount. 4 INTERIM OPERATIONS; COVENANTS. Pursuant to the Merger Agreement, the Company has agreed that, except as expressly contemplated or provided by the Merger Agreement or in the Company Disclosure Letter delivered by the Company to Tyco and the Purchaser in connection with the Merger Agreement or agreed to in writing by Tyco, after the date of execution of the Merger Agreement, and prior to the Effective Time, (i) the Company shall conduct, and it shall cause the Company Subsidiaries to conduct, its or their businesses in the ordinary course and consistent with past practice, and the Company shall, and it shall cause the Company Subsidiaries to, use its or their reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its present officers and employees and to preserve the present commercial relationships of the Company and the Company Subsidiaries with persons with whom the Company or the Company Subsidiaries do significant business and (ii) without limiting the generality of the foregoing, neither the Company nor any of the Company Subsidiaries will: (A) amend or propose to amend its Certificate of Incorporation or Bylaws in any material respect; (B) authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any shares of, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of, the capital stock or other securities of the Company or any of the Company Subsidiaries, including, but not limited to, any securities convertible into or exchangeable for shares of stock of any class of the Company or any of the Company Subsidiaries, except for (a) the issuance of shares pursuant to the exercise of Company Options outstanding on the date of the Merger Agreement in accordance with their present terms, (b) the issuance of shares upon the exercise of Company Warrants, or conversion of the Company Debentures, outstanding on the date of the Merger Agreement in accordance with their present terms and (c) the issuance of not more than an aggregate of 15,000 shares of Company Stock to the sellers under the agreements pursuant to which the Company acquired certain businesses to the extent required pursuant to the terms of such agreements; (C) split, combine or reclassify any shares of its capital stock or declare, pay or set aside any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, other than dividends or distributions to the Company or a subsidiary of the Company, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any shares of its capital stock or other securities; (D) create, incur or assume any indebtedness for borrowed money or issue any debt securities, except pursuant to the Company's bank credit agreement, or make any loans (except as provided in paragraph (E) (b) below); (E) other than in the ordinary course of business consistent with past practice, (a) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, indirectly, contingently or otherwise) for the obligations of any person (other than the Company or a Company Subsidiary); (b) make any capital expenditures (it being understood that the acquisition of the stock or substantially all the assets of any other person shall not be deemed a "capital expenditures" for these purposes) or make any advances or capital contributions to, or investments in, any other person (other than to a Company Subsidiary); (c) voluntarily incur any material liability or obligation (absolute, accrued, contingent or otherwise); or (d) sell, transfer, mortgage, pledge or otherwise dispose of, or encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any assets or properties, real, personal or mixed, material to the Company and the Company Subsidiaries taken as a whole other than to secure debt permitted under paragraph (D); (F) increase in any manner the compensation of any of its officers or employees (other than, except with respect to employees who are executive officers or directors, in the ordinary course of business consistent with past practice) or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, 5 for or in respect of, any stockholder, officer, director, employee, consultant or affiliate other than, in any such case referred to above, as may be required by Law or as required pursuant to the terms of agreements in effect on the date of the Merger Agreement and other than arrangements with new employees (other than employees who will be officers of the Company) hired in the ordinary course of business consistent with past practice and providing for compensation (other than equity-based compensation) and other benefits consistent with those provided for similarly situated employees of the Company as of the date hereof; (G) alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of any subsidiary or the Company; (H) except as may be required as a result of a change in law or as required by the SEC, change any of the accounting principles or practices used by it; (I) make any material tax election or settle or compromise any material income tax liability; (J) pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; (K) except to the extent necessary for the exercise of its fiduciary duties by the Board of Directors of the Company as set forth in, and consistent with the provisions of the Merger Agreement described below under "NO SOLICITATION," waive, amend or allow to lapse any term or condition of any confidentiality or "standstill" agreement to which the Company or any subsidiary is a party; or (L) take, or agree in writing or otherwise to take, any of the foregoing actions or any action which would make any of the representations or warranties of the Company contained in the Merger Agreement untrue or incorrect in any material respect at or prior to the Effective Time. NO SOLICITATION. The Merger Agreement provides that the Company shall, and shall cause its officers, directors, employees, representatives and agents to, immediately cease any discussions or negotiations with any parties that may be ongoing with respect to a Company Takeover Proposal (as hereinafter defined). The Company shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed or reasonably likely to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Company Takeover Proposal or (ii) participate in any discussions or negotiations regarding any Company Takeover Proposal; PROVIDED, HOWEVER, that if, at any time prior to the Effective Time, the Board of Directors of the Company determines in good faith, with the advice of outside counsel, that the failure to do so could reasonably be determined to be a breach of its fiduciary duties to the Company's stockholders under applicable law, the Company may (and may authorize or permit any of the other persons referred to above in this paragraph to), in response to a Company Takeover Proposal, and subject to compliance with the second succeeding paragraph), (x) furnish information with respect to the Company or its subsidiaries to any person pursuant to a confidentiality agreement similar in form to that between an affiliate of Tyco and the Company and (y) participate in discussions or negotiations regarding such Company Takeover Proposal. "Company Takeover Proposal" means any inquiry, proposal or offer, in each case not solicited in violation of the Merger Agreement, from any person or persons relating to any direct or indirect acquisition or purchase of a substantial amount of the assets of the Company and its subsidiaries or 10% or more of any class of equity securities of the Company or any Company Subsidiary, any tender offer or exchange offer that if consummated would result in any person or group of related persons beneficially owning 10% or more of any class of equity securities of the Company or any Company 6 Subsidiary or any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any Company Subsidiary, other than the transactions contemplated by the Merger Agreement. Except as set forth in this section, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or indicate publicly its intention to withdraw or modify, in a manner adverse to Tyco, the approval or recommendation by such Board of Directors or such committee of the Offer or the Company Proposals, (ii) approve or recommend, or indicate publicly its intention to approve or recommend, any Company Takeover Proposal or (iii) cause the Company to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, a "Company Acquisition Agreement") related to any Company Takeover Proposal. Notwithstanding the foregoing, in the event that prior to the Effective Time the Board of Directors of the Company determines in good faith, with the advice of outside counsel, that the failure to do so could reasonably be determined to be a breach of its fiduciary duties to the Company's stockholders under applicable law, the Board of Directors of the Company may (subject to this and the following sentences) (x) withdraw or modify its approval or recommendation of the Offer or the Company Proposals or (y) approve or recommend a Company Superior Proposal (as hereinafter defined) or terminate the Merger Agreement (and concurrently with or after such termination, if it so chooses, cause the Company to enter into any Company Acquisition Agreement with respect to any Company Superior Proposal), but in each of the cases set forth in this clause (y), only at a time that is after the third business day following Tyco's receipt of written notice advising Tyco that the Board of Directors of the Company has received a Company Superior Proposal and, in the case of any previously received Company Superior Proposal that has been materially modified or amended, such modification or amendment and specifying the material terms and conditions of such Company Superior Proposal, modification or amendment (PROVIDED that such material terms shall not be deemed to include the identity of the person or persons making such Company Superior Proposal). A "Company Superior Proposal" means any bona fide proposal, not solicited in violation of the Merger Agreement, made by a third party or third parties to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the combined voting power of the Shares then outstanding or all or substantially all the assets of the Company and otherwise on terms which the Board of Directors of the Company determines in its good faith judgment (based on the advice of its advisors) to be more favorable to the Company's stockholders than the Offer and the Merger (taking into account all factors relating to such proposed transaction deemed relevant by the Board of Directors of the Company, including, without limitation, the financing thereof, the proposed timing thereof and all other conditions thereto). In addition to the obligations of the Company set forth in the two preceding paragraphs, the Company shall promptly advise Tyco orally and in writing of any request for information, or for access to information, or of any Company Takeover Proposal and the material terms and conditions of such request or Company Takeover Proposal or any amendment or modification thereto (PROVIDED that such material terms shall not be deemed to include the identity of the person or persons making such request or Company Takeover Proposal). Nothing in the foregoing provisions shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Board of Directors of the Company, with the advice of outside counsel, failure so to disclose could be determined to be a breach of its fiduciary duties to the Company's stockholders under applicable law; PROVIDED, HOWEVER, that neither the Company nor its Board of Directors nor any committee thereof shall, except as permitted by the second preceding paragraph, withdraw or modify, or indicate publicly its intention to withdraw or modify, its position with respect to the Offer or the Company Proposals or approve or recommend, or indicate publicly its intention to approve or recommend, a Company Takeover Proposal. 7 INDEMNIFICATION AND INSURANCE. From and after the Effective Time, the Surviving Corporation shall indemnify and hold harmless all past and present officers and directors (the "Indemnified Parties") of the Company and of its subsidiaries to the full extent such persons may be indemnified by the Company pursuant to Delaware law, the Company's Certificate of Incorporation and Bylaws, as each is in effect on the date of the Merger Agreement, for acts and omissions (x) arising out of or pertaining to the transactions contemplated by the Merger Agreement or arising out of the Offer Documents or (y) otherwise with respect to any acts or omissions occurring or arising at or prior to the Effective Time and shall advance reasonable litigation expenses incurred by such persons in connection with defending any action arising out of such acts or omissions, PROVIDED that such persons provide the requisite affirmations and undertaking, as set forth in applicable provisions of the Delaware Code. In addition, Tyco will provide, or cause the Surviving Corporation to provide, for a period of not less than six years after the Effective Time, the Company's current directors and officers an insurance and indemnification policy that provides coverage for events occurring or arising at or prior to the Effecting Time (the "D&O Insurance") that is no less favorable than the existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; PROVIDED, HOWEVER, that Tyco and the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess of 300% of the annual premium currently paid by the Company for such insurance, but in such case shall purchase as much such coverage as possible for such amount. The Merger Agreement provides that the foregoing provisions are intended to benefit the Indemnified Parties and shall be binding on all successors and assigns of Tyco, Purchaser, the Company and the Surviving Corporation. In the Merger Agreement, Tyco has agreed to guarantee the performance by the Surviving Corporation of the indemnified obligations set forth therein, which guaranty is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the bankruptcy or insolvency of the Surviving Corporation or any other person. The Indemnified Parties shall be intended third-party beneficiaries of the foregoing provisions on indemnification and insurance. REPRESENTATIONS AND WARRANTIES. Pursuant to the Merger Agreement, the Company has made customary representations and warranties to Tyco and the Purchaser with respect to, among other things, its organization, capitalization, authority relative to the Merger, financial statements, public filings, conduct of business, employee benefit plans, intellectual property, employment matters, compliance with laws, tax matters, litigation, environmental matters, material contracts, brokers' fees, real property, insurance, undisclosed liabilities, information in the Proxy Statement and the absence of any Material Adverse Effect on the Company since December 31, 1996, except as disclosed. TERMINATION; FEES. The Merger Agreement provides that it may be terminated at any time prior to the Effective Time, whether before or after approval of the stockholders of the Company described therein: (a) by mutual written consent of Tyco and the Company; (b) by either Tyco or the Company if any governmental authority shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated by the Merger Agreement and such order, decree or ruling or other action shall have become final and nonappealable; (c) by Tyco if (i) the Company shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in the Merger Agreement, which breach or failure to perform is incapable of being cured or has not been cured within five days after the giving of written notice thereof to the Company (but not later than the expiration of the 20 business day period for which the Offer will be initially open); 8 (ii) any representation or warranty of the Company shall not have been true and correct in all material respects when made; (iii) any representation or warranty of the Company shall cease to be true and correct in all material respects at any later date as if made on such date (other than representations and warranties made as of a specified date) other than as a result of a breach or failure to perform by the Company of any of its covenants or agreements under the Merger Agreement; PROVIDED, that the right to terminate the Merger Agreement pursuant to the provisions described in this clause (c) shall not be available to Tyco if Purchaser or any other affiliate of Tyco shall acquire shares of Common Stock pursuant to the Offer; (d) by Tyco if (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Tyco its approval or recommendation of the Offer or any of the Company Proposals or shall have approved or recommended any Company Takeover Proposal or (ii) the Board of Directors of the Company or any committee thereof shall have resolved to take any of the foregoing actions; (e) by either Tyco or the Company if the Offer shall have expired or been terminated without any Shares being purchased thereunder by Purchaser as a result of a failure of any of the conditions thereto set forth in the Merger Agreement; (f) by either the Company or Tyco if either (x) as the result of the failure of the Minimum Condition or any of the other conditions thereto set forth in the Merger Agreement, the Offer shall have terminated or expired in accordance with its terms without Purchaser having purchased any Shares pursuant to the Offer or (y) the Offer shall not have been consummated on or before March 31, 1998, PROVIDED that the right to terminate this Agreement pursuant to the provisions described in this clause (f) shall not be available to any party whose failure to perform any of its obligations under the Merger Agreement results in the failure of the Offer to be consummated by such time; (g) by the Company if Tyco or Purchaser shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Tyco; or (h) by the Company in accordance with the provisions of the Merger Agreement described above under "NO SOLICITATION"; PROVIDED that the right to terminate the Merger Agreement pursuant to the provisions described in this clause (h) shall not be available (x) if the Company has breached in any material respect its obligations under the provisions described above under "NO SOLICITATION", or (y) if the Company shall fail to pay when due the fees and expenses provided for in the Merger Agreement. The Company agrees that if the Merger Agreement is terminated pursuant to (i) the provisions described in clause (d) above; (ii) the provisions described in clause (h) above; or (iii) the provisions described in clause (f) above, and, with respect to this clause (iii), at the time of such termination any person, entity or group (as defined in Section 13(d)(3) of the Exchange Act) (other than Tyco or any of its affiliates or any person identified in the Company's Proxy Statement dated April 30, 1997 and who has executed a Stockholder Agreement with Tyco and Purchaser, PROVIDED that such person has not breached the terms of such Stockholder Agreement) shall have become the beneficial owner of more than 20% of the outstanding shares of Company Stock and such person, entity or group (or any affiliate of such person, entity or group) thereafter (x) shall make a Company Takeover Proposal and, in the case of a consensual transaction with the Company, shall substantially have negotiated the terms thereof, at any time on or prior to the date which is six months 9 after such termination of the Merger Agreement, and (y) shall consummate such Company Takeover Proposal at any time on or prior to the date which is one year after termination of the Merger Agreement, in the case of a consensual transaction, or six months after termination of the Merger Agreement, in the case of a non-consensual transaction, in each case with a value per share of Company Stock of at least $17.00 (with appropriate adjustments for reclassifications of capital stock, stock dividends, stock splits, reverse stock splits and similar events); then the Company shall pay to Tyco the sum of (a) $3.5 million, as promptly as practicable but in no event later than two business days following termination of the Merger Agreement pursuant to the provisions described in clause (d) or (h) above, or, in the case of clause (iii) of this paragraph, upon consummation of such Company Takeover Proposal. The Company further agrees that if the Merger Agreement is terminated pursuant to the provisions described in clause (c)(i) above, (A) the Company will pay to Tyco, as promptly as practicable but in no event later than two business days following termination of the Merger Agreement, the amount of all documented and reasonable costs and expenses incurred by Tyco, Purchaser and their affiliates (including but not limited to fees and expenses of counsel and accountants and out-of-pocket expenses (but not fees) of financial advisors) in an aggregate amount not to exceed $350,000 in connection with the Merger Agreement or the transactions contemplated hereby ("Tyco Expenses"); and (B) in the event that the Company consummates a Company Takeover Proposal (whether or not solicited in violation of the Merger Agreement) within one year from the date of termination of the Merger Agreement, the sum of $3.5 million, less the amount of any payment made pursuant to the preceding clause (i), which payment shall be made not later than two business days following consummation of such Company Takeover Proposal. The Company further agrees that if the Merger Agreement is terminated pursuant to the provisions described in clause (c)(ii) above, the Company will pay to Tyco, as promptly as practicable but in no event later than two business days following termination of the Merger Agreement, the Tyco Expenses. GUARANTEE. Tyco has guaranteed the payment by Purchaser of the Per Share Amount and any other amounts payable by Purchaser pursuant to the Merger Agreement and has agreed to cause Purchaser to perform all of its other obligations under the Merger Agreement in accordance with its terms. (c) Stockholder Agreement. In connection with the execution and delivery of the Merger Agreement, HP Partners L.P. ("HP"), which, to the knowledge of the Company, owns 1,515,816 shares of Common Stock (as well as warrants to acquire 685,714 Shares), entered into a Stockholder Agreement with Tyco, Purchaser and the Company, pursuant to which HP has agreed to tender its shares of Common Stock in the Offer and has granted to Tyco a proxy, effective for as long as the Stockholder Agreement has not terminated, to vote such shares, at any meeting or other proceeding of stockholders of the Company, in opposition to any proposal by a third party involving a merger, sale of assets or similar transaction with the Company. The Stockholder Agreement will remain in effect for as long as the Merger Agreement has not been terminated in accordance with its terms. The foregoing is a summary of certain provisions of the Stockholder Agreement and is qualified in its entirety by reference to the Stockholder Agreement, a copy of which has been filed with the Commission as Exhibit 3 to this Statement. 10 ITEM 4. THE SOLICITATION OR RECOMMENDATION. (A) RECOMMENDATION OF BOARD OF DIRECTORS; BACKGROUND In early September 1997, George V. Flagg, President and Chief Executive Officer of the Company, contacted the Company's financial advisor, J.P. Morgan Securities Inc. ("J.P. Morgan"), to discuss potential strategic alternatives for the Company. At that time, Mr. Flagg requested that J.P. Morgan prepare a presentation for the Board of Directors of the Company outlining potential strategic alternatives for the Company. On September 25, 1997, representatives of J.P. Morgan made a presentation to the Board of Directors of the Company concerning possible strategic directions the Company could take relative to maximizing shareholder value, including, among others, the possible sale or merger of the Company. After representatives of J.P. Morgan were excused from the meeting, the Board of Directors unanimously voted to engage J.P. Morgan to explore a possible sale of the Company or other alternatives and to advise the Board of Directors in connection with such matters. On October 1, 1997, the Company entered into an agreement with J.P. Morgan pursuant to which J.P. Morgan was engaged to explore strategic alternatives for the Company. At the request of the Company, J.P. Morgan began contacting prospective purchasers in early October, based upon a list of parties developed by J.P. Morgan in consultation with the Company. On October 14, 1997, Tyco and J.P. Morgan, solely as the Company's representative, executed a confidentiality agreement. Beginning in early October, the Company and representatives of J.P. Morgan received a number of inquiries from third parties concerning the Company. A number of these parties executed confidentiality agreements and received descriptive memoranda regarding the Company. On November 3, 1997, in response to the initial contacts, J.P. Morgan received a letter from a party containing a non-binding indication of interest to purchase for cash the assets and assume certain liabilities of the Company for an equivalent per Share amount that was less than the $17.00 per Share amount to be paid in the Offer and the Merger. A representative of J.P. Morgan called a representative of the party to inform the party that because its offer reflected an inadequate value for the Company, the Company would not be able to engage in further discussions unless the party improved its proposal. On November 3, 1997, Tyco submitted a non-binding indication of interest to purchase all of the outstanding shares of Common Stock for between $17.50 and $19.50 per share for cash. Based on its preliminary indication of interest, Tyco was invited to attend a presentation by the Company's management and review data room contents on November 13 and November 14, 1997. On November 12, 1997, the Company reported a net loss of $1,517,000 ($0.24 per share) for the third quarter ended September 30, 1997, compared to a net loss of $712,000 ($0.15 per share) for the 1996 third quarter. (Such net loss amount for the quarter ended September 30, 1997 does not reflect the restatement of the Company's financial statements referred to below.) Concurrent with the earnings release, the Company announced that it was not in compliance with certain of the financial covenants of its bank credit agreement, but that the banks had waived such non-compliance for the periods prior to or ending on October 31, 1997. In addition, a public announcement was made by the Company that the Company had retained J.P. Morgan to help it explore strategic alternatives as part of its overall business review aimed at maximizing shareholder value, including the possible sale or merger of the Company. On November 21, 1997, Tyco submitted a written non-binding proposal for the acquisition of the Company at $19.625 per share in cash, subject to customary break-up fees, an exclusive period until November 26, at 6:00 p.m. EST and a lock-up of certain "inside" shareholders. After discussions among representatives of J.P. Morgan, the Company's Chairman, William P. Lyons, and its President and Chief Executive Officer, George V. Flagg, the Company determined to enter into negotiations with Tyco and Tyco was furnished with a draft agreement and plan of merger on November 21, 1997. 11 In response to a pending registration statement filed by the Company with the SEC, the Company received a letter from the Staff of the Division of Corporation Finance of the SEC (the "SEC Staff") on November 24, 1997 requesting the Company to restate its financial statements with respect to the recognition of certain revenues realized in connection with the installation of security systems for customers, consistent with the method used by the Company prior to an accounting change adopted in 1995. The SEC Staff also requested that the Company depreciate its Company-owned equipment installed at its customers' premises over the life of the related security services contract, and not over an average estimated life, and write off the undepreciated capitalized costs of such equipment at the time any such contract is terminated. On November 26, 1997, the Board of Directors of the Company held a telephonic meeting to consider Tyco's proposal. All of the Company's directors participated in the meeting. At the meeting, the Board of Directors of the Company reviewed Tyco's proposal and a draft of the merger agreement with the Company's executive officers, outside legal counsel and representatives of J.P. Morgan. The Board of Directors of the Company heard presentations by its outside legal counsel with respect to the terms of the proposal and a draft of the merger agreement and by representatives of J.P. Morgan with respect to the financial terms of the proposal. The Board of Directors unanimously approved proceeding with negotiations for a transaction with Tyco. Later that same day Tyco informed J.P. Morgan that it was unable to proceed with its acquisition proposal until Tyco had had an opportunity to review the Company's October operating results and until the Company had resolved the comments of the SEC Staff. On December 1, 1997, representatives of Tyco met with management of the Company to discuss the letter from the SEC Staff and the Company's results of operations for October, which were below certain projections that had been furnished to Tyco. During the period through December 18, 1997, Tyco and the Company continued discussions concerning matters related to the acquisition proposal. Following receipt of the letter from the SEC Staff, the Company and its legal and financial advisors had discussions with the SEC Staff relating to the issues raised in the letter. On December 16, 1997, the Company filed a Form 8-K with the SEC stating that the Company did not expect to be in compliance with the financial covenants in its bank credit agreement for November and December 1997. The Company also stated that it did not have any remaining loan availability under the credit agreement and provided information with regard to certain contingencies. On or about December 17, 1997, the SEC Staff notified the Company that it would accept the Company's proposal relative to the restatement of the Company's financial statements with respect to the recognition of installation revenues and to commission a study regarding the Company's policy of utilizing an average 12-year life in its composite depreciation method for equipment installed at customers' premises. On December 18, 1997, representatives of J.P. Morgan called representatives of Tyco to convey this information. On December 19, 1997, representatives of the Company, its outside legal counsel and J.P. Morgan provided additional information to Tyco regarding the SEC matters. Following the Company's resolution of these matters with the SEC Staff, Tyco contacted J.P. Morgan on December 19, 1997 and indicated a willingness to acquire all of the outstanding shares of the Company for $16.00 per share in cash. After further discussions with J.P. Morgan and the Company, Tyco indicated a willingness to increase its offer to $17.00 per share in cash on December 23, 1997 and to reduce the amount of the proposed termination fee payable by the Company in the event that the Company should, in accordance with the provisions of the Merger Agreement, enter into a transaction with a third party that would offer the Company's stockholders greater value than the Offer and the Merger. On December 23, 1997, the Board of Directors of the Company held a telephonic meeting to discuss Tyco's revised proposal and the status of negotiations. All but one of the Board members participated in the meeting. At the meeting, the Board of Directors reviewed the proposal with the Company's executive officers and representatives of J.P. Morgan. While no formal action was taken, members of the Board 12 indicated that they would support the proposal subject to substantial conclusion of negotiations for the Merger Agreement. On December 26, 1997, the Board of Directors of the Company held a telephonic meeting to consider the Offer, the Merger and the Merger Agreement. All but one of the Board members participated in the meeting. At the meeting, the Board of Directors of the Company reviewed the Offer, the Merger and the Merger Agreement with the Company's executive officers, the Company's outside legal counsel and representatives of J.P. Morgan. The Board of Directors of the Company heard presentations by its outside legal counsel with respect to the terms of the proposed offer, the Merger and the Merger Agreement, and outside legal counsel advised the Board that negotiations for the Merger Agreement were substantially complete. The Board of Directors also heard a presentation by representatives of J.P. Morgan with respect to the financial terms of the proposed Offer and the Merger. The Board of Directors, with the participation of the representatives of J.P. Morgan, reviewed again the alternatives for the Company discussed during the Board's September meeting. At the conclusion of its presentation, representatives of J.P. Morgan delivered the oral opinion of J.P. Morgan to the Board of Directors of the Company (subsequently confirmed in writing) that, as of such date, the consideration proposed to be paid to the stockholders of the Company pursuant to the Merger Agreement in the Offer and the Merger was fair, from a financial point of view, to such holders. Based upon such discussions, presentations and opinion, the Board of Directors, by the unanimous vote of all directors present, (i) approved the Offer and the Merger and the execution of the Merger Agreement substantially in the form presented to it and (ii) determined to recommend that the Company's stockholders accept the Offer and tender their Shares and approve the Merger and the Merger Agreement. Counsel for Tyco and the Company conducted additional negotiations concerning the Merger Agreement on December 26 prior to the Company's Board meeting and completed final negotiations on the document on December 28, 1997. The Merger Agreement and the Stockholder Agreement were executed by the respective parties on December 28, 1997. A joint press release announcing the execution of the Merger Agreement was released by the parties prior to the opening of the financial markets on December 29, 1997. (B) REASONS FOR RECOMMENDATIONS OF BOARD OF DIRECTORS In reaching its conclusions and recommendations described above, the Board of Directors considered a number of factors, including the following: (i) The Company's business, financial condition, results of operations, assets, liabilities, business strategy and prospects, as well as various uncertainties associated with those prospects. In particular, the Board of Directors considered the financial condition of the Company, including the significant working capital constraints affecting the Company, the Company's need for additional financing and its recent defaults and prospective defaults under its bank credit agreement. (ii) The Company's existing competition in the industry in which it operates and future competition in its major service/product lines, the relative size of the other participants in the industry in which it operates and the available capital and resources of such other participants as compared to the available capital and resources of the Company. (iii) The oral opinion (subsequently confirmed in writing) of J.P. Morgan, the Company's financial advisor, that, as of the date thereof and based upon and subject to various considerations and assumptions set forth therein, the consideration to be paid to the Company's stockholders pursuant to the Merger Agreement in the Offer and the Merger is fair, from a financial point of view, to such stockholders. A copy of the opinion rendered by J.P. Morgan to the Company's Board of Directors, setting forth the procedures followed, the matters considered, the scope of the review undertaken and 13 the assumptions made by J.P. Morgan in arriving at its opinion, is attached hereto as Schedule I and is incorporated herein by reference. Stockholders are urged to read such opinion in its entirety. (iv) The financial analysis performed by J.P. Morgan, which indicated, among other things, that based upon a discounted cash flow analysis of the projections prepared by management of the Company, a comparable company analysis and a comparable acquisition analysis, the Offer and the Merger would be reasonably likely to provide the Company's stockholders with value superior to alternative strategies, including maintenance of the Company as a stand-alone entity. (v) The number and quality of the indications of interest received by the Company and J.P. Morgan since the Company retained J.P. Morgan to assist it in exploring strategic alternatives to maximize shareholder value, including the potential sale or merger of the Company. (vi) The historical and current market prices of the Company's Common Stock. (vii) The fact that the Offer would not be subject to a financing condition. (viii) The alternatives to the Offer and the Merger available to the Company, including, without limitation, continuing to maintain the Company as an independent company. (ix) The fact that the Offer and Merger is a stock transaction with cash consideration, thus eliminating corporate taxation that would be triggered in an asset sale and any uncertainties in valuing the consideration to be received by the Company's stockholders. (x) The financial and other terms and conditions of the Offer, the Merger and the Merger Agreement, including, without limitation, the facts that the terms of the Merger Agreement will not prevent other third parties from making certain bona fide proposals subsequent to execution of the Merger Agreement, will not prevent the Board of Directors from determining, in the exercise of its fiduciary duties in accordance with the Merger Agreement, to provide information to and engage in negotiations with such third parties and will permit the Company, subject to the non-solicitation provisions and the payment of the termination fee discussed above, to enter into a transaction with a third party that would be more favorable to the Company's stockholders than the Offer and the Merger. (xi) The structure of the transaction, which is designed, among other things, to result in receipt by the holders of Shares at the earliest practicable time of the consideration to be paid in the Offer and the fact that the consideration to be paid in the Offer and the Merger is the same. (xii) The likelihood that the Offer and the Merger would be consummated. The foregoing discussion of the information and factors considered and given weight by the Board of Directors is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the Offer and the Merger, the Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, individual members of the Board of Directors may have given different weights to different factors. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. In October 1997, the Company retained J.P. Morgan to render financial advisory services and assist the Company with respect to its consideration of financial alternatives for the Company, including a possible sale of the Company. Pursuant to its engagement letter with J.P. Morgan, the Company paid J.P. Morgan an initial fee of $150,000 and has agreed to pay J.P. Morgan (a) a fee, described below, upon consummation of a sale of the Company or other transaction and (b) in the event that neither such fee nor the alternate transaction fee, described below, are payable within nine months of the initiation date of the engagement, a fee of $100,000. 14 The fee referred to in clause (a) above would be in an amount equal to (i) 0.75% of the portion of the value of the transaction up to $150 million, plus (ii) 1.00% of the portion of the transaction value in excess of $150 million but less than or equal to $180 million plus (iii) 1.25% of the portion of the transaction value in excess of $180 million; provided that the initial fee of $150,000 and the $100,000 fee referred to in clause (b) above (to the extent paid) would be deducted from the fee referred to in clause (a). The alternate transaction fee referred to in clause (b) above would be $500,000, payable upon the occurrence, with the consent of the Company, of any of the following events: another person acquires from the Company (x) Common Stock representing 20% or more but less than a majority of the Common Stock calculated on a fully-diluted basis or (y) assets of the Company representing 20% or more but less than a majority of the Company's book value. The Company has also agreed to reimburse J.P. Morgan's reasonable expenses, including the fees and disbursements of its counsel, and to indemnify and defend J.P. Morgan and certain related persons against certain liabilities in connection with the engagement. Except as disclosed herein, neither the Company nor any person acting on its behalf currently intends to employ, retain or compensate any other person to make solicitations or recommendations to security holders on its behalf concerning the Offer or the Merger. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) No transactions in Shares have been effected during the past 60 days by the Company or, to the best of the Company's knowledge, by any executive officer, director, subsidiary or affiliate of the Company. (b) To the best of the Company's knowledge, each executive officer, director and affiliate of the Company currently intends to tender to Purchaser all Shares over which such person has sole dispositive power as of the expiration date of the Offer. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a) Except as set forth above or in Item 3(b) or (c) or 4(a) above, no negotiation is being undertaken or is underway by the Company in response to the Offer which relates to or would result in: (1) an extraordinary transaction such as a merger or reorganization involving the Company; (2) a purchase, sale or transfer of a material amount of assets by the Company; (3) a tender offer for or other acquisition of securities by or of the Company; or (4) any material change in the present capitalization or dividend policy of the Company. (b) Except as described above or in Item 3(b) or (c) or 4(a) above, there are no transactions, Board of Directors resolutions, agreements in principle or signed contracts in response to the Offer that relate to or would result in one or more of the events referred to in Item 7(a) above. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED. (a) The Information Statement attached as Schedule II hereto is being furnished in connection with the possible designation by Tyco, pursuant to the Merger Agreement, of certain persons to be appointed to the Board of Directors other than at a meeting of the Company's stockholders, as described in Item 3(b) above. (b) SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW As a Delaware corporation, the Company is subject to Section 203 ("Section 203") of the Delaware General Corporation Law. Under Section 203, certain "business combinations" between a Delaware corporation whose stock is publicly traded or held of record by more than 2,000 stockholders and an 15 "interested stockholder" are prohibited for a three-year period following the date that such a stockholder became an interested stockholder, unless (i) the corporation has elected in its original certificate of incorporation not to be governed by Section 203 (the Company did not make such an election), (ii) the transaction in which the stockholder became an interested stockholder or the business combination was approved by the board of directors of the corporation before the other party to the business combination became an interested stockholder, (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan) or (iv) the business combination was approved by the board of directors of the corporation and ratified by 66 2/3% of the voting stock which the interested stockholder did not own. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an "interested stockholder," transactions with an "interested stockholder" involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an "interested stockholder's" percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who, together with affiliates and associates, owns (or, within three years prior, did own) 15% or more of a Delaware corporation's voting stock. In accordance with the Merger Agreement and Section 203, the Company's Board of Directors approved the Offer and the Merger and, therefore, the restrictions of Section 203 are inapplicable to the Offer and the Merger. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1 Excerpts from the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders held on May 22, 1997. Exhibit 2 Agreement and Plan of Merger, dated as of December 28, 1997, among Holmes Protection Group, Inc., Tyco International Ltd. and T9 Acquisition Corp.. Exhibit 3 Stockholder Agreement, dated as of December 28, 1997, among Tyco International Ltd., T9 Acquisition Corp., HP Partners LP and Holmes Protection Group, Inc. Exhibit 4 Letter to Stockholders of the Company, dated January 6, 1998.* Exhibit 5 Joint Press Release of Holmes Protection Group, Inc. and Tyco International Ltd., dated December 29, 1997. Exhibit 6 Opinion of J.P. Morgan Securities Inc.*
- ------------------------ * Included in copies mailed to stockholders 16 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. HOLMES PROTECTION GROUP, INC. Dated: January 6, 1998 By: /s/ GEORGE V. FLAGG ----------------------------------------- Name: George V. Flagg Title: President and Chief Executive Officer
17 SCHEDULE I [Letterhead of J.P. Morgan Securities Inc.] [LOGO] December 26, 1997 The Board of Directors Holmes Protection Group, Inc. 440 Ninth Avenue New York, NY 10001 Attention: William P. Lyons Chairman Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to the stockholders of Holmes Protection Group, Inc. (the "Company) of the consideration proposed to be paid to such stockholders in connection with the proposed Tender Offer (as hereinafter defined) and subsequent merger (the "Merger") of the Company with T9 Acquisition Corp. (the "Sub"), a wholly owned subsidiary of Tyco International Ltd. (the "Buyer"). We understand that pursuant to an Agreement and Plan of Merger (the "Agreement") to be entered into among the Company, the Buyer and the Sub, the Sub will commence a tender offer (the "Tender Offer") for all of the outstanding shares of the common stock of the Company, par value $.01 per share (the "Shares"), at a price of $17.00 per Share, net to the seller in cash, to be followed by the Merger of the Company with the Sub pursuant to which the Company will become a wholly owned subsidiary of the Buyer and each outstanding Share (other than Shares owned by the Buyer, the Sub or any direct or indirect wholly owned subsidiaries of the Buyer, or any of the Company's direct or indirect wholly owned subsidiaries, Shares held in the treasury of the Company or Shares as to which dissenter's rights are perfected) will be converted into the right to receive $17.00 in cash. In arriving at our opinion, we have reviewed (i) a draft of the Agreement; (ii) certain publicly available information concerning the Company and of certain other companies engaged in businesses comparable to those of the Company, and the reported market prices for certain other companies' securities deemed comparable; (iii) publicly available terms of certain transactions involving companies comparable to the Company and the consideration received for such companies; (iv) current and historical market prices of the Shares of the Company; (v) the financial statements of the Company for the fiscal year ended December 31, 1996, the financial statements of the Company for the period ended September 30, 1997, the draft Form 10-K/A of the Company for the fiscal year ended December 31, 1996 and the draft Form 10-Q/A of the Company for each of the quarterly periods ended September 30, 1997, June 30, 1997, and March 31, 1997 which drafts, among other things, included the restatement of the Company's financial statements; (vi) certain agreements with respect to outstanding indebtedness or obligations of the Company; (vii) certain internal financial analyses and forecasts prepared by management of the Company; and (viii) the terms of other business combinations that we deemed relevant. [LOGO] In addition, we have held discussions with certain members of the senior management of the Company with respect to certain aspects of the proposed Tender Offer and Merger, the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters we believed necessary or appropriate to our inquiry. We have reviewed such other financial studies and analyses and considered such other information as we deemed appropriate for the purposes of this opinion. In addition, we note that a public announcement was made by the Company on November 12, 1997 that the Company had retained J.P. Morgan & Co. to assist the Company in exploring strategic alternatives as part of an overall review of its business strategy aimed at maximizing shareholder value, including the possible sale or merger of the Company. In giving our opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or was furnished to us by the Company or otherwise reviewed by us, and we have not assumed any responsibility or liability therefor. We have not conducted any valuation or appraisal of any assets or liabilities of the Company, nor have any such valuations or appraisals been provided to us. In relying on financial analyses and forecasts provided to us, we have assumed that they have been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by the Company's senior management as to the expected future results of operations and financial condition of the Company. We have also assumed that the Tender Offer, the Merger and the other transactions contemplated by the Agreement will be consummated as provided in the Agreement. We have relied as to all legal matters relevant to rendering our opinion upon the advice of counsel. Our opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. It should be understood that subsequent developments may affect this opinion and that we do not have any obligation to update, revise, or reaffirm this opinion. We have acted as financial advisor to the Company with respect to the proposed Tender Offer and Merger and will receive a fee from the Company for our services. We will also receive an additional fee if the proposed Tender Offer is consummated. Our affiliate, Morgan Guaranty Trust Company of New York, acts as agent bank for the Buyer on a revolving credit facility and we have acted as lead and co-lead manager for the Buyer on several debt offerings and an equity offering, respectively. In the ordinary course of their businesses, our affiliates may actively trade the debt and equity securities of the Company or the Buyer for their own account or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities. On the basis of and subject to the foregoing, it is our opinion as of the date hereof that the consideration to be paid to the holders of Shares pursuant to the Merger Agreement in the proposed Tender Offer and Merger is fair, from a financial point of view, to such holders. 2 [LOGO] This letter is provided to the Board of Directors of the Company in connection with and for the purposes of its evaluation of the Merger. This opinion does not constitute a recommendation to any stockholder of the Company as to whether or not such stockholder should tender Shares pursuant to the Tender Offer or how such stockholder should vote with respect to the Merger. This opinion may not be disclosed, referred to, or communicated (in whole or in part) to any third party for any purpose whatsoever except with our prior written consent in each instance. This opinion may be reproduced in full in any proxy or information statement or Solicitation/ Recommendation Statement on Schedule 14D-9 mailed to stockholders of the Company but may not otherwise be disclosed publicly in any manner without our prior written approval and must be treated as confidential. Very truly yours, J.P. MORGAN SECURITIES INC. By: /s/ NICHOLAS B. PAUMGARTEN ----------------------------------------------- Name: Nicholas B. Paumgarten Title: Managing Director 3 SCHEDULE II HOLMES PROTECTION GROUP, INC. 440 NINTH AVENUE NEW YORK, NEW YORK 10001 INFORMATION PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER The following information is being furnished to holders of the common stock, par value $.01 per share ("Common Stock"), of Holmes Protection Group, Inc., a Delaware corporation (the "Company"), in connection with the possible designation by Tyco International Ltd., a Bermuda company ("Tyco"), of at least a majority of the members of the Board of Directors of the Company pursuant to the terms of an Agreement and Plan of Merger, dated as of December 28, 1997 (the "Merger Agreement"), by and among the Company, Tyco and T9 Acquisition Corp., a Delaware corporation and an indirect wholly owned subsidiary of Tyco ("Purchaser"). THIS INFORMATION IS BEING PROVIDED SOLELY FOR INFORMATIONAL PURPOSES AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S STOCKHOLDERS. The Merger Agreement provides that promptly following the purchase of any Shares pursuant to the Offer, Tyco may request that the Company take all actions necessary to cause persons designated by Tyco to become directors of the Company (the "Tyco Designees") so that the total number of directorships held by such persons is proportionate to the percentage calculated by dividing (i) the number of Shares accepted for payment pursuant to the Offer plus Shares beneficially owned by Tyco or any affiliate thereof by (ii) the total number of Shares outstanding; provided that prior to the consummation of the Merger, the Board of Directors of the Company (the "Board of Directors") shall always have at least two members who are neither officers of the Company nor designees, shareholders or affiliates of Tyco. The Company has also agreed to increase the size of the Board of Directors or exercise reasonable best efforts to secure the resignation of existing directors so as to enable Tyco's designees to be elected to the Board of Directors in accordance with such provisions. The information contained in this Schedule II concerning Tyco and Purchaser has been furnished to the Company by Tyco, and the Company assumes no responsibility for the accuracy or completeness of any such information. VOTING SECURITIES OF THE COMPANY As of December 28, 1997, there were issued and outstanding 6,310,034 shares of Common Stock, each of which entitles the holder to one vote. BOARD OF DIRECTORS, TYCO DESIGNEES AND EXECUTIVE OFFICERS BOARD BIOGRAPHICAL INFORMATION The persons named below are the current members of the Board of Directors. The following sets forth as to each director his age (as of December 28, 1997), principal occupation and business experience, the period during which he has served as a director and the expiration of his term as a director.
EXPIRATION NAME AGE DIRECTOR SINCE OF TERM AS DIRECTOR - ------------------------------------------------------------------------ --- --------------- --------------------- Pierre Besuchet(2)...................................................... 64 1991 1998 Daniel T. Carroll(1)(2)................................................. 71 1996 1998 George V. Flagg......................................................... 56 1996 1996 Lawrence R. Glenn(1)(3)................................................. 59 1996 1996 Mark S. Hauser(3)....................................................... 40 1994 1997 William P. Lyons(1)(2).................................................. 56 1994 1997 David Jan Mitchell(1)(3)................................................ 36 1994 1997 Edward L. Palmer(1)(2).................................................. 80 1992 1996
- ------------------------ (1) Member of Audit Committee. (2) Member of Compensation Committee. (3) Member of Retirement Benefits Committee. The following is a brief summary of the background of each director of the Company: PIERRE BESUCHET. Mr. Besuchet has been the President of Gerant des Fortunes, a Swiss investment management company, since 1983. He is also a non-executive director of Faisal Finance (Switzerland) S.A., a Swiss investment firm. DANIEL T. CARROLL. Since 1982, Mr. Carroll has been the Chairman of The Carroll Group, a management consulting company. He is also a director of A.M. Castle & Co., American Woodmark Corporation, Aon Incorporated, Comshare, Inc., DeSoto, Inc., Diebold Incorporated, Oshkosh Truck Corporation, Wolverine World Wide, Inc. and Woodhead Industries Inc. GEORGE V. FLAGG. Mr. Flagg joined the Company on January 8, 1996 as President and Chief Executive Officer. Prior thereto, from September 1985 to December 1995, Mr. Flagg served in various executive capacities at The National Guardian Corporation, a security alarm services company ("National Guardian"), serving as President (from May 1986 to December 1995) and Chief Executive Officer (from May 1991 to December 1995). LAWRENCE R. GLENN. Since 1995, Mr. Glenn has been Chairman of J.W. Goddard and Company, a privately owned investment company dealing in real estate, corporate finance and financial advisory services. Mr. Glenn is the retired former Chairman of the Credit Policy Committee of Citicorp and Citibank, N.A. He is also a director of First Bank of Americas and Gerber Childrenswear Holdings, Inc. MARK S. HAUSER. Mr. Hauser was elected Vice Chairman of the Board of Directors in May 1995. He is the founder and, since 1991, has been a Managing Director of Tamarix Capital Corporation, a New York-based private investment banking firm. Prior thereto, Mr. Hauser was a Managing Director at Hauser, Richards & Co. and Ocean Capital Corporation, private international investment banking firms. He is also a director of ICC Technologies, Inc. and EA Industries, Inc. WILLIAM P. LYONS. Mr. Lyons was elected Chairman of the Board of Directors in May 1995. He has been President and Chief Executive Officer of William P. Lyons and Co., Inc., a private investment firm, 2 since 1975. From 1992 to 1995, Mr. Lyons served as Chairman of JVL Corp., a pharmaceutical manufacturer, and from 1988 to 1991, he served as Chairman and Chief Executive Officer of Duro-Test Corporation, a manufacturer of specialty lighting products. Mr. Lyons was an adjunct Professor of Management and Law at Yale University from 1973 to 1989. Mr. Lyons is also a director of Lydall, Inc., Video Lottery Technologies, Inc. and DeSoto, Inc. DAVID JAN MITCHELL. Since January 1991, Mr. Mitchell has been President of Mitchell & Company, Ltd., a New York-based private merchant banking company he founded. Since March 1992, Mr. Mitchell has been a partner of Pertherton Capital Corporation, a privately held real estate investment company. From April 1988 to December 1990, Mr. Mitchell served as a managing principal and a director of Rodman & Renshaw, Inc., a publicly traded investment banking and brokerage firm. Mr. Mitchell also serves as a director of Kellstrom Industries, Inc. and Bogen Communications International. EDWARD L. PALMER. Mr. Palmer is the retired Chairman of the Executive Committee of Citicorp and Citibank, N.A. Mr. Palmer's current directorships include Devon Group, Inc., SunResorts Ltd. N.V., FondElec Group, Energy Services International Corporation and IRI International Corporation. Mr. Palmer has also served on the board of directors of several U.S. and international corporations. The Company is party to the following agreements which entitle certain stockholders to nominate members of the Board of Directors: (i) the Exchange Agreement, dated as of December 18, 1991, as amended (the "Exchange Agreement"), with a group of insurance companies and other institutions (the "Institutions"), including John Hancock Mutual Life Insurance Company and The Mutual Life Insurance Company of New York, and (ii) the Investment Agreement, dated as of June 29, 1994 (the "Investment Agreement"), with HP Partners L.P. ("HP Partners"). Based on their aggregate percentage share ownership, the Institutions currently have a right to nominate two directors. Messrs. Palmer and Glenn were initially nominated by the Institutions and appointed to the Board of Directors on November 30, 1992 and February 8, 1996, respectively, in accordance with the terms of the Exchange Agreement. HP Partners currently has a right to nominate three directors. Messrs. Hauser, Lyons and Mitchell were nominated by HP Partners and elected to the Board of Directors on July 29, 1994 in accordance with the terms of the Investment Agreement. HP Partners previously had the right to nominate four directors. However, as a result of the Company's public offering of Common Stock in September 1996, the number of directors HP Partners was entitled to nominate to the Board of Directors was reduced from four to three. In connection therewith, William Spier (a former director who was appointed to the Board of Directors by HP Partners) resigned from the Board of Directors on September 30, 1996. Messrs. Hauser, Mitchell and Spier are stockholders and directors of the general partner of HP Partners and Messrs. Mitchell and Spier are also limited partners of HP Partners. See "Security Ownership of Certain Beneficial Owners and Management" and "Certain Relationships and Related Transactions." INFORMATION CONCERNING TYCO DESIGNEES Tyco has informed the Company that it will select the Tyco Designees from among L. Dennis Kozlowski (age 51), Joshua M. Berman (age 59), Jerry R. Boggess (age 53), David B. Brownell (age 54), Robert P. Mead (age 47), Richard J. Meelia (age 47), Barbara S. Miller (age 47), M. Brian Moroze (age 54) and Mark H. Swartz (age 37), each of whom is a director or executive officer of Tyco, certain subsidiaries of Tyco or the Purchaser. Information concerning the Tyco Designees is contained in Annex I and Annex II to the Offer to Purchase, a copy of which is being mailed to the Company's stockholders together with this Schedule 14D-9. The information in such Annexes is incorporated herein by reference. In addition to the information concerning Mr. Kozlowski in such Annexes, Mr. Kozlowski is a director of Applied Power, Inc., Raytheon Company and RJR Nabisco Holdings Corp. Tyco has also informed the Company that each of such directors and executive officers has consented to act as a director of the Company, if so designated. It is expected that none of the Tyco Designees will receive any compensation for services performed in his or her capacity as a director of the Company. 3 COMMITTEES OF THE BOARD OF DIRECTORS; BOARD OF DIRECTORS MEETINGS The Board of Directors has established an audit, a compensation and a retirement benefits committee to assist it in the discharge of its responsibilities. The principal responsibilities of each committee and the members of each committee are described in the succeeding paragraphs. The Company's Board of Directors held nine meetings during the year ended December 31, 1997. The Board of Directors does not have a nominating committee. This function is performed by the Board of Directors. All Directors attended at least 75% of the meetings held by the Board of Directors and by the committees on which they served during 1997. The AUDIT COMMITTEE currently consists of Messrs. Carroll, Glenn (Chairman), Lyons, Mitchell and Palmer. The Audit Committee held two meetings during 1997. The Audit Committee reviews the scope and results of the audit and other services performed by the Company's independent accountants. The COMPENSATION COMMITTEE currently consists of Messrs. Besuchet, Carroll (Chairman), Lyons and Palmer. The Compensation Committee held two meetings during 1997. This Committee establishes objectives for the Company's senior executive officers and sets the compensation of directors, executive officers and other employees of the Company. It is also charged with the administration of the Company's employee benefit plans, including stock options plans. The RETIREMENT BENEFITS COMMITTEE currently consists of Messrs. Glenn, Hauser (Chairman) and Mitchell. The Retirement Benefits Committee held one meeting during 1997. The Retirement Benefits Committee provides oversight for the Company's pension and retirement benefit plans. COMPENSATION OF DIRECTORS Each non-employee director receives an annual director's fee of $15,000 (except for the Chairman who receives an annual fee of $25,000) and a fee of $750 per day for attending, in person or by telephone, meetings of the Board of Directors and $250 per day for attending in person, or by telephone, meeting of committees of the Board of Directors. Non-employee directors are reimbursed for their reasonable expenses incurred in connection with attendance at or participation in such meetings. In addition, under the Holmes Protection Group, Inc. 1996 Stock Incentive Plan (the "1996 Plan"), each non-employee director who was a director of the Company on December 4, 1995 was granted an option to purchase 25,000 shares of Common Stock. Messrs. Glenn and Carroll were each granted an option to purchase 25,000 shares of Common Stock on February 8, 1996 and June 27, 1996, respectively, at the time of their respective appointments to the Board of Directors. Additionally, under the terms of the 1996 Plan, each director, other than a director first elected within twelve months prior to the 1997 Annual Meeting, will be granted an option to purchase 1,000 shares of Common Stock immediately following each Annual Stockholders Meeting. Directors who are employees of the Company receive no additional compensation for their services as directors. However, such directors are reimbursed for their reasonable expenses incurred in connection with attendance at or participation in meetings of the Board of Directors or committees of the Board of Directors. After the consummation of the Merger, it is expected that the Company's Board of Directors will act to appoint new members to the Audit, Compensation and Retirement Benefits Committees. To the Company's knowledge, no decision has been made by the Tyco Designees regarding the membership of any such committees of the Board. EXECUTIVE OFFICERS Executive officers serve at the discretion of the Board of Directors. The following table sets forth certain information concerning the executive officers of the Company (as of December 28, 1997) who are 4 expected to serve in such capacity until the consummation of the Merger (none of whom has a family relationship with any other executive officer):
NAME POSITION AGE - -------------------------- ------------------------------------------------------------------------------- --------- George V. Flagg........... President and Chief Executive Officer 56 James L. Boehme........... Executive Vice President--Sales and Marketing 49 Dennis M. Stern........... Senior Vice President, General Counsel and Secretary 56 Glenn C. Riker............ Senior Vice President--Human Resources and Assistant Secretary 52 Lawrence R. Irving........ Vice President--Finance 41
The following is a brief summary of the background of each executive officer of the Company: GEORGE V. FLAGG. Mr. Flagg joined the Company on January 8, 1996 as President and Chief Executive Officer. Prior thereto, from September 1985 to December 1995, Mr. Flagg served in various executive capacities at National Guardian, serving as President (from May 1986 to December 1995) and Chief and Executive Officer (from May 1991 to December 1995). JAMES L. BOEHME. Mr. Boehme was appointed Executive Vice President--Sales and Marketing of the Company on January 8, 1996. Prior thereto, from March 1988 to December 1995, Mr. Boehme served in various executive capacities at National Guardian, serving as Senior Vice President, Sales and Marketing (from June 1994 to December 1995) and Vice President, Sales and Marketing (from January 1990 to June 1994). DENNIS M. STERN. Mr. Stern joined the Company in December 1996 as Senior Vice President, General Counsel and Secretary. Prior thereto, from December 1995 to December 1996, Mr. Stern was engaged in the private practice of law and associated with the law firm of Buchanan Ingersoll. From March 1983 to December 1995, Mr. Stern served in various executive capacities with National Guardian, serving as Executive Vice President, General Counsel and Secretary from August 1984 to December 1995. GLENN C. RIKER. Mr. Riker has been with the Company since December 1989, starting as Director of Human Resources and currently serving as Senior Vice President of Human Resources and Assistant Secretary. Prior to joining the Company, Mr. Riker was Vice President of Human Resources at Atlas Copco North America, Inc., a manufacturer of industrial equipment. LAWRENCE R. IRVING. Mr. Irving joined the Company in May 1996 as Vice President--Finance. From July 1995 to April 1996, Mr. Irving served as Controller, and then as Vice President-Finance and Treasurer, respectively, of Centennial Security Holdings, Inc., a security alarm services company. Prior thereto, from April 1987 to June 1995, Mr. Irving served as Assistant Controller, and then as Assistant Vice President/ Assistant Controller, of National Guardian. 5 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information with respect to the beneficial ownership, as of December 28, 1997, of the Common Stock by (i) any person known by the Company to beneficially own more than 5% of the outstanding Common Stock; (ii) each director of the Company; (iii) the Company's Chief Executive Officer and each of the four most highly compensated executive officers (collectively, the "Named Officers") whose total salaries and bonuses exceeded $100,000 for services rendered to the Company during the last fiscal year; and (iv) all directors and executive officers of the Company as a group, including the Named Officers. All share and warrant amounts and related exercise prices have been adjusted to give effect to the one-for-fourteen reverse stock split of the Common Stock completed on March 27, 1995. On December 28, 1997, there were 6,310,034 shares of Common Stock issued and outstanding.
NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED(1) PERCENTAGE OWNERSHIP(1) - ------------------------------------------------------------------- -------------------- ------------------------- HP Partners L.P.(2)................................................ 2,201,600 31.1% c/o HP Management, Inc. 444 Madison Avenue, 38th Floor New York, New York 10022 John Hancock Mutual Life Insurance Company(2)...................... 639,594 10.0% John Hancock Place P.O. Box 111 Boston, Massachusetts 02117 The Mutual Life Insurance Company of New York(2)................... 399,905 6.3% 1740 Broadway New York, New York 10019 TJS Partners, L.P.(2).............................................. 399,000 6.3% 52 Vanderbilt Avenue 5th Floor New York, New York 10017 Stephen Feinberg................................................... 744,166 11.8% 950 Third Avenue, 20th Floor New York, New York 10022 Pierre Besuchet(3)(6)(7)........................................... 45,048 * James L. Boehme(6)(7).............................................. 108,750 1.7% Daniel T. Carroll(6)(7)............................................ 27,000 * George V. Flagg(6)(7).............................................. 167,000 2.6% Lawrence R. Glenn(6)(7)(8)......................................... 27,000 * Mark S. Hauser(4)(6)(7)............................................ 2,202,600 31.5% Laurence R. Irving(6)(7)........................................... 12,500 * William P. Lyons(4)(6)(7).......................................... 2,306,600 32.7% David Jan Mitchell(4)(6)(7)........................................ 2,205,600 31.5% Edward L. Palmer(6)(7)(8).......................................... 27,464 * Dennis M. Stern(6)(7).............................................. 12,500 *
6
NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED(1) PERCENTAGE OWNERSHIP(1) - ------------------------------------------------------------------- -------------------- ------------------------- Glenn C. Riker(5)(7)............................................... 4,000 * All directors and executive officers as a group 2,742,862 37.1% (12 persons)(3)(4)(5)(6).........................................
- ------------------------ * Represents less than 1% of outstanding Common Stock. (1) Each director and executive officer has sole voting and investment power with respect to the shares beneficially owned, except as otherwise noted in the footnotes to this table. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire on or within 60 days of December 28, 1997. For purposes of computing the percentage of outstanding Common Stock held by each person or group of persons named above, any shares which such person has the right to acquire on or within 60 days after December 28, 1997 are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (2) Includes shares issuable upon the exercise of warrants having a current exercise price of $10.16 per share, as follows: John Hancock Mutual Life Insurance Company and affiliates--71,893; and The Mutual Life Insurance Company of New York and affiliates--44,953. With respect to HP Partners, includes 685,714 shares of Common Stock issuable upon the exercise of warrants having a current exercise price of $4.58 per share. The information in the foregoing table and in this note is based on the Company's records and on either a Schedule 13D or a Schedule 13G filed with the Securities and Exchange Commission by each of the following stockholders and dated as indicated: HP Partners, dated January 20, 1995; John Hancock Mutual Life Insurance Company, dated January 16, 1996; The Mutual Life Insurance Company of New York, dated March 2, 1995; TJS Partners, L.P., dated June 17, 1996; and Stephen Feinberg, dated August 20, 1997. The Schedule 13D filed by TJS Partners, L.P. states that TJS Management, L.P., TJS Corporation and Thomas J. Salvatore may be deemed to own beneficially the shares owned beneficially by TJS Partners, L.P. (3) 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 December 28, 1997. (4) Includes 1,515,886 shares of Common Stock and warrants to purchase 685,714 shares of Common Stock owned by HP Partners. Messrs. Hauser, Mitchell and Spier (a former director of the Company) are stockholders and directors of the general partner of HP Partners, and Messrs. Mitchell and Spier are also limited partners of HP Partners. Messrs. Hauser, Mitchell and Spier are also the sole stockholders of the special limited partner of HP Partners which is entitled to various rights relating to 285,714 of the partnership's warrants. Pursuant to HP Partners' 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. See "Certain Relationships and Related Transactions." (5) Includes vested options granted under the 1996 Plan to Mr. Riker to purchase 4,000 shares of Common Stock. Excludes options granted to Mr. Riker under the 1992 Senior Executives' Option Plan (the "Executives Plan") and the 1996 Plan which have not yet vested to purchase 2,657 and 6,000 shares of Common Stock, respectively. 7 (6) Includes vested options granted under the 1996 Plan to each of Messrs. Besuchet, Carroll, Glenn, Hauser, Lyons, Mitchell, Palmer, Flagg, Boehme, Irving and Stern to purchase 26,000, 25,000, 26,000, 1,000, 46,000, 1,000, 26,000, 109,000, 108,750, 12,500 and 12,500 shares of Common Stock, respectively. Excludes options granted under the 1996 Plan which have not yet vested to each of Messrs. Flagg, Boehme, Irving and Stern to purchase 124,000, 93,000, 25,000 and 25,000 shares of Common Stock, respectively. (7) The address of such stockholder is: c/o Holmes Protection Group, Inc., 440 Ninth Avenue, New York, New York 10001-1695. 8 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth a summary of annual and long-term compensation earned by or paid to the Named Officers for services rendered to the Company during each of the last three fiscal years: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ------------------ ------------------------------------ SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER SALARY BONUS COMPENSATION OPTIONS/ SARS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)(1) - ------------------------------------- --------- ---------- --------- ------------- ------------------ ------------- George V. Flagg...................... 1995 $ -- $ -- $ -- -- $ -- President and Chief Executive 1996 196,154 -- 12,750 260,000(2) 4,763 Officer 1997 200,000 -- 13,000 25,000(5) 4,750 James L. Boehme...................... 1995 $ -- $ -- $ -- -- $ -- Executive Vice President-- Sales 1996 147,115 -- 12,750 195,000(2) 4,748 and Marketing 1997 157,500 -- 13,000 18,750(5) 4,750 Dennis M. Stern...................... 1995 $ -- $ -- $ -- -- $ -- Senior Vice President and General 1996 11,667 -- 1,083 25,000(5) -- Counsel 1997 140,000 -- 13,000 12,500 2,100 Glenn C. Riker....................... 1995 $ 91,260 $ 20,716 $ 13,000 -- $ 3,476 Senior Vice President-- Human 1996 93,445 9,125 13,000 10,000(3) 3,691 Resources 1997 100,000 -- 13,000 -- 2,885 Lawrence R. Irving................... 1995 $ -- $ -- $ -- -- $ -- Vice President--Finance 1996 68,654 20,000 31,800 25,000(4) -- 1997 120,000 -- 10,400 12,500(5) 3,600
- ------------------------ (1) Represents matching contributions by the Company under the Company's 401(k) Plan. 100% of accrued matching contributions become vested on the first anniversary of employment and are fully vested thereafter. (2) Represents a grant of stock options made in January 1996 under the 1996 Plan. (3) Represents a grant of stock options made in November 1996 under the 1996 Plan. (4) Represents a grant of stock options made in May 1996 under the 1996 Plan. (5) Represents a grant of stock options made in May 1997 under the 1996 Plan. The Company has agreed to pay to each of Dennis M. Stern and Lawrence R. Irving a bonus, equal to 50% of such officer's 1997 base compensation, for extraordinary services in connection with proposed restructuring or sale alternatives for the Company. Such fees would be payable upon consummation of such transaction, including the Offer. All information under "Executive Compensation" herein relating to stock options (except for those granted under the 1996 Plan) and related exercise and hurdle prices have been adjusted to give effect to the one-for-fourteen reverse stock split of the Common Stock effected on March 27, 1995. The following table contains information concerning the grant of stock options made to the Named Officers during the fiscal year ended December 31, 1997 under the Executives Plan or the 1996 Plan: 9 OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS --------------------------------------------------- NUMBER OF PERCENT OF SECURITIES TOTAL OPTION/SARS EXERCISE OR MARKET UNDERLYING GRANTED TO BASE PRICE ON OPTIONALS/SARS EMPLOYEES IN PRICE GRANT DATE NAME GRANTED (#) FISCAL YEAR ($/SH) ($/SH) - ------------------------------------------------ --------------- --------------------- --------------- ----------- George V. Flagg................................. 25,000 10.5% $ 13.75 $ 13.75 James L. Boehme................................. 18,750 7.9% $ 13.75 $ 13.75 Dennis M. Stern................................. 12,500 5.3% $ 13.75 $ 13.75 Lawrence R. Irving.............................. 12,500 5.3% $ 13.75 $ 13.75
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM(1) ---------------------- NAME EXPIRATION DATE 5% 10% - -------------------------------------------------------------------- --------------- ---------- ---------- George V. Flagg..................................................... 5/23/2007 $ 216,183 $ 547,849 James L. Boehme..................................................... 5/23/2007 $ 162,137 $ 410,887 Dennis M. Stern..................................................... 5/23/2007 $ 108,091 $ 273,925 Lawrence R. Irving.................................................. 5/23/2007 $ 108,091 $ 273,925
- ------------------------ (1) Amounts indicated under the "Potential Realizable Value" columns above have been calculated by multiplying the market price on the date of grant by the annual appreciation rate shown (compounded for the term of the options), subtracting the exercise price per share and multiplying the gain per share by the number of shares covered by the options. Except as disclosed above, no other grants of stock options were made in the fiscal year ended December 31, 1997 to any of the Named Officers. No stock options were exercised by any of the Named Officers during the fiscal year ended December 31, 1997, except as set forth below: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF NUMBER OF SECURITIES UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT SHARES ACQUIRED VALUE AT FISCAL YEAR-END (#) FISCAL YEAR-END ($) NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1) - --------------------------- --------------- ------------ -------------------------- -------------------------- George V. Flagg............ 52,000 $ 455,000 57,000/176,000(3) $ 526,452/$1,282,746 James L. Boehme............ 12,000 $ 141,000 69,750/132,000(3) $ 687,197/$962,059 Glenn C. Riker............. 6,197 $ 64,883 2,000/10,657(2)(3) $ 9,656/$63,994 Lawrence R. Irving......... -- -- 12,500/25,000(3) $ 90,976/$165,702 Dennis M. Stern............ -- -- 12,500/25,000(3) $ 55,976/$103,203
- ------------------------ (1) Based upon the per share closing price on December 29, 1997 ($16.83). (2) Options were granted pursuant to the Executives Plan. (3) Options were granted pursuant to the 1996 Plan. 10 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In 1994, Mr. William Spier, a former director of the Company who resigned on September 30, 1996, entered into an agreement with PremiTech Corporation ("PremiTech"), which is a limited partner of HP Partners, to acquire PremiTech's limited partnership interest for approximately $2,000,000, at the option of PremiTech, in the event that PremiTech did not enter into an agreement for the provision of information technology services to the Company. Such information technology agreement was subsequently executed on April 4, 1995, thereby terminating PrimiTech's option to sell its interest in HP Partners to Mr. Spier. Pursuant to HP Partners' 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. On December 5, 1995, each of Messrs. Hauser, Lyons, Mitchell and Spier were granted options under the 1996 Plan, subject to stockholder approval of the 1996 Plan, to purchase 15,000, 60,000, 30,000 and 15,000 shares of Common Stock, respectively, at an exercise price of $5.56 per share. Such grants were made in recognition of the extraordinary services that each of these individuals provided to the Company in connection with the management transition and reorganization that occurred during 1995. The 1996 Plan was approved by stockholders in December 1996 at the Company's 1996 Annual Meeting of Stockholders. 11 EMPLOYMENT AGREEMENTS Mr. Flagg is employed by the Company pursuant to an employment agreement dated January 8, 1996, which expires on December 31, 1998, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Flagg's employment agreement provides for an annual base salary of no less than $200,000. Mr. Boehme is employed by the Company pursuant to an employment agreement dated January 8, 1996, which expires on December 31, 1998, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Boehme's employment agreement provides for an annual base salary of no less than $150,000. Mr. Irving is employed by the Company pursuant to an employment agreement dated May 13, 1996, which expires on December 31, 1998, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Irving's employment agreement provides for an annual base salary of no less than $105,000. Mr. Stern is employed by the Company pursuant to an employment agreement dated as of December 2, 1996, which expires on December 31, 1998, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Stern's employment agreement provides for an annual base salary of no less than $140,000. The salaries provided under all of these employment agreements may be increased at the discretion of the Board of Directors or the Compensation Committee thereof. Under the terms of Messrs. Flagg's, Boehme's, Irving's and Stern's respective employment agreements, options were granted to purchase shares of Common Stock under the 1996 Plan (260,000 shares in the case of Mr. Flagg, 195,000 shares in the case of Mr. Boehme and 25,000 shares each in the case of Messrs. Irving and Stern). Messrs. Flagg, Boehme, Irving and Stern are also provided with certain other benefits and perquisites pursuant to their respective employment agreements. Upon termination of employment with the Company, Messrs. Flagg, Boehme, Irving and Stern are each subject to a non- compete period of six months. In accordance with Messrs. Flagg's, Boehme's, Irving's and Stern's respective employment agreements, upon a termination of employment by the Company for reasons other than (i) "Cause," (ii) "Disability" (each as defined in such employment agreements), or (iii) death, or adjudicated incompetency, the Company will be obligated to pay to each of Messrs. Flagg, Boehme, Irving and Stern the greater of 12 months' base salary or base salary for the balance of the remaining term of the respective employment agreement, and to maintain certain benefits. Upon termination of employment by the Company within 12 months of a "Change-of-Control Event" (as defined below), Messrs. Flagg, Boehme, Irving and Stern shall each be entitled to receive their respective base salaries and certain other benefits for an additional period of 12 months. As defined in Messrs. Flagg's, Boehme's, Irving's and Stern's respective employment agreements, a "Change-of-Control Event" means the consummation of (i) a proxy contest for control of the Board of Directors resulting in the person or entity or group of affiliated persons or entities (collectively, a "Control Group") initiating such proxy contest electing a majority of the members of the Board of Directors; (ii) the purchase by a Control Group of the Common Stock or other securities of the Company which, when aggregated with any other securities of the Company then held by such Control Group, gives such Control Group "beneficial ownership" (as defined in Rule 13d-3 promulgated under the Exchange Act) of securities representing more than 50% of the combined voting power of the Company; or (iii) any such transaction that the Board of Directors shall have favorably recommended to stockholders of the Company at any time prior to its consummation, and such recommendation shall not have been withdrawn. Mr. Riker was employed by the Company pursuant to an employment agreement dated October 12, 1994, which expired on December 31, 1996, and which provided for an annual base salary of $91,260. On September 2, 1997 the Company entered into a letter agreement with Mr. Riker providing for certain severance benefits in the event of a termination of employment as a result of a "Change of Control Event". In such event Mr. Riker would be entitled to receive two years base salary and certain additional benefits. 12 Upon the occurrence of a "Change-of-Control Event," the Company's maximum aggregate salary payment obligation would be $1,435,000. Such amount is calculated by combining the 1997 base salaries of each of Messrs. Flagg, Boehme, Irving, Stern and Riker for a period of 24 months. For information with regard to bonuses to be paid to Messrs. Stern and Irving in connection with proposed restructuring or sale alternatives for the Company, see "Executive Compensation" herein. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the Company's fiscal year ended December 31, 1997, the Compensation Committee of the Board of Directors consisted of Messrs. Besuchet, Carroll, (Chairman), Mitchell and Palmer. None of these individuals has ever served as an officer or an employee of the Company (other than by reason of the officer status conferred upon the Chairman of the Board of Directors pursuant to the By-Laws). In addition, no executive officer of the Company has ever served (i) as a member of the compensation committee or equivalent of another entity, one of whose executive officers served on the Compensation Committee, (ii) a director of another entity, one of whose executive officers served on the Compensation Committee, or (iii) a member of the compensation committee or equivalent of another entity, one of whose executive officers served as a director of the Company. COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS The Compensation Committee establishes compensation policies and practices for the Company, outlines objectives for the Company's executive officers and sets the compensation of the executive officers, certain highly compensated employees and the Board of Directors. Additionally, the Compensation Committee is charged with the administration of the Company's employee benefit plans, including stock option plans. GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS The Company's executive compensation policies are designed to attract and retain superior management and professional talent, to motivate those individuals to maximize shareholder value and to reward those individuals with increases in base salary, bonuses when performance objectives are achieved and appropriate stock options. Together these components link each executive's compensation directly to individual and Company performance. The initial base salary and terms of bonuses for certain executive officers are contained in the employment agreements described under the caption "Employment Agreements". SALARY. Individual base salaries reflect the level of responsibility, the experience and training required and the executive's ability to contribute to the Company's success. Salaries are reviewed at least annually and are increased on the recommendation of the Chief Executive Officer to the Compensation Committee, which is empowered to take final action. The base salaries specified in each executive's employment agreement may from time to time be adjusted, subject to the minimum salary levels specified therein. BONUSES. In 1996, the Company established the 1996 Incentive Compensation Plan (the "Incentive Plan") which is designed to reward executive officers and certain other employees for exceptional performance. The actual awards under the Incentive Plan are recommended by a senior management committee, including the Chief Executive Officer, and approved by the Compensation Committee. The bonus opportunity for eligible participants is based on their level of responsibility, their performance and the performance by the Company. Bonus awards for eligible participants range from 15% to 50% of their base salaries. The Company does not expect that any awards under this Plan will be granted to the Named Officers for the fiscal year ended December 31, 1997. 13 In addition to bonus payments under the Incentive Plan, the Chief Executive Officer may from time to time recommend, subject to the Compensation Committee's approval, additional discretionary bonus payments to certain executive officers based on exceptional individual performance and unique contributions to the Company. STOCK OPTIONS. The Compensation Committee believes that continued use of stock options is an effective mechanism for long-term incentive compensation of executive officers and certain other employees. Such compensation, the Compensation Committee believes, effectively links the actions of these officers and employees to the interests of stockholders and is critical to the Company's remaining competitive in its compensation practices. Accordingly, the Company adopted the 1996 Plan. As a result of stockholder approval of the 1996 Plan in December 1996, no further grants will be made under the Executives Plan. COMPENSATION LIMITATIONS. In 1993, the Internal Revenue Code was amended to limit the deductibility of compensation paid to certain executives in excess of $1 million. Compensation not subject to the limitation includes certain compensation payable solely because an executive attains performance goals. The Company's compensation deduction for a particular executive's total compensation, including compensation realized from the exercise of stock options, will be limited to $1 million. The Compensation Committee believes that the compensation paid by the Company in the fiscal year ended December 31, 1997 will not result in any material loss of tax deductions for the Company. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER Mr. Flagg's annual base salary for the fiscal year ended December 31, 1996 was determined by the terms of his employment agreement, dated January 8, 1996. The Compensation Committee believes that the compensation earned by Mr. Flagg in 1996 pursuant to his employment agreement was appropriate in light of Mr. Flagg's substantial contribution to improving the efficiency of the Company's operations and his efforts toward positioning the Company's business for future growth. Among other things, Mr. Flagg's contribution and efforts were instrumental in effecting an over 10% reduction in selling, general and administration expenses of the Company in 1996 as compared to 1995, securing a new, two-year, $25 million credit facility for the Company, initiating and implementing a strategic acquisition strategy, enhancing and expanding the Company's national accounts program and promoting and executing the Company's public offering of Common Stock in September 1996. Mr. Flagg's annual base salary under his employment agreement remained the same for the fiscal year ended December 31, 1997. Mr. Flagg was awarded additional stock options in 1997 in further consideration of his performance with respect to matters referred to in the preceding paragraph and his performance generally in 1997. Members of the Compensation Committee Pierre Besuchet Daniel T. Carroll (Chairman) William P. Lyons Edward L. Palmer 14 PERFORMANCE GRAPH(1) The Company's Common Stock traded on the London Stock Exchange from 1984 through March 24, 1995. From March 27, 1995 through September 20, 1996, the Common Stock traded on the Nasdaq SmallCap Market. Since September 23, 1996, the Common Stock has traded on the Nasdaq National Market. The graph below compares the cumulative total shareholder return on the Common Stock since March 27, 1995 (the date the Common Stock began trading on Nasdaq SmallCap Market) through November 28, 1997, with the cumulative stockholder return of (a) the total return on the University of Chicago's Center for Research on Security Prices ("CRSP") Total Return Index for the Nasdaq Stock Market (U.S. Companies) and (b) a "Peer Group Index." Total return values were calculated based on the assumption of $100 invested and on cumulative total return values assuming reinvestment of dividends. The Peer Group is based on a selection of companies operating in the security alarm monitoring industry and is comprised of Protection One, Inc., Borg-Warner Security, Response USA, Inc. and AlarmGuard Holdings Inc. The Peer Group Index weighs the constituent companies' stock performance on the basis of market capitalization measured on March 27, 1995. The stock price performance shown on the graph below is not necessarily indicative of future price performance. 15 COMPARISON OF CUMULATIVE TOTAL RETURN AMONG HOLMES PROTECTION GROUP, INC., CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (U.S. COMPANIES) AND A PEER GROUP INDEX (in dollars) [GRAPH]
CRSP Total Returns Index for: 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 11/28/97 - ------------------------------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- Holmes Protection Group, Inc. 72.3 246.8 314.9 Nasdaq Stock Market (US Companies) 81.2 93.2 91.1 128.8 158.4 197.5 Self-Determined Peer Group 210.9 254.5 125.5 175.5 151.5 253.6
Companies in the Self-Determined Peer Group
ALARMGUARD HOLDINGS INC. BORG WARNER SECURITY CORP. PROTECTION ONE INC. RESPONSE USA INC.
Notes: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The index level for all series was set to $100.0 on 3/27/95. - ------------------------ (1) The materials contained in this Information Statement and under the caption "Performance Graph" are not "soliciting material," are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Information Statement and irrespective of any general incorporation provision contained therein. 16 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and persons who beneficially own more than ten percent of a registered class of the Company's equity securities are required by the regulations of the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 1997, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. 17 EX-99.1 2 EXHIBIT 1 EXCERPTS FROM PROXY STMT, D/D/ 5/22/97 COMPENSATION OF DIRECTORS Each non-employee director receives an annual director's fee of $15,000 (except for the Chairman who receives an annual fee of $25,000) and a fee of either $500 per day for attending, in person, meetings of the Board of Directors or committees of the Board of Directors, or $250 per day for participating in such meetings by telephone; and are reimbursed for their reasonable expenses incurred in connection with attendance at or participation in such meetings. In addition, under the 1996 Plan, each non-employee director who was a director of the Company on December 4, 1995 was granted an option to purchase 25,000 shares of Common Stock. Messrs. Glenn and Carroll were each granted an option to purchase 25,000 shares of Common Stock on February 8, 1996 and June 27, 1996, respectively, at the time of their respective appointments to the Board of Directors. Such grants were approved by the stockholders of the Company in connection with stockholder approval of the 1996 Plan at the 1996 Annual Meeting of Stockholders in December 1996. Additionally, under the terms of the 1996 Plan, each director, other than a director first elected within twelve months prior to this Annual Meeting, will be granted an option to purchase 1,000 shares of Common Stock immediately following each Annual Stockholder Meeting, commencing with this Annual Meeting. Directors who are employees of the Company receive no additional compensation for their services as directors. However, such directors are reimbursed for their reasonable expenses incurred in connection with attendance at or participation in meetings of the Board of Directors or committees of the Board of Directors. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information with respect to the beneficial ownership, as of April 18, 1997, of the Common Stock by (i) any person known by the Company to beneficially own more than 5% of the outstanding Common Stock; (ii) each director of the Company; (iii) the Company's Chief Executive Officer and each of the four most highly compensated executive officers (collectively, the "Named Officers") whose total salaries and bonuses exceeded $100,000 for services rendered to the Company during the last fiscal year; and (iv) all directors and executive officers of the Company as a group, including the Named Officers. All share and warrant amounts and related exercise prices have been adjusted to give effect to the one-for-fourteen reverse stock split of the Common Stock completed on March 27, 1995. On April 18, 1997, there were 5,872,537 shares of Common Stock issued and outstanding. NUMBER OF SHARES OF COMMON STOCK PERCENTAGE NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(1) - ------------------------ --------------------- ------------ HP Partners L.P.(2)........................ 2,201,600 32.5% c/o HP Management, Inc. 444 Madison Avenue, 38th Floor New York, New York 10022 John Hancock Mutual Life................... 639,500 10.8% Insurance Company(2) John Hancock Place P.O. Box 111 Boston, Massachusetts 02117 The Mutual Life Insurance Company........... 399,845 6.8% of New York(2) 1740 Broadway New York, New York 10019 TJS Partners, L.P.(2)........................ 399,000 6.8% 52 Vanderbilt Avenue 5th Floor New York, New York 10017 Stephen Feinberg............................. 389,000 6.6% 950 Third Avenue, 20th Floor New York, New York 10022 Pierre Besuchet(3)(6)(7)..................... 44,048 * James L. Boehme(6)(7)........................ 78,000 1.3% Daniel T. Carroll(6)(7)...................... 27,000 * George V. Flagg(6)(7)........................ 110,000 1.8% Lawrence R. Glenn(6)(7)(8)................... 25,000 * Mark S. Hauser(4)(6)(7)...................... 2,241,600 34.0% Laurence R. Irving(6)(7)..................... 10,000 * William P. Lyons(4)(6)(7).................... 2,305,600 34.7% David Jan Mitchell(4)(6)(7).................. 2,259,600 34.2% Edward L. Palmer(6)(7)(8).................... 26,464 * Glenn C. Riker(5)............................ 6,427 * All directors and executive officers as a group (12 persons)(3)(4)(5)(6)............. 2,735,539 38.9% ___________________ * Represents less than 1% of outstanding Common Stock. (1) Each director and executive officer has sole voting and investment power with respect to the shares beneficially owned, except as otherwise noted in the footnotes to this table. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of Common Stock which such person has the right to acquire on or within 60 days of April 18, 2 1997. For purposes of computing the percentage of outstanding Common Stock held by each person or group of persons named above, any shares which such person has the right to acquire on or within 60 days after April 18, 1997 are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. (2) With respect to warrants held by the Institutions, including John Hancock Mutual Life Insurance Company and The Mutual Life Insurance Company, such warrants have been adjusted (subject to notification of the Institutions) in accordance with the anti-dilution provisions contained therein to increase the number of shares purchasable and to reduce the exercise thereof. Includes shares issuable upon the exercise of warrants having a current exercise price of $10.17 per share, as follows: John Hancock Mutual Life Insurance Company and affiliates - 71,799; and The Mutual Life Insurance Company of New York and affiliates - 44,893. With respect to HP Partners L.P., includes 685,714 shares of Common Stock issuable upon the exercise of warrants having a current exercise price of $4.58 per share. The information in the foregoing table and in this note is based on the Company's records and on either a Schedule 13D or a Schedule 13G filed with the Securities and Exchange Commission by each of the following stockholders and dated as indicated: HP Partners L.P., dated January 20, 1995; John Hancock Mutual Life Insurance Company, dated January 16, 1996; The Mutual Life Insurance Company of New York, dated March 2, 1995; TJS Partners, L.P., dated June 17, 1996; and Stephen Feinberg, dated October 11, 1996. The Schedule 13D filed by TJS Partners, L.P. states that TJS Management, L.P., TJS Corporation and Thomas J. Salvatore may be deemed to own beneficially the shares owned beneficially by TJS Partners, L.P. (3) 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 18, 1997. (4) Includes 1,515,886 shares of Common Stock and warrants to purchase 685,714 shares of Common Stock owned by HP Partners. Messrs. Hauser, Mitchell and Spier (a former director of the Company) are stockholders and directors of the general partner of HP Partners, and Messrs. Mitchell and Spier are also limited partners of HP Partners. Messrs. Hauser, Mitchell and Spier are also the sole stockholders of the special limited partner of HP Partners which is entitled to various rights relating to 285,714 of the partnership's warrants. Pursuant to HP Partners' 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. See "Certain Transactions". (5) Includes vested options granted under the Company's Amended and Restated Senior Executives' Option Plan (the "Executive 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 $13.30 for 30 consecutive trading days. Such condition had been met as of April 18, 1997. Also includes vested options granted under the 1996 Plan to Mr. Riker to purchase 2,000 shares of Common Stock. Excludes options granted to Mr. Riker under the 1994 Plan and the 1996 Plan which have not yet vested to purchase 4,427 and 8,000 shares of Common Stock, respectively. 3 (6) Includes vested options granted under the 1996 Plan to each of Messrs. Besuchet, Carroll, Glenn, Hauser, Lyons, Mitchell, Palmer, Flagg, Boehme, Irving and Stern to purchase 25,000, 25,000, 25,000, 40,000 85,000, 55,000, 25,000, 104,000, 78,000, 10,000 and 5,000 shares of Common Stock, respectively. Excludes options granted under the 1996 Plan which have not yet vested to each of Messrs. Flagg, Boehme, Irving and Stern to purchase 156,000, 117,000, 15,000, and 20,000 shares of Common Stock, respectively. (7) The address of such stockholder is: c/o Holmes Protection Group, Inc., 440 Ninth Avenue, New York, New York 10001-1695. 4 EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth a summary of annual and long-term compensation earned by or paid to the Named Officers for services rendered to the Company during each of the last three fiscal years: SUMMARY COMPENSATION TABLE
Long-Term Compensation ANNUAL AWARDS ----------------------- ----------------------------- Securities Other Annual UNDERLYING OPTIONS/ All Other SALARY BONUS COMPENSATION SARS COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)(1) ---- ----- ------- --- --- ------ George V. Flagg............ 1994 $ -- -- $ -- -- $ -- President and 1995 -- -- -- -- -- Chief Executive Officer 1996 196,154 -- 12,750 260,000(2) 4,763 James L. Boehme............ 1994 $ -- -- -- -- -- Executive Vice President - 1995 -- -- -- -- -- Sales and Marketing 1996 147,115 -- 12,750 195,000(2) 4,748 Glenn C. Riker............. 1994 88,150 12,782 13,000 8,854(3) 3,209 Senior Vice President- 1995 91,260 20,716 13,000 -- 3,476 Human Resources 1996 93,445 9,125 13,000 10,000(3) 3,691 Lawrence R. Irving......... 1994 -- -- -- -- -- Vice President - Finance 1995 -- -- -- -- -- 1996 68,654 20,000 31,800 25,000(5) --
(1) Represents matching contributions by the Company under the Company's 401(k) Plan. 20% of accrued matching contributions become vested on each of the second through sixth anniversaries of employment and are fully vested thereafter. (2) Represents a grant of stock options made in January 1996 under the 1996 Plan, subject to approval, which was granted, of the 1996 Plan by stockholders of the Company at the 1996 Annual Meeting of Stockholders in December 1996. (3) 1994 option grants replaced a like number of options previously granted under the Executive Plan to Mr. Riker in 1992. 5 (4) Represents a grant of stock options made in December 1995 under the 1996 Plan, subject to approval, which was granted, of the 1996 Plan by stockholders of the Company at the 1996 Annual Meeting of Stockholders in December 1996. (5) Represents a grant of stock options made in May 1996 under the 1996 Plan, subject to approval, which was granted, of the 1996 Plan by stockholders of the Company at the 1996 Annual Meeting of Stockholders in December 1996. All information under "Executive Compensation" herein relating to stock options (except for those granted under the 1996 Plan) and related exercise and hurdle prices have been adjusted to give effect to the one-for-fourteen reverse stock split of the Common Stock effected on March 27, 1995. The following table contains information concerning the grant of stock options made to the Named Officers during the fiscal year ended December 31, 1996 under the Executive Plan or the 1996 Plan: OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants Percent of Market Number of Total Price Securities Option/SARs on NAME Underlying Granted to Exercise or Base Grant Optionals/SARs Employees in Price Date GRANTED (#) FISCAL YEAR ($/SH) (1) ($/SH) George V. Flagg....... 260,000 25.9% $6.00-$10.00(3) $6.00 James L. Boehme....... 195,000 19.5% $6.00-$10.00(3) $6.00 Glen C. Riker......... 10,000 1.0% $12.00 $12.00 Lawrence R. Irving.... 25,000 2.5% $8.50 $8.50 Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1) NAME Expiration DATE 5% 10% George V. Flagg....... 1/7/2006 $962,893 $2,312,485 James L. Boehme....... 1/7/2006 $722,170 $1,734,364 Glenn C. Riker........ 11/4/2006 $75,467 $191,249 Lawrence R. Irving.... 5/5/2006 $133,640 $338,670
(1) Once vested, all options which have been granted under the Executive Plan 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 18, 6 1997. The 1996 Plan was approved by the Company's stockholders at the 1996 Annual Meeting of Stockholders in December 1996. (2) Amounts indicated under the "Potential Realizable Value" columns above have been calculated by multiplying the market price on the date of grant by the annual appreciation rate shown (compounded for the term of the options), subtracting the exercise price per share and multiplying the gain per share by the number of shares covered by the options. (3) Upon shareholder approval of the 1996 Plan at the 1996 Annual Meeting of Stockholders, one-fifth of the total number of options granted vested immediately at an exercise price of $6.00 per share. With respect to the remaining options, one-fifth of the total number of options granted will vest on each January 2nd of the years 1997 through 2000 at an exercise price at each of said dates which is $1.00 greater than the prior year's exercise price (i.e., $7.00 on January 2, 1997, $8.00 on January 2, 1998, $9.00 on January 2, 1999 and $10.00 on January 2, 2000). Except as disclosed above, no other grants of stock options were made in the fiscal year ended December 31, 1996 to any of the Named Officers. No stock options were exercised by any of the Named Officers during the fiscal year ended December 31, 1996. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES Value of Unexercised Number of Securities In-the-Money Underlying Unexercised Options/SARs Options/SARs at Fiscal at Fiscal Year-End (#) Year-End ($) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE George V. Flagg......... 52,000/208,000 (2) $442,000/$1,248,000 James L. Boehme......... 39,000/156,000 (2) $331,500/$936,000 Glenn C. Riker.......... 6,427/12,427 (1)(2) $5,000/$20,000 Lawrence R. Irving...... 5,000/20,000 (2) $30,000/$120,000 (1) Options were granted pursuant to the Executive Plan. (2) Options were granted pursuant to the 1996 Plan. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In 1994, Mr. William Spier, a former director of the Company who resigned on September 30, 1996, entered into an agreement with PremiTech Corporation ("PremiTech"), which is a limited partner of HP Partners, to acquire PremiTech's limited partnership interest for approximately $2,000,000, at the option of PremiTech, in the event that PremiTech did not enter into an agreement for the provision of information technology services to the Company. Such information technology 7 agreement was subsequently executed on April 4, 1995, thereby terminating PremiTech's option to sell its interest in HP Partners to Mr. Spier. Pursuant to HP Partners' 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. On December 5, 1995, each of Messrs. Hauser, Lyons, Mitchell and Spier were granted options under the 1996 Plan, subject to stockholder approval of the 1996 Plan, to purchase 15,000, 60,000, 30,000 and 15,000 shares of Common Stock, respectively, at an exercise price of $5.56 per share. Such grants were made in recognition of the extraordinary services that each of these individuals provided to the Company in connection with the management transition and reorganization that occurred during 1995. The 1996 Plan was approved by stockholders in December 1996 at the Company's 1996 Annual Meeting of Stockholders. EMPLOYMENT AGREEMENTS Mr. Flagg is employed by the Company pursuant to an employment agreement dated January 8, 1996, which expires on December 31, 1996, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Flagg's employment agreement provides for an annual base salary of no less than $200,000. Mr. Boehme is employed by the Company pursuant to an employment agreement dated January 8, 1996, which expires on December 31, 1996, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Boehme's employment agreement provides for an annual base salary of no less than $150,000. Mr. Irving is employed by the Company pursuant to an employment agreement dated May 13, 1996, which expires on December 31, 1998, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Irving's employment agreement provides for an annual base salary of no less than $105,000. Mr. Stern is employed by the Company pursuant to an employment agreement dated as of December 2, 1996, which expires on December 31, 1998, but continues year-to-year thereafter unless terminated in accordance with its terms. Mr. Stern's employment agreement provides for an annual base salary of no less than $140,000. The salaries provided under all of these employment agreements may be increased at the discretion of the Board of Directors or the Compensation Committee thereof. Under the terms of Messrs. Flagg's, Boehme's, Irving's and Stern's respective employment agreements, options were granted to purchase shares of Common Stock under the 1996 Plan (260,000 shares in the case of Mr. Flagg, 195,000 shares in the case of Mr. Boehme and 25,000 shares each in the case of Messrs. Irving and Stern). Messrs. Flagg, Boehme, Irving and Stern are also provided with certain other benefits and perquisites pursuant to their respective employment agreements. Upon termination of employment with the Company, Messrs. Flagg, Boehme, Irving and Stern are each subject to a non-compete period of six months. In accordance with Messrs. Flagg's, Boehme's, Irving's and Stern's respective employment agreements, upon a termination of employment by the Company for reasons other than (i) "Cause," (ii) "Disability" (each as defined in such employment agreements), or (iii) death, or adjudicated incompetency, the Company will be obligated to pay to each of Messrs. Flagg, Boehme, Irving and Stern the greater of 12 months' base salary or base salary for the balance of the remaining term of the respective employment agreement, and to maintain certain benefits. Upon termination of employment by the Company within 12 months of a "Change-of-Control Event" (as defined below), Messrs. Flagg, Boehme, Irving and Stern shall each be entitled to receive their respective base salaries and certain 8 other benefits for an additional period of 12 months. As defined in Messrs. Flagg's, Boehme's, Irving's and Stern's respective employment agreements, a "Change-of-Control Event" means the consummation of (i) a proxy contest for control of the Board of Directors resulting in the person or entity or group of affiliated persons or entities (collectively, a "Control Group") initiating such proxy contest electing a majority of the members of the Board of Directors; (ii) the purchase by a Control Group of the Common Stock or other securities of the Company which, when aggregated with any other securities of the Company then held by such Control Group, gives such Control Group "beneficial ownership" (as defined in Rule 13d-3 promulgated under the Exchange Act) of securities representing more than 50% of the combined voting power of the Company; or (iii) any such transaction that the Board of Directors shall have favorably recommended to stockholders of the Company at any time prior to its consummation, and such recommendation shall not have been withdrawn. Mr. Riker was employed by the Company pursuant to an employment agreement dated October 12, 1994, which expired on December 31, 1996, and which provided for an annual base salary of $91,260. The Company and Mr. Riker have agreed to enter into a new employment agreement on terms substantially similar to those set forth in the employment agreements of Messrs. Flagg, Boehme, Irving and Stern. It is anticipated that Mr. Riker's employment agreement will provide for an annual base salary of no less than $100,000. Upon the occurrence of a "Change-of-Control Event," the Company's maximum aggregate salary payment obligation would be $1,435,000. Such amount is calculated by combining the 1997 base salaries of each of Messrs. Flagg, Boehme, Irving, Stern and Mr. Riker (assuming a new employment agreement is entered into) for a period of 24 months. COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS The Compensation Committee establishes compensation policies and practices for the Company, outlines objectives for the Company's executive officers and sets the compensation of the executive officers, certain highly compensated employees and the Board of Directors. Additionally, the Compensation Committee is charged with the administration of the Company's employee benefit plans, including stock option plans. General Policies Regarding Compensation of Executive Officers The Company's executive compensation policies are designed to attract and retain superior management and professional talent, to motivate those individuals to maximize shareholder value, and to reward those individuals with increases in base salary, bonuses when performance objectives are achieved, and appropriate stock options. Together these components link each executive's compensation directly to individual and Company performance. The initial base salary and terms of bonuses for certain executive officers are contained in the employment agreements described under the caption "Employment Agreements". Salary. Individual base salaries reflect the level of responsibility, the experience and training required, and the executive's ability to contribute to the Company's success. Salaries are reviewed at least annually and are increased on the recommendation of the Chief Executive Officer to the Compensation Committee, which is empowered to take final action. The base salaries specified in each executive's employment agreement may from time to time be adjusted, subject to the minimum salary levels specified therein. 9 Bonuses. In 1996, the Company established the 1996 Incentive Compensation Plan (the "Incentive Plan") which is designed to reward executive officers and certain other employees for exceptional performance. The actual awards under the Incentive Plan are recommended by a senior management committee, including the Chief Executive Officer, and approved by the Compensation Committee. The bonus opportunity for eligible participants is based on their level of responsibility, their performance and the performance by the Company. Bonus awards for eligible participants range from 15% to 50% of their base salaries. In fiscal year ended December 31, 1996, actual awards granted to the Named Officers under the Incentive Plan ranged from 0% to 19% of the base salary. In addition to bonus payments under the Incentive Plan, the Chief Executive Officer may from time to time recommend, subject to the Compensation Committee's approval, additional discretionary bonus payments to certain executive officers based on exceptional individual performance and unique contributions to the Company. Stock Options. The Compensation Committee believes that continued use of stock options is an effective mechanism for long-term incentive compensation of executive officers and certain other employees. Such compensation, the Compensation Committee believes, effectively links the actions of these officers and employees to the interests of stockholders and is critical to the Company's remaining competitive in its compensation practices. Accordingly, the Company adopted the 1996 Plan described herein. As a result of stockholder approval of the 1996 Plan in December 1996, no further grants will be made under the Executive Plan. Compensation Limitations. In 1993, the Internal Revenue Code was amended to limit the deductibility of compensation paid to certain executives in excess of $1 million. Compensation not subject to the limitation includes certain compensation payable solely because an executive attains performance goals. The Company's compensation deduction for a particular executive's total compensation, including compensation realized from the exercise of stock options, will be limited to $1 million. The Compensation Committee believes that the compensation paid by the Company in the fiscal year ended December 31, 1996 will not result in any material loss of tax deductions for the Company. Compensation of the Chief Executive Officer Mr. Flagg's annual base salary of $200,000 for the fiscal year ended December 31, 1996 was determined by the terms of his employment agreement, dated January 8, 1996. The Compensation Committee believes that the compensation earned by Mr. Flagg in 1996 pursuant to his employment agreement was appropriate in light of Mr. Flagg's substantial contribution to improving the efficiency of the Company's operations and his efforts toward positioning the Company's business for future growth. Among other things, Mr. Flagg's contribution and efforts were instrumental in effecting an over 10% reduction in selling, general and administration expenses of the Company in 1996 as compared to 1995, securing a new, two-year, $25 million credit facility for the Company, initiating and implementing a strategic acquisition strategy, enhancing and expanding the Company's national accounts program and promoting and executing the Company's public offering of Common Stock in September 1996. Members of the Compensation Committee Pierre Besuchet Daniel T. Carroll (Chairman) David J. Mitchell 10 Edward L. Palmer 11 EX-99.2 3 EXHIBIT 2 AGMT AND PLAN OF MERGER, D/D/ 12/28/97 HOLMES PROTECTION GROUP, INC., TYCO INTERNATIONAL LTD. and T9 ACQUISITION CORP. ___________________________________________ ___________________________________________ AGREEMENT AND PLAN OF MERGER ______________________________ ______________________________ ___________________________________________ ___________________________________________ Dated as of December 28, 1997 _________________________________________________________ _________________________________________________________ TABLE OF CONTENTS PAGE ARTICLE I. TENDER OFFER AND MERGER 1.1. The Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.2. Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 1.3. Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.4. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.5. Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.6. Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.7. Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . .7 1.8. Surrender of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.9. Options, Warrants and Convertible Securities . . . . . . . . . . . . . .9 1.10. Certificate of Incorporation and Bylaws. . . . . . . . . . . . . . . . 11 1.11. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 12 1.12. Other Effects of Merger. . . . . . . . . . . . . . . . . . . . . . . . 12 1.13. Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.14. Additional Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.15. Merger Without Meeting of Stockholders.. . . . . . . . . . . . . . . . 13 1.16. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . 13 1.17. Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 2.1. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . 14 2.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.4. Authorization; Binding Agreement . . . . . . . . . . . . . . . . . . . 16 2.5. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . 16 2.6. No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.7. Securities Filings . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.8. Company Financial Statements . . . . . . . . . . . . . . . . . . . . . 18 2.9. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . 18 2.10. No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . 18 2.11. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.12. Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.13. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.14. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 20 2.16. Taxes and Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.17. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . 25 2.18. Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.19. Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.20. Limitation on Business Conduct . . . . . . . . . . . . . . . . . . . . 27 2.21. Title to Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.22. Leased Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.23. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . 28 2.24. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.25. Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.26. Interested Party Transactions. . . . . . . . . . . . . . . . . . . . . 29 2.27. Alarm Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.28. Finders and Investment Bankers . . . . . . . . . . . . . . . . . . . . 30 i 2.29. Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.30. Takeover Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.31. Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER 3.1. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . 31 3.2. Authorization; Binding Agreement . . . . . . . . . . . . . . . . . . . 31 3.3. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . 31 3.4. No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.5. Disclosure Documents . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.6. Finders and Investment Bankers . . . . . . . . . . . . . . . . . . . . 32 3.7. Financing Arrangements.. . . . . . . . . . . . . . . . . . . . . . . . 32 3.8. No Prior Activities. . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE IV. ADDITIONAL COVENANTS OF THE COMPANY 4.1. Conduct of Business of the Company and the Company Subsidiaries . 33 4.2. Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . 36 4.3. Access and Information . . . . . . . . . . . . . . . . . . . . . . . . 36 4.4. Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . 36 4.5. Reasonable Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . 37 4.6. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.7. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.8. No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.9. SEC and Stockholder Filings. . . . . . . . . . . . . . . . . . . . . . 40 4.10. Takeover Statutes. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 ARTICLE V. ADDITIONAL COVENANTS OF PURCHASER AND PARENT 5.1. Reasonable Best Efforts. . . . . . . . . . . . . . . . . . . . . . . . 40 5.2. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . 40 5.3. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 5.4. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 41 5.5. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.6. Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 5.7. Guarantee of Parent. . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE VI. MERGER CONDITIONS 6.1. Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.2. Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . 43 6.3. No Injunction or Action. . . . . . . . . . . . . . . . . . . . . . . . 43 6.4. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE VII. TERMINATION AND ABANDONMENT 7.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 7.2. Effect of Termination and Abandonment. . . . . . . . . . . . . . . . . 45 ii ARTICLE VIII. MISCELLANEOUS 8.1. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 8.2. Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . 47 8.3. Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . . . 47 8.4. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8.5. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 8.6. Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . 49 8.7. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 8.8. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.10. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.12. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.13. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . 51 8.14. Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.15. Disclosure Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Annex I Glossary of Defined Terms iii AGREEMENT AND PLAN OF MERGER This Agreement and Plan of Merger (this "AGREEMENT") is made and entered into as of December 28, 1997, by and among HOLMES PROTECTION GROUP, INC., a Delaware corporation (the "COMPANY"), TYCO INTERNATIONAL LTD., a Bermuda company ("PARENT"), and T9 ACQUISITION CORP., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("PURCHASER"). W I T N E S S E T H: WHEREAS, the respective Boards of Directors of the Company, Purchaser and Parent have approved the acquisition by Purchaser of the Company; and WHEREAS, in furtherance thereof, it is proposed that Purchaser will make a cash tender offer (the "OFFER") to acquire all of the issued and outstanding shares ("SHARES") of common stock, $.01 par value, of the Company ("COMPANY STOCK"), for $17.00 per Share, or such higher price as may be paid in the Offer (the "PER SHARE AMOUNT"), in each case net to the seller in cash without interest; and WHEREAS, also in furtherance of such acquisition, the respective Boards of Directors of the Company, Purchaser and Parent have each approved the merger (the "MERGER") of Purchaser with and into the Company following the Offer in accordance with the laws of the State of Delaware; and WHEREAS, the Board of Directors of the Company has approved and resolved to recommend acceptance of the Offer and the Merger to the holders of Shares and has determined that the consideration to be paid for each Share in the Offer and the Merger is fair to and in the best interest of the holders of such Shares and to recommend that the holders of such Shares accept the Offer and approve this Agreement and the transactions contemplated hereby; and WHEREAS, the Company, Purchaser and Parent desire to make certain representations, warranties and agreements in connection with, and establish various conditions precedent to, the transactions contemplated hereby; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE I TENDER OFFER AND MERGER 1.1. THE OFFER. (a) Provided that this Agreement shall not have been terminated in accordance with SECTION 7.1 hereof and that none of the events set forth in ANNEX I hereto shall have occurred and be existing, Purchaser shall commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "SECURITIES EXCHANGE ACT")) the Offer as promptly as practicable, but in no event later than five business days following the first public announcement of the Offer, and shall use reasonable best efforts to consummate the Offer. The obligation of Purchaser to accept for payment any Shares tendered shall be subject to the satisfaction of only those conditions set forth in ANNEX I hereto. The Per Share Amount shall be net to each seller in cash, subject to reduction only for any applicable federal back-up withholding or stock transfer taxes payable by such seller. The Company agrees that no Shares held by the Company (or any of its direct or indirect subsidiaries) will be tendered pursuant to the Offer. Without the prior written consent of the Company, Purchaser shall not (i) decrease the Per Share Amount or change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought in the Offer, (iii) amend or waive satisfaction of the Minimum Condition (as defined in ANNEX I hereto) or (iv) impose additional conditions to the Offer or amend any other term of the Offer in any manner adverse to the holders of the Shares. The Offer shall initially expire twenty (20) business days after the date of its commencement, unless this Agreement is terminated in accordance with ARTICLE VII hereof, in which case the Offer (whether or not previously extended in accordance with the terms hereof) shall expire on such date of termination. Purchaser agrees that it shall not terminate or withdraw the Offer or extend the expiration date of the Offer unless at the expiration date of the Offer the conditions to the Offer described in ANNEX I hereto shall not have been satisfied or earlier waived. Notwithstanding the foregoing, Purchaser may, without the consent of the Company, extend the Offer at any time, and from time to time, (x) if at the then scheduled expiration date of the Offer any of the conditions to Purchaser's obligation to accept for payment and pay for Shares shall not have been satisfied or waived, until such time as such conditions are satisfied or waived; (ii) for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or its staff applicable to the Offer; or (iii) if all conditions to Purchaser's obligation to accept for payment and pay for Shares are satisfied or waived but the number of Shares tendered is less than 90% of the then outstanding number of Shares, for an aggregate period of not more than ten (10) business days (for all such extensions) beyond the latest expiration date that would be permitted under clause (i) or (ii) of this sentence. -2- The Offer shall be made by means of an offer to purchase (the "OFFER TO PURCHASE") having only the conditions set forth in ANNEX I hereto. As soon as practicable on the date the Offer is commenced, Purchaser shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all amendments and supplements thereto, the "SCHEDULE 14D-1") with respect to the Offer that will comply in all material respects with the provisions of, and satisfy in all material respects the requirements of, such Schedule 14D-1 and all applicable federal securities laws and will contain (including as an exhibit) or incorporate by reference the Offer to Purchase and forms of the related letter of transmittal and summary advertisement (which documents, together with any supplements or amendments thereto, and any other SEC schedule or form which is filed in connection with the Offer and related transactions, are referred to collectively herein as the "OFFER DOCUMENTS"). Each of Parent, Purchaser and the Company agrees promptly to correct any information provided by it for use in the Schedule 14D-1 or the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect and to supplement the information provided by it specifically for use in the Schedule 14D-1 or the Offer Documents to include any information that shall become necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and Purchaser further agrees to take all steps necessary to cause the Schedule 14D-1, as so corrected or supplemented, to be filed with the SEC and the Offer Documents, as so corrected or supplemented, to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review and comment on any Offer Documents before they are filed with the SEC. Upon the terms and subject to the conditions of the Offer, Purchaser shall accept for payment and pay for Shares as soon as permitted under the terms of the Offer and applicable law. -3- 1.2. COMPANY ACTION. (a) The Company hereby approves and consents to the Offer and represents and warrants that the Board of Directors of the Company, at a meeting duly called and held on December 26, 1997, at which a majority of the Directors was present, duly approved and adopted this Agreement and the transactions contemplated hereby, including the Offer and the Merger, recommended that stockholders of the Company accept the Offer, tender their Shares pursuant to the Offer and approve this Agreement and the transactions contemplated hereby, including the Merger, and determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to and in the best interests of the stockholders of the Company. The Company hereby consents to the inclusion in the Offer Documents of such recommendation of the Board of Directors of the Company. The Company represents that its Board of Directors has received the written opinion (the "FAIRNESS OPINION") of J.P. Morgan Securities Inc. (the "FINANCIAL ADVISOR") that the proposed consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view. The Company has been authorized by the Financial Advisor to permit, subject to the prior review and consent by the Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the Fairness Opinion (or a reference thereto) in the Offer Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy Statement (as hereinafter defined). The Company shall file with the SEC, as promptly as practicable after the filing by Parent of the Schedule 14D-1 with respect to the Offer, a Tender Offer Solicitation/ Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the "SCHEDULE 14D-9") that will comply in all material respects with the provisions of all applicable federal securities laws. The Company shall mail such Schedule 14D-9 to the stockholders of the Company as promptly as practicable after the commencement of the Offer. The Schedule 14D-9 and the Offer Documents shall contain the recommendations of the Board of Directors of the Company described in SECTION 1.2(A) hereof. The Company agrees promptly to correct the Schedule 14D-9 if and to the extent that it shall become false or misleading in any material respect (and each of Parent and Purchaser, with respect to written information supplied by it specifically for use in the Schedule 14D-9, shall promptly notify the Company of any required corrections of such information and cooperate with the Company with respect to correcting such information) and to supplement the information contained in the Schedule 14D-9 to include any information that shall become necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company shall take all steps necessary to cause the Schedule 14D-9 as so corrected or supplemented to be filed with the SEC and disseminated to holders of Shares to the extent required by applicable federal securities laws. Purchaser and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 before it is filed with the SEC. -4- In connection with the Offer, the Company shall promptly upon execution of this Agreement furnish Purchaser with mailing labels containing the names and addresses of all record holders of Shares and security position listings of Shares held in stock depositories, each as of a recent date, and shall promptly furnish Purchaser with such additional information reasonably available to the Company, including updated lists of stockholders, mailing labels and security position listings, and such other information and assistance as Purchaser or its agents may reasonably request for the purpose of communicating the Offer to the record and beneficial holders of Shares. 1.3. DIRECTORS. Promptly upon the purchase by Parent of Shares pursuant to the Offer (and provided that the Minimum Condition has been satisfied), Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Parent, subject to compliance with Section 14(f) of the Securities Exchange Act, representation on the Board of Directors of the Company equal to at least that number of directors which equals the product of the total number of directors on the Board of Directors of the Company (giving effect to the directors appointed or elected pursuant to this sentence and including current directors serving as officers of the Company) multiplied by the percentage that the aggregate number of Shares beneficially owned by Parent or any affiliate of Parent (including for purposes of this SECTION 1.3 such Shares as are accepted for payment pursuant to the Offer, but excluding Shares held by the Company) bears to the number of Shares outstanding. At such time, if requested by Parent, the Company will also cause each committee of the Board of Directors of the Company to include persons designated by Parent constituting the same percentage of each such committee as Parent's designees are of the Board of Directors of the Company. The Company shall, upon request by Parent, promptly increase the size of the Board of Directors of the Company or exercise reasonable best efforts to secure the resignations of such number of directors as is necessary to enable Parent's designees to be elected to the Board of Directors of the Company in accordance with the terms of this SECTION 1.3 and to cause Parent's designees so to be elected; PROVIDED, HOWEVER, that, in the event that Parent's designees are appointed or elected to the Board of Directors of the Company, until the Effective Time (as hereinafter defined) the Board of Directors of the Company shall have at least two directors who are directors on the date hereof and each of whom is neither an officer of the Company nor a designee, shareholder, affiliate or associate (within the meaning of the federal securities laws) of Parent (such directors, the "INDEPENDENT DIRECTORS"); PROVIDED FURTHER, that if no Independent Directors remain, the other directors shall designate one person to fill one of the vacancies who shall be neither an officer of the Company nor a designee, shareholder, affiliate or associate of Parent, and such person shall be deemed to be an Independent Director for purposes of this Agreement. Subject to applicable law, the Company shall promptly take all action necessary pursuant to Section 14(f) of the Securities Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill its obligations under this SECTION 1.3 and -5- shall include in the Schedule 14D-9 mailed to stockholders promptly after the commencement of the Offer (or in an amendment thereof or an information statement pursuant to Rule 14f-1 if Parent has not theretofore designated directors) such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this SECTION 1.3. Parent will supply the Company and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by such Section 14(f) and Rule 14f- 1. Notwithstanding anything in this Agreement to the contrary, prior to the Effective Time, the affirmative vote of a majority of the Independent Directors shall be required to (i) amend or terminate this Agreement on behalf of the Company, (ii) exercise or waive any of the Company's rights or remedies hereunder, (iii) extend the time for performance of Parent's obligations hereunder, (iv) take any other action by the Company in connection with this Agreement required to be taken by the Board of Directors of the Company or (v) amend the Company's Certificate of Incorporation or the Company's Bylaws, each as in effect on the date of this Agreement. 1.4. THE MERGER. Upon the terms and subject to the conditions of this Agreement, the Merger shall be consummated in accordance with the Delaware General Corporation Law (the "DELAWARE CODE"). At the Effective Time (as defined in SECTION 1.5 hereof), upon the terms and subject to the conditions of this Agreement, Purchaser shall be merged with and into the Company in accordance with the Delaware Code and the separate existence of Purchaser shall thereupon cease, and the Company, as the surviving corporation in the Merger (the "SURVIVING CORPORATION"), shall continue its corporate existence under the laws of the State of Delaware as an indirect subsidiary of Parent. The parties shall prepare and execute a certificate of merger (the "CERTIFICATE OF MERGER") in order to comply in all respects with the requirements of the Delaware Code and with the provisions of this Agreement. 1.5. EFFECTIVE TIME. The Merger shall become effective at the time of the filing of the Certificate of Merger with the Secretary of State of Delaware in accordance with the applicable provisions of the Delaware Code or at such later time as may be specified in the Certificate of Merger. As soon as practicable after all of the conditions set forth in ARTICLE VI of this Agreement have been satisfied or waived by the party or parties entitled to the benefit of the same, the parties hereto shall cause the Merger to become effective. Parent and the Company shall mutually determine the time of such filing and the place where the closing of the Merger (the "CLOSING") shall occur. The time when the Merger shall become effective is herein referred to as the "EFFECTIVE TIME", and the date on which the Effective Time occurs is herein referred to as the "CLOSING DATE." 1.6. CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, the Company or the holder of any of the securities -6- specified below: Each Share issued and outstanding immediately before the Effective Time (other than any Dissenting Shares (as hereinafter defined) and Shares to be canceled pursuant to SECTION 1.6(B)) shall be canceled and extinguished and be converted into the right to receive the Per Share Amount in cash payable to the holder thereof, without interest, upon surrender of the certificate representing such Share in accordance with SECTION 1.8 hereof. From and after the Effective Time, the holders of certificates evidencing ownership of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable Law. Each Share held in the treasury of the Company and each Share owned by Parent or any direct or indirect wholly owned subsidiary of Parent immediately before the Effective Time shall be canceled and extinguished, and no payment or other consideration shall be made with respect thereto. The shares of Purchaser common stock outstanding immediately prior to the Merger shall be converted into 1,000 shares of the common stock of the Surviving Corporation (the "SURVIVING CORPORATION COMMON STOCK"), which shares of the Surviving Corporation Common Stock shall constitute all of the issued and outstanding capital stock of the Surviving Corporation and shall be owned by an indirect subsidiary of Parent. 1.7. DISSENTING SHARES. (a) Notwithstanding any provision of this Agreement to the contrary, any Shares issued and outstanding immediately prior to the Effective Time and held by a holder who has demanded and perfected his demand for appraisal of his Shares in accordance with the Delaware Code (including but not limited to Section 262 thereof), and as of the Effective Time has neither effectively withdrawn nor lost his right to such appraisal ("DISSENTING SHARES"), shall not be converted into or represent a right to receive cash pursuant to SECTION 1.6 hereof, but the holder thereof shall be entitled to only such rights as are granted by the Delaware Code. Notwithstanding the provisions of SECTION 1.7(A) hereof, if any holder of Shares who demands appraisal of his Shares under the Delaware Code shall effectively withdraw or lose (through failure to perfect or otherwise) his right to appraisal, then as of the Effective Time or the occurrence of such event, whichever occurs later, such holder's Shares shall automatically be converted into and represent only the right to receive cash as provided in SECTION 1.6 hereof, without interest thereon, upon surrender of the certificate or certificates representing such Shares. The Company shall give Purchaser (i) prompt notice of any written demands for appraisal or payment of the fair value of any Shares, withdrawals of such demands and any other instruments served pursuant to the Delaware Code received -7- by the Company after the date hereof and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the Delaware Code. The Company shall not voluntarily make any payment with respect to any demands for appraisal and shall not, except with the prior written consent of Parent, settle or offer to settle any such demands. 1.8. SURRENDER OF SHARES. (a) Prior to the Effective Time, Purchaser shall appoint Chase Mellon Shareholder Services or such other commercial bank or trust company designated by Purchaser and reasonably acceptable to the Company to act as exchange agent hereunder (the "Exchange Agent") for the payment of the Per Share Amount upon surrender of certificates representing the Shares. All of the fees and expenses of the Exchange Agent shall be borne by Purchaser. (b) Parent shall cause the Surviving Corporation to provide the Exchange Agent with cash in amounts necessary to pay for all of the Shares pursuant to SECTION 1.8(C) hereof when and as such amounts are needed by the Exchange Agent. (c) On the Closing Date, Purchaser shall instruct the Exchange Agent to mail to each holder of record of a certificate representing any Shares canceled upon the Merger pursuant to SECTION 1.6(A) hereof, within five business days of receiving from the Company a list of such holders of record, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates shall pass, only upon delivery of the certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for use in effecting the surrender of the certificates. Each holder of a certificate or certificates representing any Shares canceled upon the Merger pursuant to SECTION 1.6(A) hereof may thereafter surrender such certificate or certificates to the Exchange Agent, as agent for such holder, to effect the surrender of such certificate or certificates on such holder's behalf for a period ending one year after the Effective Time. Upon the surrender of certificates representing the Shares, Parent shall cause the Exchange Agent to pay the holder of such certificates in exchange therefor cash in an amount equal to the Per Share Amount multiplied by the number of Shares represented by such certificate. Until so surrendered, each such certificate (other than certificates representing Dissenting Shares) shall represent solely the right to receive the aggregate Per Share Amount relating thereto. (d) If payment of cash in respect of canceled Shares is to be made to a person other than the person in whose name a surrendered certificate or instrument is registered, it shall be a condition to such payment that the certificate or instrument so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and that the person requesting such payment shall have paid any transfer and other taxes required by reason of such payment in a name other than that of the registered holder of the certificate or instrument surrendered or shall have established to the satisfaction of Parent or the -8- Exchange Agent that such tax either has been paid or is not payable. (e) At the Effective Time, the stock transfer books of the Company shall be closed, and no transfer of Shares shall be made thereafter, other than transfers of Shares that have occurred prior to the Effective Time. In the event that, after the Effective Time, certificates are presented to the Surviving Corporation, they shall be canceled and exchanged for cash as provided in SECTION 1.6(A). (f) The Per Share Amount paid in the Merger shall be net to the holder of Shares in cash, and without interest thereon subject to reduction only for any applicable federal back-up withholding or stock transfer taxes payable by such holder. (g) Promptly following the date which is one year after the Effective Time, the Exchange Agent shall deliver to Parent all cash, certificates and other documents in its possession relating to the transactions contemplated hereby, and the Exchange Agent's duties shall terminate. Thereafter, each holder of a certificate representing Shares (other than certificates representing Dissenting Shares and certificates representing Shares held by Parent or in the treasury of the Company) may surrender such certificate to the Surviving Corporation and (subject to any applicable abandoned property, escheat or similar law) receive in consideration therefor the aggregate Per Share Amount relating thereto, without any interest thereon. (h) None of the Company, Parent, the Surviving Corporation or the Exchange Agent shall be liable to any holder of Shares for any cash delivered to a public official pursuant to any abandoned property, escheat or similar law, rule, regulation, statute, order, judgment or decree. 1.9. OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES. (a) Each of the Company and Parent shall take all reasonable actions necessary to provide that all then outstanding options to purchase Shares, whether or not then exercisable or vested (I) under the Company's 1996 Stock Incentive Plan and (II) if and to the extent required by the terms of the Company Option Plans (as hereinafter defined) other than the Company's 1996 Stock Incentive Plan, under such other Company Option Plans, shall become fully exercisable and vested upon the consummation of the Offer. Holders of options under the Company Option Plans ("COMPANY OPTIONS") that become fully exercisable and vested upon the consummation of the Offer in accordance with the provisions of the preceding sentence will have a period of sixty days following the consummation of the Offer to surrender their options to the Company in exchange for cash equal to the excess of (i) the aggregate value of the Shares underlying the options, based on the Per Share Amount, over (ii) the aggregate exercise price for the Shares underlying the options. Each of the Company and Parent shall take all reasonable actions necessary to provide that, upon consummation of the Merger, all then outstanding -9- Company Options, whether or not then exercisable or vested if and to the extent so provided in the applicable Company Option Plan, shall be converted into the right to receive, at the election of the holder, either (1) in cash, the aggregate value of the Shares underlying the options, based on the Per Share Amount, less the aggregate exercise price for the Shares underlying the options, or (2) options, exercisable on the same terms and conditions as the surrendered options (except that the option received in exchange shall be immediately exercisable) to acquire that number of common shares, par value $.20, of Parent ("PARENT SHARES") determined by multiplying, in the case of each option, (A) the number of Shares for which the surrendered option was exercisable immediately prior to the Effective Time by (B) a fraction, the numerator of which is the Per Share Amount and the denominator of which is the closing price per Parent Share on the New York Stock Exchange on the trading day immediately preceding the Closing Date. The exercise price per Parent Share for each new option issued pursuant to the foregoing clause (2) shall be an amount equal to the aggregate exercise price for the Shares underlying the surrendered option divided by the number of Parent Shares for which such new option is exercisable. "COMPANY OPTION PLANS" shall mean the Company's Amended and Restated Senior Executives' Option Plan, the Company's 1992 Directors' Option Plan and the Company's 1996 Stock Incentive Plan. (b) Each of the Company and Parent shall take all reasonable actions necessary so that the Warrants expiring August 30, 2002 (except as otherwise provided therein) to purchase 166,666 shares of Company Stock at a price of $9.75 per share, subject to adjustment (the "BANK WARRANTS"), shall be exercisable, from and after the Effective Time, for an amount of cash equal in the aggregate to the Per Share Amount multiplied by the number of Shares for which such warrants were exercisable immediately prior to the Effective Time. Each of the Company and Parent shall take all reasonable actions necessary so that the Warrants expiring August 13, 2002 to purchase 203,033 shares of Company Stock at a price of $10.17 per share, subject to adjustment, and the Warrants expiring August 1 2004 to purchase 685,714 shares of Company Stock at a price of $4.58 per share, subject to adjustment (collectively, the "OTHER WARRANTS" and, with the Bank Warrants, the "COMPANY WARRANTS"), shall be exercisable, from and after the Effective, at the election of the holder as provided in the applicable Other Warrant, for either (i) an amount of cash equal in the aggregate to the Per Share Amount multiplied by the number of Shares for which such warrants were exercisable immediately prior to the Effective Time or (ii) a number of Parent Shares equal to the product of (I) the number of Shares for which such warrants were exercisable immediately prior to the Effective Time and (II) a fraction, the numerator of which is the Per Share Amount and the denominator of which is the Current Market Price (as defined in the applicable Other Warrant) of the Parent Shares on the trading day immediately preceding the Closing Date. The exercise price per Parent Share under each Other Warrant, as adjusted pursuant to the foregoing clause (ii), shall be an amount equal to the aggregate exercise price for the Shares for which such warrant was exercisable prior to such adjustment divided by the number of Parent Shares for which such -10- warrant is exercisable as a result of such adjustment. In addition, the Company shall deliver to the holders of the applicable Other Warrants notice of the Merger, and the Parent shall deliver to the holders of the applicable Other Warrants the instruments of assumption and legal opinions required to be delivered, pursuant to the terms of the applicable Other Warrants, in connection with the Merger. Notwithstanding the forgoing provisions of this SECTION 1.9(B), any holder exercising a Company Warrant for cash in accordance with the provisions of this Section 1.9(b) shall not be required to pay the exercise price thereof and instead may receive in the aggregate upon exercise the difference between (A) the Per Share Amount multiplied by the number of Shares for which such warrants were exercisable immediately prior to the Effective Time and (B) the aggregate exercise price for the Shares underlying such warrants. (c) Each of the Company and Parent shall take all reasonable actions necessary so that the Company's Subordinated Convertible Debentures convertible into 24,810 shares of Company Stock, subject to adjustment (the "COMPANY DEBENTURES"), shall be convertible, from and after the Effective Time, into an amount of cash equal to the product of the number of Shares into which such Company Debentures were convertible immediately prior to the Effective Time multiplied by the Per Share Amount. The Company shall deliver to the holders of the Company Debentures notice of the Merger. 1.10. CERTIFICATE OF INCORPORATION AND BYLAWS. Subject to SECTION 5.5 hereof, unless otherwise determined by Parent prior to the Effective Time, at and after the Effective Time (a) the Restated Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by the Delaware Code and such Certificate of Incorporation; PROVIDED, HOWEVER, that (i) Article Fourth shall be amended and restated in its entirety to provide that the capital stock of the Surviving Corporation shall consist of 1,000 shares of Common Stock, par value $.01 per share; (ii) Article Fifth shall be amended and restated in its entirety to provide that the Surviving Corporation's Board shall consist of not less than three members, all of a single class, with the exact number to be fixed from time to time by resolution of the Board of Directors; (iii) Article Sixth shall be amended by deleting the second sentence thereof; (iv) Article Seventh shall be amended by deleting the second sentence thereof; and (v) Article Eighth shall be deleted; and (b) the Bylaws of the Surviving Corporation shall be the Bylaws of Purchaser in effect at the Effective Time (subject to any subsequent amendments). 1.11. DIRECTORS AND OFFICERS. At and after the Effective Time, the directors of Purchaser immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their successors are duly elected or appointed and qualified. -11- 1.12. OTHER EFFECTS OF MERGER. The Merger shall have all further effects as specified in the applicable provisions of the Delaware Code. 1.13. PROXY STATEMENT. (a) Following the consummation of the Offer and if required by the Securities Exchange Act because of action by the Company's stockholders necessary in order to consummate the Merger, the Company shall prepare and file with the SEC and, when cleared by the SEC, shall mail to stockholders, a proxy statement in connection with a meeting of the Company's stockholders to vote upon the adoption of this Agreement and the Merger and the transactions contemplated hereby and thereby (the "COMPANY PROPOSALS"), or an information statement, as appropriate, satisfying all requirements of the Securities Exchange Act (such proxy or information statement in the form mailed by the Company to its stockholders, together with any and all amendments or supplements thereto, is herein referred to as the "PROXY STATEMENT"). Parent will furnish the Company with such information concerning Parent and its subsidiaries as is necessary in order to cause the Proxy Statement, insofar as it relates to Parent and its subsidiaries, to comply with applicable Law. Parent agrees promptly to advise the Company if, at any time prior to the meeting of stockholders of the Company referenced herein, any Parent Information (as defined) in the Proxy Statement is or becomes incorrect or incomplete in any material respect and to provide the Company with the information needed to correct such inaccuracy or omission. Parent will furnish the Company with such supplemental information as may be necessary in order to cause the Proxy Statement, insofar as it relates to Parent and its subsidiaries, to comply with applicable Law after the mailing thereof to the stockholders of the Company. The Company and Parent agree to cooperate in making any preliminary filings of the Proxy Statement with the SEC, as promptly as practicable, pursuant to Rule 14a-6 under the Securities Exchange Act. The Company shall provide Parent for its review a copy of the Proxy Statement prior to each filing thereof, with reasonable time and opportunity for such review. Parent authorizes the Company to utilize in the Proxy Statement the information concerning Parent and its subsidiaries provided to the Company in connection with, or contained in, the Proxy Statement. 1.14. ADDITIONAL ACTIONS. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of Purchaser or the Company or otherwise to carry out this Agreement, the officers and directors of the Company and Purchaser shall be authorized to execute and deliver, in the name and on behalf of Purchaser or the Company, -12- all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of Purchaser or the Company, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement. 1.15. MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding the foregoing provisions of this ARTICLE I, in the event that Purchaser, or any other direct or indirect subsidiary of Parent, shall acquire at least 90 percent of the outstanding shares of Company Stock, the parties hereto agree to take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a meeting of stockholders of the Company, in accordance with Section 253 of the Delaware Code. 1.16. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any certificates representing shares of Company Stock shall have been lost, stolen or destroyed, the Exchange Agent shall make such payment in exchange for such lost, stolen or destroyed certificates upon the making of an affidavit of that fact by the holder thereof; PROVIDED, HOWEVER, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed. 1.17. MATERIAL ADVERSE EFFECT. When used in connection with the Company or any of its subsidiaries or Parent or any of its subsidiaries, as the case may be, the term "Material Adverse Effect" means any change, effect or circumstance that, individually or when taken together with all other similar changes, effects or circumstances that have occurred during the period relevant to the determination of such Material Adverse Effect, is or is reasonably likely to be materially adverse to the business, assets (including intangible assets), financial condition or results of operations of the Company and its subsidiaries or Parent and its subsidiaries, as the case may be, in each case taken as a whole. Changes, effects and circumstances referred to in any of the provisions of SECTION 2.15 hereof shall be deemed similar for purposes of this SECTION 1.17. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Purchaser that, except as set forth in the correspondingly numbered Sections of the letter, dated the date hereof, from the Company to Parent (the "COMPANY DISCLOSURE LETTER"): -13- 2.1. ORGANIZATION AND GOOD STANDING. The Company and each of the Company Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company and each of the Company Subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the character of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not reasonably be expected to have a Material Adverse Effect. The Company has heretofore made available to Parent accurate and complete copies of the Certificate of Incorporation and Bylaws, as currently in effect, of the Company. For purposes of this Agreement, the term "COMPANY SUBSIDIARY" shall mean any "Subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X of the SEC) of the Company. 2.2. CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of (a) 12,000,000 shares of Company Stock, and (b) 1,000,000 shares of undesignated preferred stock, par value $1.00 per share. As of November 14, 1997, (a) 6,317,291 shares of Company Stock were issued and outstanding, (b) no shares of preferred stock were issued and outstanding and (c) 7,142 shares of Company Stock were issued and held in the treasury of the Company. As of November 14, 1997, (i) no shares of Company Stock or preferred stock were held by subsidiaries of the Company, (ii) 2,087,734 shares of Company Stock were reserved for future issuance pursuant to outstanding stock options granted under the Company Option Plans, (iii) 1,055,413 shares of Company Stock were reserved for future issuance upon exercise of Company Warrants and (iv) 24,810 shares of Company Stock were reserved for issuance upon conversion of the Company Debentures. No material change in the capitalization of the Company has occurred between November 14, 1997 and the date hereof. No other capital stock of the Company is authorized or issued. All issued and outstanding shares of the Company Stock are duly authorized, validly issued, fully paid and non-assessable. Except as set forth in the Company Securities Filings (as hereinafter defined) or as otherwise contemplated by this Agreement, as of the date hereof, there are no outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive rights, options or other agreements of any kind relating to any of the outstanding, authorized but unissued or treasury shares of the capital stock or any other security of the Company, and there is no authorized or outstanding security of any kind convertible into or exchangeable for any such capital stock or other security. Except as disclosed in the Company Securities Filings, there are no obligations, contingent or other, of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of Common Stock or the capital stock of any subsidiary or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any such subsidiary or any other entity, other than pursuant to intercompany agreements, the Credit Agreement (as -14- defined in the Company Disclosure Letter), and guarantees of bank obligations of subsidiaries entered into in the ordinary course of business. The Company has in effect no shareholder rights plan or any similar plan or arrangement pursuant to which the Company's stockholders have or may obtain the right to acquire capital stock of the Company at a price below the market price thereof. 2.3. SUBSIDIARIES. SECTION 2.3 of the Company Disclosure Letter sets forth the name and jurisdiction of incorporation of each Company Subsidiary, each of which is wholly owned by the Company except as otherwise indicated in said SECTION 2.3 of the Company Disclosure Letter. All of the capital stock and other interests of the Company Subsidiaries so held by the Company are owned by it or a Company Subsidiary as indicated in said SECTION 2.3 of the Company Disclosure Letter, free and clear of any claim, lien, encumbrance or security interest with respect thereto. All of the outstanding shares of capital stock of each of the Company Subsidiaries directly or indirectly held by the Company are duly authorized, validly issued, fully paid and non-assessable and were issued free of preemptive rights and in compliance with applicable Laws. No equity securities or other interests of any of the Company Subsidiaries are or may become required to be issued or purchased by reason of any options, warrants, rights to subscribe to, puts, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of any capital stock of any Company Subsidiary, and there are no contracts, commitments, understandings or arrangements by which any Company Subsidiary is bound to issue additional shares of its capital stock, or options, warrants or rights to purchase or acquire any additional shares of its capital stock or securities convertible into or exchangeable for such shares. Except as set forth in the Company Securities Filings, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity, with respect to which interest the Company has invested or is required to invest $100,000 or more, excluding securities in any publicly traded company held for investment by the Company and comprising less than five percent of the outstanding stock of such company. 2.4. AUTHORIZATION; BINDING AGREEMENT. The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, the Merger, have been duly and validly authorized by the Company's Board of Directors, and no other corporate proceedings on the part of the Company or any Company Subsidiary are necessary to authorize the execution and delivery of this Agreement or to consummate the transactions contemplated hereby (other than the adoption of this Agreement by the stockholders holding a majority of the outstanding shares of Company Stock of the Company in accordance with the Delaware Code). This Agreement has been duly and -15- validly executed and delivered by the Company and constitutes the legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by principles of equity regarding the availability of remedies ("ENFORCEABILITY EXCEPTIONS"). 2.5. GOVERNMENTAL APPROVALS. No consent, approval, waiver or authorization of, notice to or declaration or filing with ("CONSENT") any nation or government, any state or other political subdivision thereof or any entity, authority or body exercising executive, legislative, judicial or regulatory functions of or pertaining to government, including, without limitation, any governmental or regulatory authority, agency, department, board, commission or instrumentality, any court, tribunal or arbitrator and any self-regulatory organization ("GOVERNMENTAL AUTHORITY"), on the part of the Company or any of the Company Subsidiaries is required in connection with the execution or delivery by the Company of this Agreement or the consummation by the Company of the transactions contemplated hereby other than (i) the filing of the Certificate of Merger with the Secretary of State of Delaware in accordance with the Delaware Code, (ii) filings with the SEC, (iii) filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR ACT"), (iv) consents or filings required under the Communications Act of 1934, as amended, relating to change in ownership or control of certain business radio and related licenses held by the Company or its subsidiaries and (v) those Consents that, if they were not obtained or made, would not reasonably be expected to have a Material Adverse Effect. 2.6. NO VIOLATIONS. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and compliance by the Company with any of the provisions hereof will not (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws of the Company or any of the Company Subsidiaries, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any Company Material Contract (as hereinafter defined), (iii) result in the creation or imposition of any lien or encumbrance of any kind upon any of the assets of the Company or any Company Subsidiary or (iv) subject to obtaining the Consents from Governmental Authorities referred to in SECTION 2.5 hereof, violate any applicable provision of any statute, law, rule or regulation or any order, decision, injunction, judgment, award or decree ("LAW") to which the Company or any Company Subsidiary or its assets or properties are subject, except, in the case of each of clauses (ii), (iii) and (iv) above, for any deviations from the foregoing which would not reasonably be expected to have a Material Adverse Effect. -16- 2.7. SECURITIES FILINGS. The Company has made available to Parent true and complete copies of (i) its Annual Reports on Form 10-K, as amended, for the years ended December 31, 1994, 1995 and 1996, as filed with the SEC, (ii) its proxy statements relating to all of the meetings of stockholders (whether annual or special) of the Company since January 1, 1995, as filed with the SEC, and (iii) all other reports, statements and registration statements and amendments thereto (including, without limitation, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as amended) filed by the Company with the SEC since January 1, 1997. The reports and statements set forth in clauses (i) through (iii) above, and those subsequently provided or required to be provided pursuant to this SECTION 2.7, are referred to collectively herein as the "COMPANY SECURITIES FILINGS." As of their respective dates, or as of the date of the last amendment thereof, if amended after filing, the Company Securities Filings (i) were prepared in all material respects in accordance with the requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT") and the rules and regulations promulgated thereunder, or the Exchange Act, as the case may be, and none of the Company Securities Filings contained or, as to the Company Securities Filings subsequent to the date hereof, will contain, any untrue statement of a material fact or omitted or, as to the Company Securities Filings subsequent to the date hereof, will omit, to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.8. COMPANY FINANCIAL STATEMENTS. The audited consolidated financial statements and unaudited interim financial statements of the Company included in the Company Securities Filings (the "COMPANY FINANCIAL STATEMENTS") have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and present fairly, in all material respects, the financial position of the Company and its subsidiaries as at the dates thereof and the results of their operations and cash flows for the periods then ended subject, in the case of the unaudited interim financial statements, to normal year-end audit adjustments, any other adjustments described therein and the fact that certain information and notes have been condensed or omitted in accordance with the Securities Exchange Act. 2.9. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the Company Securities Filings, since December 31, 1996, through the date of this Agreement, there has not been: (i) any event that has had or would reasonably be expected to have a Material Adverse Effect, (ii) any declaration, payment or setting aside for payment of any dividend or other distribution or any redemption or other acquisition of any shares of capital stock or securities of the Company by the Company, (iii) any material damage or loss to any material asset or property, whether or not covered by insurance, (iv) any change by the Company in accounting principles or practices, (v) any material revaluation by the Company of any of its assets, including writing down the value of inventory or writing off -17- notes or accounts receivable other than in the ordinary course of business, (vi) any sale of a material amount of property of the Company, except in the ordinary course of business, or (vii) any other action or event, involving an amount exceeding $250,000, that would have required the consent of Parent pursuant to Section 4.1 hereof had such action or event occurred after the date of this Agreement. 2.10. NO UNDISCLOSED LIABILITIES. Except as set forth in the Company Securities Filings, neither the Company nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise), except liabilities (a) in the aggregate adequately provided for in the Company's audited balance sheet (including any related notes thereto) for the fiscal year ended December 31, 1996 included in the Company's 1996 Annual Report on Form 10-K (the "1996 BALANCE SHEET"), (b) incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected on the 1996 Balance Sheet, (c) incurred since December 31, 1996 in the ordinary course of business consistent with past practice, (d) incurred in connection with this Agreement or (e) which would not reasonably be expected to have a Material Adverse Effect. 2.11. COMPLIANCE WITH LAWS. The business of the Company and each of the Company Subsidiaries has been operated in compliance with all Laws applicable thereto, except for any non-compliance which would not reasonably be expected to have a Material Adverse Effect. 2.12. PERMITS. (i) The Company and the Company Subsidiaries have all permits, certificates, licenses, approvals and other authorizations from Governmental Authorities required in connection with the operation of their respective businesses (collectively, "COMPANY PERMITS"), (ii) neither the Company nor any of its subsidiaries is in violation of any Company Permit and (iii) no proceedings are pending or, to the knowledge of the Company, threatened, to revoke or limit any Company Permit, except, in the case of each of clauses (i), (ii) and (iii) above, those the absence or violation of which would not reasonably be expected to have a Material Adverse Effect. 2.13. LITIGATION. Except as disclosed in the Company Securities Filings, there is no suit, action or proceeding ("LITIGATION") pending or, to the knowledge of the Company, threatened against the Company or any of the Company Subsidiaries which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Authority outstanding against the Company or any of its subsidiaries which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Except as set forth in the Company Securities Filings, since December 31, 1996, and prior to or on the date hereof, there have been no actions, suits or proceedings made or pending against the Company or any of its subsidiaries alleging (x) any Environmental Claims (as hereinafter defined) or (y) any claim against the Company in connection with its rendering of any security services, except -18- for (i) such claims (not resulting as of the date hereof in an action, suit or proceeding) not exceeding in any individual case $500,000 or (ii) such actions, suits or proceedings which, in the case of either clause (x) or (y) above, would not reasonably be expected to result in liability to the Company or any of its subsidiaries, not covered by insurance, of $100,000 or more in any individual case or (without regard to whether or not any thereof is covered by insurance) $500,000 in the aggregate. The Company has not established any reserves in the Company Financial Statements with respect to claims referred to in clauses (x) and (y) of the preceding sentence. SECTION 2.14 of the Company Disclosure Letter lists all letters received by the Company from insurance carriers asserting a reservation of rights with respect to any action, suit or proceeding. 2.14. CONTRACTS. SECTION 2.14 of the Company Disclosure Letter includes a list of all loan agreements and financing agreements and of all equipment lease financing agreements involving obligations of the Company or any subsidiary in excess of $250,000. Neither the Company nor any of the Company Subsidiaries is a party or is subject to any note, bond, mortgage, indenture, contract, lease, license, agreement or instrument that is required to be described in or filed as an exhibit to any Company Securities Filing (collectively with those agreements listed in Section 2.14 of the Company Disclosure letter, the "COMPANY MATERIAL CONTRACTS") that is not so described in or filed as required by the Securities Act or the Securities Exchange Act, as the case may be. The Company is not a party to any agreements to acquire in the future the stock or substantially all the assets of another person. Except as disclosed in the Company Securities Filings, all such Company Material Contracts are valid and binding and are in full force and effect and enforceable against the Company or such subsidiary in accordance with their respective terms, subject to the Enforceability Exceptions. Neither the Company nor any of its subsidiaries is in violation or breach of or default under any such Company Material Contract where such violation or breach would reasonably be expected to have a Material Adverse Effect. To the knowledge of the Company, no party (other than the Company or its subsidiaries) is in default, violation or breach of any Company Material Contract where such violation or breach would reasonably be expected to have a Material Adverse Effect. 2.15. EMPLOYEE BENEFIT PLANS. (a) Section 2.15(a) of the Company Disclosure Letter lists all employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all employee welfare benefit plans (as defined in Section 3(1) of ERISA) and all other bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements, and any employment, executive compensation or severance agreements, written or otherwise, as amended, modified or supplemented, for the benefit of, or relating to, any former or current employee, officer or consultant (or any of their beneficiaries) of the Company or any other entity (whether or not incorporated) which is a member of a -19- controlled group including the Company or which is under common control with the Company (an "ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "CODE") or Section 4001(a)(14) or (b) of ERISA, or any subsidiary of the Company with respect to which the Company has or could have any current (actual or contingent) liability, as well as each plan with respect to which the Company or an ERISA Affiliate could incur liability under Title IV of ERISA or Section 412 of the Code (together for purposes of this SECTION 2.15, the "EMPLOYEE PLANS"). Prior to the date of this Agreement, the Company has provided or made available to Parent copies of (i) each such written Employee Plan (or a written description of any Employee Plan which is not written) and all related trust agreements, insurance and other contracts (including policies), summary plan descriptions, summaries of material modifications and any material communications to plan participants, (ii) the three most recent annual reports on Form 5500 series, with accompanying schedules and attachments, filed with respect to each Employee Plan required to make such a filing, (iii) the most recent actuarial valuation for each Employee Plan subject to Title IV of ERISA, (iv) the latest reports which have been filed with the Department of Labor with respect to each Employee Plan required to make such filing and (v) the most recent favorable determination letters issued for each Employee Plan and related trust which is subject to Parts 1, 2 and 4 of Subtitle B of Title I of ERISA (and, if an application for such determination is pending, a copy of the application for such determination). (b) (i) None of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person, and none of the Employee Plans is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii) to the knowledge of the Company, no party in interest or disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a transaction with respect to any Employee Plan which could subject the Company or any ERISA Affiliate, directly or indirectly, to a tax, penalty or other liability for prohibited transactions under ERISA or Section 4975 of the Code, except for any such tax, penalty or liability that would not reasonably be expected to result in a Material Adverse Effect; (iii) to the knowledge of the Company, no fiduciary of any Employee Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA, except where such breach would not reasonably be expected to result in a Material Adverse Effect; (iv) all Employee Plans have been established and maintained substantially in accordance with their terms and have operated in compliance with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, the Internal Revenue Service (the "IRS") or the Secretary of the Treasury) except where failure to do so would not reasonably be expected to result in a Material Adverse Effect, and may by their terms be amended and/or terminated at -20- any time subject to applicable law and any applicable collective bargaining agreement; and the Company and each of its subsidiaries have performed all obligations required to be performed by them under, are not in default under or violation of except where failure to do so would not reasonably be expected to result in a Material Adverse Effect, and have no knowledge of any default or violation by any other party to, any of the Employee Plans; (v) each Employee Plan which is subject to Parts 1, 2 and 4 of Subtitle B of ERISA is the subject of a favorable determination letter from the IRS, and to the knowledge of the Company nothing has occurred which may reasonably be expected to impair such determination; (vi) all contributions required to be made with respect to any Employee Plan pursuant to Section 412 of the Code, or the terms of the Employee Plan or any collective bargaining agreement, have been made on or before their due dates; (vii) with respect to each Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the 30-day notice requirement has been waived under the regulations to Section 4043 of ERISA) or any event described in Section 4062, 4063 or 4041 of ERISA has occurred for which there is any outstanding liability to the Company or any ERISA Affiliate, except where such liability would not reasonably be expected to result in a Material Adverse Effect, nor would the consummation of the transaction contemplated hereby (including the execution of this Agreement) constitute a reportable event for which the 30-day requirement has not been waived; and (viii) neither the Company nor any ERISA Affiliate has incurred or reasonably expects to incur any liability under Title IV of ERISA (other than liability for premium payments to the Pension Benefit Guaranty Corporation (the "PBGC") arising in the ordinary course), except where such liability would not reasonably be expected to result in a Material Adverse Effect. (c) Section 2.15(c) of the Company Disclosure Letter sets forth a true and complete list of each current or former employee, officer or director of the Company or any of its subsidiaries who holds (i) any option to purchase Company Stock as of the date hereof, together with the number of shares of Company Stock subject to such option, the option price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and the expiration date of such option; (ii) any shares of Company Stock that are restricted as a result of an agreement with or stock plan of the Company; and (iii) any other right, directly or indirectly, to receive Company Stock, except as otherwise disclosed in Section 2.15 of the Company Disclosure Letter, together with the number of shares of Company Stock subject to such right, except as otherwise disclosed in Section 2.15 of the Company Disclosure Letter. Section 2.15(c) of the Company Disclosure Letter also sets forth the total number of any such ISOs and any such nonqualified options and other such rights. (d) Unless otherwise disclosed in Section 2.15(a) of the Company Disclosure Letter, Section 2.15(d) of the Company Disclosure Letter sets forth a true and complete list of (i) all -21- employment agreements with officers of the Company or any of its subsidiaries; (ii) all agreements with consultants who are individuals obligating the Company or any of its subsidiaries to make annual cash payments in an amount exceeding $100,000; (iii) all agreements with respect to the services of independent contractors or leased employees whether or not they participate in any of the Employee Plans; (iv) all officers of the Company or any of its subsidiaries who have executed a non-competition agreement with the Company or any of its subsidiaries; (v) all severance agreements, programs and policies of the Company or any of its subsidiaries with or relating to its employees, in each case with outstanding commitments exceeding $100,000, excluding programs and policies required to be maintained by law; and (vi) all plans, programs, agreements and other arrangements of the Company which contain change in control provisions. (e) The PBGC has not instituted proceedings to terminate any Employee Benefit Plan that is subject to Title IV of ERISA (each, a "DEFINED BENEFIT PLAN"). The Defined Benefit Plans have no accumulated or waived funding deficiencies within the meaning of Section 412 of the Code nor have any extensions of any amortization period within the meaning of Section 412 of the Code or 302 of ERISA been applied for with respect thereto. The most recent actuarial valuation with respect to any of the Company's Defined Benefit Plans made available to Parent is true and correct in all material respects and there has been no change since the date of such valuation that would reasonably be expected to result in a Material Adverse Effect. All applicable premiums required to be paid to the PBGC with respect to the Defined Benefit Plans have been paid. No facts or circumstances exist with respect to any Defined Benefit Plan which would give rise to a Lien on the assets of the Company under Section 4068 of ERISA or otherwise. All the assets of the Defined Benefit Plans are readily marketable securities or insurance contracts. (f) (i) The Company does not currently maintain an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or any other Employee Plan that invests in Company Stock; and (ii) the consummation of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee except as otherwise disclosed in SECTION 1.9 hereof or except where such increase or acceleration would not reasonably be expected to result in a Material Adverse Effect. The Company will take all actions within its control to ensure that all actions required to be taken by a fiduciary of any Employee Plan in order to effectuate the transaction contemplated by this Agreement shall comply with the terms of such Plan, ERISA and other applicable laws. The Company will take all actions within its control to ensure that all actions required to be taken by a trustee of any Employee Plan that owns Company Stock shall have been duly authorized by the appropriate fiduciaries of such Plan and shall comply with the terms of such Plan, ERISA and other applicable laws. (g) The Company maintains no Employee Plan covering -22- non-U.S. employees. (h) The Company has fiduciary liability insurance of at least $500,000 in effect covering the fiduciaries of the Employee Plans (including the Company) with respect to whom the Company may have liability. 2.16. TAXES AND RETURNS. (a) The Company and each of the Company Subsidiaries has timely filed, or caused to be timely filed, all material Tax Returns (as hereinafter defined) required to be filed by it, and has paid, collected or withheld, or caused to be paid, collected or withheld, all material amounts of Taxes (as hereinafter defined) required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the Company Financial Statements have been established or which are being contested in good faith. There are no material claims or assessments pending against the Company or any of its subsidiaries for any alleged deficiency in any Tax, and the Company has not been notified in writing of any proposed Tax claims or assessments against the Company or any of its subsidiaries (other than in each case, claims or assessments for which adequate reserves in the Company Financial Statements have been established or which are being contested in good faith or are immaterial in amount). Neither the Company nor any of its subsidiaries has executed any waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by the Company or any of its subsidiaries for any extension of time within which to file any material Tax Return or within which to pay any material amounts of Taxes shown to be due on any Tax Return. To the best knowledge of the Company, there are no liens for material amounts of Taxes on the assets of the Company or any of its subsidiaries except for statutory liens for current Taxes not yet due and payable. (b) For purposes of this Agreement, the term "TAX" shall mean any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty imposed by any Governmental Authority. The term "TAX RETURN" shall mean a report, return or other information (including any attached schedules or any amendments to such report, return or other information) required to be supplied to or filed with a governmental entity with respect to any Tax, including an information return, claim for refund, amended return or declaration or estimated Tax. (c) (i) Neither the Company nor any of its subsidiaries has ever been a member of an affiliated group within the meaning of Section 1504 of the Code or filed or been included in a combined, consolidated or unitary Tax Return, other than of the Company and its subsidiaries; (ii) other than with respect to the Company and its subsidiaries, neither the Company nor any of its subsidiaries is liable for Taxes of any other Person, or is -23- currently under any contractual obligation to indemnify any person with respect to Taxes (except for customary agreements to indemnify lenders or securityholders in respect of taxes other than income taxes), or is a party to any tax sharing agreement or any other agreement providing for payments by the Company or any of its subsidiaries with respect to Taxes; (iii) neither the Company nor any of its subsidiaries is a party to any joint venture, partnership or other arrangement or contract which could be treated as a partnership for federal income tax purposes; (iv) neither the Company nor any of its subsidiaries has entered into any sale leaseback or any leveraged lease transaction that fails to satisfy the requirements of Revenue Procedure 75-21 (or similar provisions of foreign law); (v) neither the Company nor any of its subsidiaries has agreed or is required, as a result of a change in method of accounting or otherwise, to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign law) in taxable income; (vi) neither the Company nor any of its subsidiaries is a party to any agreement, contract, arrangement or plan that would result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code; (vii) the prices for any property or services (or for the use of property) provided by the Company or any of its subsidiaries to any other subsidiary or to the Company have been arm's length prices, determined using a method permitted by the Treasury Regulations under Section 482 of the Code; (viii) neither the Company nor any of its subsidiaries is liable with respect to any indebtedness the interest of which is not deductible for applicable federal, foreign, state or local income tax purposes; (ix) neither the Company nor any of its subsidiaries is a "consenting corporation" under Section 341(F) of the Code or any corresponding provision of state, local or foreign law; and (x) none of the assets owned by the Company or any of its subsidiaries is property that is required to be treated as owned by any other person pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of Section 168(h) of the Code; PROVIDED that each of the statements made in clauses (i) through (x) above shall be deemed true and correct for purposes of this Agreement unless in any such case any failure of such statement to be true or correct would reasonably be expected to result in a Material Adverse Effect. (d) The amount of net operating losses (as defined in Section 172 of the Code) of the Company and its subsidiaries as of the end of the fiscal year ended December 31, 1996, and any limitation on the use of such losses as a result of an ownership change within the meaning of Section 382(g) of the Code occurring on or prior to December 31, 1996, is as set forth in the Company's financial statements for such year. 2.17. INTELLECTUAL PROPERTY. The Company or its subsidiaries own, or are licensed or otherwise possess legal enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights and any applications therefor, -24- technology, know-how, trade secrets, computer software programs or applications, domain names and tangible or intangible proprietary information or materials that are used in the respective businesses of the Company and its subsidiaries as currently conducted, except for any such failures to own, be licensed or possess that would not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Company, there are no valid grounds for any bona fide claims (i) to the effect that the business of the Company or any of its subsidiaries infringes on any copyright, patent, trademark, service mark or trade secret; (ii) against the use by the Company or any of its subsidiaries of any trademarks, trade names, trade secrets, copyrights, patents, technology, know-how or computer software programs and applications used in the business of the Company or any of its subsidiaries as currently conducted or as proposed to be conducted; (iii) challenging the ownership, validity or effectiveness of any of the patents, registered and material unregistered trademarks and service marks, registered copyrights, trade names and any applications therefor owned by the Company or any of its subsidiaries (the "COMPANY INTELLECTUAL PROPERTY RIGHTS") or other trade secret material to the Company; or (iv) challenging the license or legally enforceable right to use of any third-party patents, trademarks, service marks and copyrights by the Company or any of its subsidiaries, except, in the case of each of clauses (i), (ii), (iii) and (iv) above, for matters that, if determined adversely to the Company, would not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Company, all material patents, registered trademarks, service marks and copyrights held by the Company are valid and subsisting. Except as set forth in the Company Securities Filings, to the Company's knowledge, there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property by any third party, including any employee or former employee of the Company or any of its subsidiaries. 2.18. DISCLOSURE DOCUMENTS. The Proxy Statement will comply in all material respects with the applicable requirements of the Securities Exchange Act except that no representation or warranty is being made by the Company with respect to the Parent Information included in the Proxy Statement. The Proxy Statement will not, at the time the Proxy Statement is filed with the SEC or first sent to stockholders, at the time of the Company's stockholders' meeting or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading except that no representation or warranty is being made by the Company with respect to the Parent Information included in the Proxy Statement. The Schedule 14D-9 will comply in all material respects with the Securities Exchange Act except that no representation or warranty is being made by the Company with respect to the Parent Information included in the Schedule 14D-9. Neither the Schedule 14D-9 nor any of the information relating to the Company or its affiliates provided by or on behalf of the Company specifically for inclusion in the Schedule 14D-1 or the -25- Offer Documents will, at the respective times the Schedule 14D-9, the Schedule 14D-1 and the Offer Documents are filed with the SEC and are first published, sent or given to stockholders of the Company, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. 2.19. LABOR MATTERS. Except as set forth in the Company Securities Filings, (i) there are no controversies pending or, to the knowledge of the Company or any of its subsidiaries, threatened, between the Company or any of its subsidiaries and any of their respective employees, which controversies would reasonably be expected to have a Material Adverse Effect; (ii) neither the Company nor any of its subsidiaries is a party to any material collective bargaining agreement or other labor union contract applicable to persons employed by the Company or its subsidiaries, nor, as of the date of this Agreement, does the Company or any of its subsidiaries know of any activities or proceedings of any labor union to organize any such employees; and (iii) neither the Company nor any of its subsidiaries has any knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of the Company or any of its subsidiaries which would reasonably be expected to have a Material Adverse Effect. 2.20. LIMITATION ON BUSINESS CONDUCT. Except as set forth in the Company Securities Filings, neither the Company nor any of its subsidiaries is a party to, or has any obligation under, any contract or agreement, written or oral, which contains any covenants currently or prospectively limiting in any material respect the freedom of the Company or any of its subsidiaries to engage in any line of business or to compete with any entity. 2.21. TITLE TO PROPERTY. Except as set forth in the Company Securities Filings, each of the Company and each of its subsidiaries owns the properties and assets that it purports to own free and clear of all liens, charges, mortgages, security interests or encumbrances of any kind ("LIENS"), except for Liens which arise in the ordinary course of business and do not materially impair the Company's or its subsidiaries' ownership or use of such properties or assets, Liens for taxes not yet due and Liens securing obligations under the Credit Agreement. With respect to the property and assets it leases, the Company , its subsidiaries, and to the best of the Company's knowledge each of the other parties thereto, is in material compliance with such leases, and the Company or its subsidiaries, as the case may be, hold a valid leasehold interest free of any Liens, except those referred to above. The rights, properties and assets presently owned, leased or licensed by the Company and its subsidiaries include all rights, properties and assets necessary to permit the Company and its subsidiaries to conduct their business in all material respects in the same manner as their businesses have been conducted prior to the date hereof. -26- 2.22. LEASED PREMISES. Neither the Company nor any of its subsidiaries owns any real property. Each of the buildings, structures and premises leased by the Company or any of its subsidiaries is in reasonably good repair and operating condition, except as would not reasonably be expected to have a Material Adverse Effect. 2.23. ENVIRONMENTAL MATTERS. (a) Except as set forth in the Company Securities Filings, the Company and its subsidiaries are in material compliance with the Environmental Laws (as hereinafter defined), which compliance includes the possession by the Company and its subsidiaries of all material permits and governmental authorizations required under applicable Environmental Laws, and compliance in all material respects with the terms and conditions thereof, except in each case where such non-compliance would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its subsidiaries is not in such material compliance, and there are no circumstances that may prevent or interfere with such compliance in the future, except where such non-compliance would not reasonably be expected to have a Material Adverse Effect. (b) There are no Environmental Claims (as hereinafter defined), including claims based on "arranger liability," pending or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (c) To the best knowledge of the Company, there are no past or present actions, inactions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern (as hereinafter defined), that would form the basis of any Environmental Claim against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries have retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (d) The Company is in compliance in all material respects with Environment Laws as they relate to any on-site or off-site locations where the Company or any of its subsidiaries has stored, disposed or arranged for the disposal of Materials of Environmental Concern for itself (but not on behalf of others) or (ii) any underground storage tanks located on property owned or leased by the Company or any of its subsidiaries. There is no asbestos contained in or forming part of any building, building component, structure or office space owned or leased by the Company or any of its subsidiaries. No polychlorinated biphenyls -27- (PCB's) or PCB-containing items are used or stored at any property owned or leased by the Company or any of its subsidiaries. (e) For purposes of this Agreement: (i) "Environmental Claim" means any claim, action, cause of action, investigation or notice (written or oral) by any person or entity alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (x) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by the Company or any of its subsidiaries, or (y) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. (ii) "Environmental Laws" means all Federal, state, local and foreign laws or regulations relating to pollution or protection of human health and the environment (including ambient air, surface water, ground water, land surface or sub-surface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. (iii) "Materials of Environmental Concern" means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, toxic substances, petroleum and petroleum products. 2.24. INSURANCE. The Company maintains insurance that provides adequate coverage for normal risks incident to the business of the Company and its subsidiaries and their respective properties and assets and in character and amount comparable to that carried by persons engaged in similar businesses. The insurance polices maintained by the Company are with reputable insurance carriers and have no premium delinquencies. 2.25. CUSTOMERS. No customer of the Company accounted for more than 4% of the revenues of the Company and its subsidiaries for the fiscal year ended December 31, 1996. 2.26. INTERESTED PARTY TRANSACTIONS. Except as set forth in the Company Securities Filings, since the date of the Company's proxy statement dated April 30, 1997, no event has occurred that would be required to be reported as a Certain Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC, except for contracts entered into in the ordinary course of business of the Company, on an arms-length basis, with terms no less favorable to the Company than would reasonably be expected in a similar transaction with an unaffiliated third party. -28- 2.27. ALARM CONTRACTS. The Chief Executive Officer and the Chief Financial Officer of the Company believe, following reasonable inquiry, that no more than 20% of accounts for alarm system monitoring and/or service owned by the Company or any Company Subsidiary are not evidenced by a written contract. 2.28. FINDERS AND INVESTMENT BANKERS. Neither the Company nor any of its officers or directors has employed any broker, finder or financial advisor or otherwise incurred any liability for any brokerage fees, commissions, or financial advisors' or finders' fees in connection with the transactions contemplated hereby, other than pursuant to an agreement with J.P. Morgan Securities Inc., the terms of which have been disclosed to Parent. 2.29. FAIRNESS OPINION. The Company's Board of Directors has received from its financial advisor, J.P. Morgan Securities Inc., a written opinion addressed to it for inclusion in the Schedule 14D-9 and the Proxy Statement to the effect that the consideration to be received by the stockholders of the Company pursuant to each of the Offer and the Merger is fair to the Company's stockholders from a financial point of view. 2.30. TAKEOVER STATUTES. Assuming Parent and its "associates" and "affiliates" (as defined in Section 203 of the Delaware Code) collectively beneficially own and have beneficially owned at all times during the three-year period prior to the date hereof less than fifteen percent (15%) of the Company Stock outstanding, Section 203 of the Delaware Code is, and shall be, inapplicable to the acquisition of Shares pursuant to the Offer and the Merger. 2.31. FULL DISCLOSURE. No statement contained in any certificate or schedule furnished or to be furnished by the Company or its subsidiaries to Parent or Purchaser in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER Parent and Purchaser jointly and severally represent and warrant to the Company that: 3.1. ORGANIZATION AND GOOD STANDING. Each of Parent and Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. -29- 3.2. AUTHORIZATION; BINDING AGREEMENT. Parent and Purchaser have all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, including, but not limited to, the Merger, have been duly and validly authorized by the respective Boards of Directors of Parent and Purchaser, as appropriate, and no other corporate proceedings on the part of Parent, Purchaser or any other subsidiary of Parent are necessary to authorize the execution and delivery of this Agreement or to consummate the transactions contemplated hereby (other than the requisite approval by the sole stockholder of Purchaser of this Agreement and the Merger). This Agreement has been duly and validly executed and delivered by each of Parent and Purchaser and constitutes the legal, valid and binding agreement of Parent and Purchaser, enforceable against each of Parent and Purchaser in accordance with its terms, subject to the Enforceability Exceptions. 3.3. GOVERNMENTAL APPROVALS. No Consent from or with any Governmental Authority on the part of Parent or Purchaser is required in connection with the execution or delivery by Parent and Purchaser of this Agreement or the consummation by Parent and Purchaser of the transactions contemplated hereby other than (i) filings with the SEC and (ii) filings under the HSR Act. 3.4. NO VIOLATIONS. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and compliance by Parent or Purchaser with any of the provisions hereof will not (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or Bylaws or other governing instruments of Parent or any subsidiary of Parent, (ii) require any Consent under or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of, any material note, bond, mortgage, indenture, contract, lease, license, agreement or instrument to which Parent is a party or by which Parent or any of its assets or property is subject, (iii) result in the creation or imposition of any material lien or encumbrance of any kind upon any of the assets of Parent or any subsidiary of Parent or (iv) subject to obtaining the Consents from Governmental Authorities referred to in SECTION 3.3 hereof, violate any Law to which Parent or any subsidiary of Parent or its assets or properties are subject, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not prevent or delay consummation of the Offer or the Merger, or otherwise materially and adversely affect the ability of Parent or Purchaser to perform their respective obligations under this Agreement. 3.5. DISCLOSURE DOCUMENTS. None of the information supplied by Parent, its officers, directors, representatives, agents or employees (the "PARENT INFORMATION") -30- for inclusion in the Proxy Statement will, at the time the Proxy Statement is filed with the SEC or first mailed to the Company's stockholders, at the time of the Company's stockholders' meeting or at the Effective Time, contain any untrue statement of a material fact, or will omit to state any material fact necessary in order to make the statements therein, in light of the circumstances in which they were made not misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for such stockholders' meeting which has become false or misleading. Neither the Schedule 14D-1 or the Offer Documents or any amendments thereof or supplements thereto nor any of the Parent Information provided specifically for inclusion in the Schedule 14D-9 will, at the respective times the Schedule 14D-1, the Offer Documents or the Schedule 14D-9 are filed with the SEC or first published, sent or given to the Company's stockholders, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, neither Parent nor Purchaser makes any representation or warranty with respect to any information that has been supplied by the Company or its accountants, counsel or other authorized representatives for use in any of the foregoing documents. The Schedule 14D-1 and the Offer Documents will comply as to form in all material respects with the provisions of the Securities Exchange Act. 3.6. FINDERS AND INVESTMENT BANKERS. Neither Parent nor any of its officers or directors has employed any broker, finder or financial advisor or otherwise incurred any liability for any brokerage fees, commissions or financial advisors' or finders' fees in connection with the transactions contemplated hereby. 3.7. FINANCING ARRANGEMENTS. Parent (including for this purpose one or more of its wholly-owned subsidiaries) has funds available to it sufficient to enable the Purchaser to purchase the Shares in accordance with the terms of this Agreement and to pay all amounts due (or which will, as a result of the transactions contemplated hereby, become due) in respect of any indebtedness of the Company for money borrowed. 3.8. NO PRIOR ACTIVITIES. Except for obligations or liabilities incurred in connection with its incorporation or organization or the negotiation and consummation of this Agreement and the transactions contemplated hereby (including any financing in connection therewith), Purchaser has not incurred any obligations or liabilities and has not engaged in any business or activities of any type or kind whatsoever or entered into any agreements or arrangements with any person or entity. ARTICLE IV ADDITIONAL COVENANTS OF THE COMPANY The Company covenants and agrees as follows: -31- 4.1. CONDUCT OF BUSINESS OF THE COMPANY AND THE COMPANY SUBSIDIARIES. (a) Unless Parent shall otherwise agree in writing and except as expressly contemplated by this Agreement or in the Company Disclosure Letter, during the period from the date of this Agreement to the Effective Time, (i) the Company shall conduct, and it shall cause the Company Subsidiaries to conduct, its or their businesses in the ordinary course and consistent with past practice, and the Company shall, and it shall cause the Company Subsidiaries to, use its or their reasonable best efforts to preserve substantially intact its business organization, to keep available the services of its present officers and employees and to preserve the present commercial relationships of the Company and the Company Subsidiaries with persons with whom the Company or the Company Subsidiaries do significant business and (ii) without limiting the generality of the foregoing, neither the Company nor any of the Company Subsidiaries will: (A) amend or propose to amend its Certificate of Incorporation or Bylaws in any material respect; (B) authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any shares of, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of, the capital stock or other securities of the Company or any of the Company Subsidiaries, including, but not limited to, any securities convertible into or exchangeable for shares of stock of any class of the Company or any of the Company Subsidiaries, except for (a) the issuance of shares pursuant to the exercise of Company Options outstanding on the date of this Agreement in accordance with their present terms, (b) the issuance of shares upon the exercise of Company Warrants, or conversion of the Company Debentures, outstanding on the date of this Agreement in accordance with their present terms and (c) the issuance of not more than an aggregate of 15,000 shares of Company Stock to the sellers under the agreements pursuant to which the Company acquired Certified Systems, Inc., Certified Systems Central Station, Inc. and Security Solutions, Inc. to the extent required pursuant to the terms of such agreements; (C) split, combine or reclassify any shares of its capital stock or declare, pay or set aside any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, other than dividends or distributions to the Company or a subsidiary of the Company, or directly or indirectly redeem, purchase or otherwise acquire or offer to acquire any shares of its capital stock or other securities; (D) create, incur or assume any indebtedness for borrowed money or issue any debt securities, except pursuant to the Credit Agreement, or make any loans (except as provided in paragraph (E) (b) below); (E) other than in the ordinary course of business -32- consistent with past practice, (a) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, indirectly, contingently or otherwise) for the obligations of any person (other than the Company or a Company Subsidiary); (b) make any capital expenditures (it being understood that the acquisition of the stock or substantially all the assets of any other person shall not be deemed a "capital expenditures" for these purposes) or make any advances or capital contributions to, or investments in, any other person (other than to a Company Subsidiary); (c) voluntarily incur any material liability or obligation (absolute, accrued, contingent or otherwise); or (d) sell, transfer, mortgage, pledge or otherwise dispose of, or encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any assets or properties, real, personal or mixed, material to the Company and the Company Subsidiaries taken as a whole other than to secure debt permitted under paragraph (D); (F) increase in any manner the compensation of any of its officers or employees (other than, except with respect to employees who are executive officers or directors, in the ordinary course of business consistent with past practice) or enter into, establish, amend or terminate any employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity, pension, retirement, vacation, severance, deferred compensation or other compensation or benefit plan, policy, agreement, trust, fund or arrangement with, for or in respect of, any stockholder, officer, director, employee, consultant or affiliate other than, in any such case referred to above, as may be required by Law or as required pursuant to the terms of agreements in effect on the date of this Agreement and other than arrangements with new employees (other than employees who will be officers of the Company) hired in the ordinary course of business consistent with past practice and providing for compensation (other than equity-based compensation) and other benefits consistent with those provided for similarly situated employees of the Company as of the date hereof; (G) alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of any subsidiary or the Company; (H) except as may be required as a result of a change in law or as required by the SEC, change any of the accounting principles or practices used by it; (I) make any material tax election or settle or compromise any material income tax liability; (J) pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than -33- the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; (K) except to the extent necessary for the exercise of its fiduciary duties by the Board of Directors of the Company as set forth in, and consistent with the provisions of, SECTION 4.8 hereof, waive, amend or allow to lapse any term or condition of any confidentiality or "standstill" agreement to which the Company or any subsidiary is a party; or (L) take, or agree in writing or otherwise to take, any of the foregoing actions or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect in any material respect at or prior to the Effective Time. (b) The Company shall, and the Company shall cause each of the Company Subsidiaries to, comply with all Laws applicable to it or any of its properties, assets or business and maintain in full force and effect all the Company Permits necessary for such business, except in any such case for any failure so to comply or maintain that would not reasonably be expected to result in a Material Adverse Effect. 4.2. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt notice to Parent if any of the following occur after the date of this Agreement: (i) receipt of any notice or other communication in writing from any third party alleging that the Consent of such third party is or may be required in connection with the transactions contemplated by this Agreement, provided that such Consent would have otherwise been required to have been disclosed in this Agreement; (ii) receipt of any material notice or other communication from any Governmental Authority (including, but not limited to, the NASD or any securities exchange) in connection with the transactions contemplated by this Agreement; (iii) the occurrence of an event which would be reasonably likely to (A) have a Material Adverse Effect or (B) cause any condition set forth in ANNEX I hereto to be unsatisfied in any material respect at any time prior to the consummation of the Offer or (iv) the commencement or threat of any Litigation involving or affecting the Company or any of the Company Subsidiaries, or any of their respective properties or assets, or, to its knowledge, any employee, agent, director or officer, in his or her capacity as such, of the Company or any of the Company Subsidiaries which, if pending on the date hereof, would have been required to have been disclosed in this Agreement or which relates to the consummation of the Merger. 4.3. ACCESS AND INFORMATION. Between the date of this Agreement and the Effective Time, and without intending by this SECTION 4.3 to limit any of the other obligations of the parties under this Agreement, the Company will -34- give, and shall direct its accountants and legal counsel to give, Parent and its authorized representatives (including, without limitation, its financial advisors, accountants and legal counsel), at reasonable times and without undue disruption to or interference with the normal conduct of the business and affairs of the Company, access as reasonably required in connection with the transactions provided for in this Agreement to all offices and other facilities and to all contracts, agreements, commitments, books and records of or pertaining to the Company and its subsidiaries and will furnish Parent with (a) such financial and operating data and other information with respect to the business and properties of the Company and its subsidiaries as Parent may from time to time reasonably request in connection with such transactions and (b) a copy of each material report, schedule and other document filed or received by the Company or any of its subsidiaries pursuant to the requirements of applicable securities laws or the NASD. 4.4. STOCKHOLDER APPROVAL. As soon as practicable following the consummation of the Offer, the Company will take all steps necessary to duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of voting upon the Company Proposals and for such other purposes as may be necessary or desirable in connection with effectuating the transactions contemplated hereby, if such meeting is required. Except as otherwise contemplated by this Agreement, the Board of Directors of the Company will recommend to the stockholders of the Company that they approve the Company Proposals. 4.5. REASONABLE BEST EFFORTS. Subject to the terms and conditions herein provided, the Company agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including, but not limited to, (i) obtaining all Consents from Governmental Authorities and other third parties required for the consummation of the Offer and the Merger and the transactions contemplated thereby and (ii) timely making all necessary filings under the HSR Act. Upon the terms and subject to the conditions hereof, the Company agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions of the Closing set forth herein. 4.6. PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, the Company shall not, and shall use reasonable best efforts to cause its affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Offer or the Merger or the transactions contemplated hereby without the consent of Parent (such consent not to be unreasonably withheld or delayed), except where such release or announcement is required by applicable Law or pursuant to any applicable listing agreement with, or rules or regulations of, the NASD, in which case the Company, prior to making such announcement, will consult with Parent regarding the same. -35- 4.7. COMPLIANCE. In consummating the transactions contemplated hereby, the Company shall comply in all material respects with the provisions of the Securities Exchange Act and the Securities Act and shall comply, and cause the Company Subsidiaries to comply or to be in compliance, in all material respects, with all other applicable Laws. 4.8. NO SOLICITATION. (a) The Company shall, and shall cause its officers, directors, employees, representatives and agents to, immediately cease any discussions or negotiations with any parties that may be ongoing with respect to a Company Takeover Proposal (as hereinafter defined). The Company shall not, nor shall it permit any of its subsidiaries to, nor shall it authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed or reasonably likely to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any Company Takeover Proposal or (ii) participate in any discussions or negotiations regarding any Company Takeover Proposal; PROVIDED, HOWEVER, that if, at any time prior to the Effective Time, the Board of Directors of the Company determines in good faith, with the advice of outside counsel, that the failure to do so could reasonably be determined to be a breach of its fiduciary duties to the Company's stockholders under applicable law, the Company many (and may authorize or permit any of the other persons referred to above in this SECTION 4.8 to), in response to a Company Takeover Proposal, and subject to compliance with SECTION 4.8(C), (x) furnish information with respect to the Company or its subsidiaries to any person pursuant to a confidentiality agreement similar in form to that between an affiliate of Parent and the Company and (y) participate in discussions or negotiations regarding such Company Takeover Proposal. "COMPANY TAKEOVER PROPOSAL" means any inquiry, proposal or offer, in each case not solicited in violation of this Agreement, from any person or persons relating to any direct or indirect acquisition or purchase of a substantial amount of the assets of the Company and its subsidiaries or 10% or more of any class of equity securities of the Company or any Company Subsidiary, any tender offer or exchange offer that if consummated would result in any person or group of related persons beneficially owning 10% or more of any class of equity securities of the Company or any Company Subsidiary or any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any Company Subsidiary, other than the transactions contemplated by this Agreement. Except as set forth in this SECTION 4.8, neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or indicate publicly its intention to withdraw or modify, in a manner adverse to Parent, the approval or recommendation by such Board of Directors or such committee of the Offer or the Company -36- Proposals, (ii) approve or recommend, or indicate publicly its intention to approve or recommend, any Company Takeover Proposal or (iii) cause the Company to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, a "COMPANY ACQUISITION AGREEMENT") related to any Company Takeover Proposal. Notwithstanding the foregoing, in the event that prior to the Effective Time the Board of Directors of the Company determines in good faith, with the advice of outside counsel, that the failure to do so could reasonably be determined to be a breach of its fiduciary duties to the Company's stockholders under applicable law, the Board of Directors of the Company may (subject to this and the following sentences) (x) withdraw or modify its approval or recommendation of the Offer or the Company Proposals or (y) approve or recommend a Company Superior Proposal (as hereinafter defined) or terminate this Agreement (and concurrently with or after such termination, if it so chooses, cause the Company to enter into any Company Acquisition Agreement with respect to any Company Superior Proposal), but in each of the cases set forth in this clause (y), only at a time that is after the third business day following Parent's receipt of written notice advising Parent that the Board of Directors of the Company has received a Company Superior Proposal and, in the case of any previously received Company Superior Proposal that has been materially modified or amended, such modification or amendment and specifying the material terms and conditions of such Company Superior Proposal, modification or amendment (PROVIDED that such material terms shall not be deemed to include the identity of the person or persons making such Company Superior Proposal). For purposes of this Agreement, a "COMPANY SUPERIOR PROPOSAL" means any bona fide proposal, not solicited in violation of this Agreement, made by a third party or third parties to acquire, directly or indirectly, for consideration consisting of cash and/or securities, more than 50% of the combined voting power of the Shares then outstanding or all or substantially all the assets of the Company and otherwise on terms which the Board of Directors of the Company determines in its good faith judgment (based on the advice of its advisors) to be more favorable to the Company's stockholders than the Offer and the Merger (taking into account all factors relating to such proposed transaction deemed relevant by the Board of Directors of the Company, including, without limitation, the financing thereof, the proposed timing thereof and all other conditions thereto). In addition to the obligations of the Company set forth in paragraphs (a) and (b) of this SECTION 4.8, the Company shall promptly advise Parent orally and in writing of any request for information, or for access to information, or of any Company Takeover Proposal and the material terms and conditions of such request or Company Takeover Proposal or any amendment or modification thereto (PROVIDED that such material terms shall not be deemed to include the identity of the person or persons making such request or Company Takeover Proposal). Nothing contained in this SECTION 4.8 shall prohibit the Company from taking and -37- disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Securities Exchange Act or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Board of Directors of the Company, with the advice of outside counsel, failure so to disclose could be determined to be a breach of its fiduciary duties to the Company's stockholders under applicable law; PROVIDED, HOWEVER, that neither the Company nor its Board of Directors nor any committee thereof shall, except as permitted by SECTION 4.8(B), withdraw or modify, or indicate publicly its intention to withdraw or modify, its position with respect to the Offer or the Company Proposals or approve or recommend, or indicate publicly its intention to approve or recommend, a Company Takeover Proposal. The Company shall advise its officers and directors and any investment banker or attorney retained by the Company in connection with the transactions contemplated by this Agreement of the restrictions set forth in this SECTION 4.8. 4.9. SEC AND STOCKHOLDER FILINGS. The Company shall send to Parent a copy of all material public reports and materials as and when it sends the same to its stockholders, the SEC or any state or foreign securities commission. 4.10. TAKEOVER STATUTES. If any "fair price," "moratorium," "control share acquisition" or other similar anti-takeover statute or regulation enacted under state or federal laws in the United States (each a "TAKEOVER STATUTE"), including, without limitation, Section 203 of the Delaware Code, is or may become applicable to the Offer or the Merger, the Company will use reasonable best efforts to grant such approvals and take such actions as are necessary so that the transactions contemplated by this Agreement and the Company Proposals may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act so as to eliminate or minimize the effects of any Takeover Statute on any of the transactions contemplated hereby. -38- ARTICLE V ADDITIONAL COVENANTS OF PURCHASER AND PARENT Parent and Purchaser covenant and agree as follows: 5.1. REASONABLE BEST EFFORTS. Subject to the terms and conditions herein provided, Purchaser agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including, but not limited to, (i) obtaining all Consents from Governmental Authorities and other third parties required for the consummation of the Offer and the Merger and the transactions contemplated thereby and (ii) timely making all necessary filings under the HSR Act. Upon the terms and subject to the conditions hereof, Parent agrees to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to satisfy the other conditions of the closing set forth herein. 5.2. PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, Parent and Purchaser shall not, and shall use reasonable best efforts to cause its affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Offer or the Merger or the transactions contemplated hereby without the consent of the Company (such consent not to be unreasonably withheld or delayed), except where such release or announcement is required by applicable Law or pursuant to any applicable listing agreement with, or rules or regulations of, any stock exchange on which shares of Parent's capital stock are listed or the NASD, or other applicable securities exchange, in which case Parent, prior to making such announcement, will consult with the Company regarding the same. 5.3. COMPLIANCE. In consummating the transactions contemplated hereby, Parent and Purchaser shall comply in all material respects with the provisions of the Securities Exchange Act and the Securities Act and shall comply, and cause its subsidiaries to comply or to be in compliance, in all material respects, with all other applicable Laws. EMPLOYEE BENEFIT PLANS. 5.4. BENEFIT PLANS. As of the Effective Time, Parent shall cause the Surviving Corporation to honor and satisfy all obligations and liabilities with respect to the Employee Plans. Notwithstanding the foregoing, the Surviving Corporation shall not be required to continue any particular Employee Plan after the Effective Time, and any Employee Plan may be amended or terminated in accordance with its terms and applicable Law. To the extent that any Employee Plan is terminated or amended after the Effective Time so as to reduce the benefits that are then being provided with respect to participants thereunder, Parent shall arrange for each individual -39- who is then a participant in such terminated or amended plan to participate in a comparable Parent Benefit Plan ("PARENT BENEFIT PLAN") in accordance with the eligibility criteria thereof, provided that (i) such participants shall receive full credit for years of service with the Company or any of its subsidiaries prior to the Effective Time for all purposes for which such service was recognized under the applicable Employee Plan, including, but not limited to, recognition of service for eligibility, vesting (including acceleration thereof pursuant to the terms of the applicable Employee Plan) and, to the extent not duplicative of benefits received under such Employee Plan, the amount of benefits, (ii) such participants shall participate in the Parent Benefit Plans on terms no less favorable than those offered by Parent to similarly situated employees of Parent and (iii) Parent shall cause any and all pre-existing condition limitations (to the extent such limitations did not apply to a pre-existing condition under the Employee Plans) and eligibility waiting periods under any group health plans to be waived with respect to such participants and their eligible dependents. CHANGE IN CONTROL PROVISIONS. Parent and the Company hereby acknowledge that the consummation of the Offer and the transactions contemplated under this Agreement will be treated as a "Change in Control" for purposes of each of the applicable Employee Plans, and each applicable employment, severance or similar agreement applicable to any employee of the Company or any of its subsidiaries, listed in SECTION 5.4(B) of the Company Disclosure Letter (such Plans and agreements collectively, "CHANGE IN CONTROL AGREEMENTS") and agree to abide by the provisions of any Change in Control Agreements which relate to a Change in Control, including, but not limited to, the accelerated vesting and/or payment of equity-based awards. (c) The provisions of this Section 5.4 are not intended to and do not create rights of third party beneficiaries. 5.5. INDEMNIFICATION. (a) From and after the Effective Time, the Surviving Corporation shall indemnify and hold harmless all past and present officers and directors (the "INDEMNIFIED PARTIES") of the Company and of its subsidiaries to the full extent such persons may be indemnified by the Company pursuant to Delaware law, the Company's Certificate of Incorporation and Bylaws, as each is in effect on the date of this Agreement, for acts and omissions (x) arising out of or pertaining to the transactions contemplated by this Agreement or arising out of the Offer Documents or (y) otherwise with respect to any acts or omissions occurring or arising at or prior to the Effective Time and shall advance reasonable litigation expenses incurred by such persons in connection with defending any action arising out of such acts or omissions, PROVIDED that such persons provide the requisite affirmations and undertaking, as set forth in Section 145(e) of the Delaware Code. In addition, Parent will provide, or cause the Surviving Corporation to provide, for a period of not less than six years after the Effective Time, the Company's -40- current directors and officers an insurance and indemnification policy that provides coverage for events occurring or arising at or prior to the Effecting Time (the "D&O INSURANCE") that is no less favorable than the existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; PROVIDED, HOWEVER, that Parent and the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess of 300% of the annual premium currently paid by the Company for such insurance, but in such case shall purchase as much such coverage as possible for such amount. This SECTION 5.5 is intended to benefit the Indemnified Parties and shall be binding on all successors and assigns of Parent, Purchaser, the Company and the Surviving Corporation. Parent hereby guarantees the performance by the Surviving Corporation of the indemnified obligations pursuant to this SECTION 5.5, which guaranty is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the bankruptcy or insolvency of the Surviving Corporation or any other person. The Indemnified Parties shall be intended third-party beneficiaries of this SECTION 5.5. 5.6. VOTING OF SHARES. At any meeting of the Company's stockholders held for the purpose of voting upon the Company Proposals, all of the Shares then owned by Parent, Purchaser or any other subsidiaries of Parent shall be voted in favor of the Company Proposals. 5.7. GUARANTEE OF PARENT. Parent hereby guarantees the payment by Purchaser of the Per Share Amount and any other amounts payable by Purchaser pursuant to this Agreement and will cause Purchaser to perform all of its other obligations under this Agreement in accordance with their terms. ARTICLE VI MERGER CONDITIONS The respective obligations of each party to effect the Merger shall be subject to the fulfillment or waiver at or prior to the Effective Time of the following conditions: 6.1. OFFER. The Offer shall have been consummated; provided that this condition shall be deemed to have been satisfied with respect to the obligation of Parent and Purchaser to effect the Merger if Parent fails to accept for payment or pay for Shares pursuant to the Offer in violation of the terms of the Offer or of this Agreement. 6.2. STOCKHOLDER APPROVAL. If required, the Company Proposals shall have been approved at or prior to the Effective Time by the requisite vote of the stockholders of the Company in accordance with the Delaware Code. 6.3. NO INJUNCTION OR ACTION. No order, statute, rule, regulation, executive order, stay, decree, -41- judgment or injunction shall have been enacted, entered, promulgated or enforced by any court or other Governmental Authority which prohibits or prevents the consummation of the Merger which has not been vacated, dismissed or withdrawn prior to the Effective Time. The Company and Parent shall use all reasonable best efforts to have any of the foregoing vacated, dismissed or withdrawn by the Effective Time. 6.4. GOVERNMENTAL APPROVALS. All Consents of any Governmental Authority required for the consummation of the Merger and the transactions contemplated by this Agreement shall have been obtained or those Consents the failure to obtain which will not have a material adverse effect on the business, assets, condition (financial or other), liabilities or results of operations of the Surviving Corporation and its subsidiaries taken as a whole. ARTICLE VII TERMINATION AND ABANDONMENT 7.1. TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the stockholders of the Company described herein: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company if any Governmental Authority shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement and such order, decree or ruling or other action shall have become final and nonappealable; (c) by Parent if (i) the Company shall have breached or failed to perform in any material respect any of its covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to the Company (but not later than the expiration of the twenty (20) business day period provided for the Offer under SECTION 1.1(b) hereof); (ii) any representation or warranty of the Company shall not have been true and correct in all material respects when made; (iii) any representation or warranty of the Company shall cease to be true and correct in all material respects at any later date as if made on such date (other than representations and warranties made as of a specified date) other than as a result of a breach or failure to perform by -42- the Company of any of its covenants or agreements under this Agreement; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this SECTION 7.1(C) shall not be available to Parent if Purchaser or any other affiliate of Parent shall acquire shares of Common Stock pursuant to the Offer; (d) by Parent if (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent its approval or recommendation of the Offer or any of the Company Proposals or shall have approved or recommended any Company Takeover Proposal or (ii) the Board of Directors of the Company or any committee thereof shall have resolved to take any of the foregoing actions; (e) by either Parent or the Company if the Offer shall have expired or been terminated without any Shares being purchased thereunder by Purchaser as a result of the occurrence of any of the events set forth in ANNEX I hereto; (f) by either the Company or Parent if either (x) as the result of the failure of the Minimum Condition or any of the other conditions set forth in Annex I hereto, the Offer shall have terminated or expired in accordance with its terms without Purchaser having purchased any Shares pursuant to the Offer or (y) the Offer shall not have been consummated on or before March 31, 1998, PROVIDED that the right to terminate this Agreement pursuant to this SECTION 7.1(F) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Offer to be consummated by such time; (g) by the Company if Parent or Purchaser shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to Parent; or (h) by the Company in accordance with SECTION 4.8(B) hereof; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this SECTION 7.1(H) shall not be available (x) if the Company has breached in any material respect its obligations under SECTION 4.8 hereof, or (y) if the Company shall fail to pay when due the fees and expenses contemplated by SECTION 8.7 hereof. The party desiring to terminate this Agreement pursuant to the preceding paragraphs shall give written notice of such termination to the other party in accordance with SECTION 8.5 hereof. 7.2. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of this Agreement and the abandonment of the Offer or the Merger pursuant to this ARTICLE VII, this -43- Agreement (other than SECTIONS 7.2, 8.1, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8, 8.10, 8.11, 8.12, 8.13, 8.14 and 8.15 hereof) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, agents, legal or financial advisors or other representatives); PROVIDED, HOWEVER, that no such termination shall relieve any party hereto from any liability for any breach of this Agreement prior to termination. If this Agreement is terminated as provided herein, each party shall use all reasonable best efforts to redeliver all documents, work papers and other material (including any copies thereof) of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same. ARTICLE VIII MISCELLANEOUS 8.1. CONFIDENTIALITY. (a) Unless (i) otherwise expressly provided in this Agreement, (ii) required by applicable Law or any listing agreement with, or the rules and regulations of, any applicable securities exchange or the NASD, (iii) necessary to secure any required Consents as to which the other party has been advised or (iv) consented to in writing by Parent and the Company, all information (whether oral or written) and documents furnished in connection herewith together with analyses, compilations, studies or other documents prepared by such party which contain or otherwise reflect such information shall be kept strictly confidential by the Company, Parent and their respective officers, directors, employees and agents. Prior to any disclosure pursuant to the preceding sentence, the party intending to make such disclosure shall consult with the other party regarding the nature and extent of the disclosure. Nothing contained herein shall preclude disclosures to the extent necessary to comply with accounting, SEC and other disclosure obligations imposed by applicable Law. In the event the transactions contemplated by this Agreement are not consummated, each party shall return to the other any documents furnished by the other and all copies thereof that any of them may have made and will hold in confidence any information obtained from the other party except to the extent (a) such party is required to disclose such information by Law or such disclosure is necessary or desirable in connection with the pursuit or defense of a claim, (b) such information was known by such party prior to such disclosure (and PROVIDED that, except with respect to information referred to in the following clause (c), such party shall have advised the other party of such knowledge upon or promptly after its receipt of such information) or was thereafter developed or obtained by such party independent of such disclosure or (c) such information is or becomes generally available to the public other than by breach of this SECTION 8.1 (or, to such party's knowledge, breach of a confidentiality agreement with the other party). Prior to any disclosure of information pursuant to the exception in clause (a) of the preceding sentence, the party intending to disclose the same shall so notify the party which provided the same in order that such party may seek a protective -44- order or other appropriate remedy should it choose to do so. (b) The Parent and the Company further acknowledge that certain of the business and activities of each of them is competitive with business and activities of the other party, and each of them therefore agrees that it will not use, or seek to obtain any competitive or other business advantage as a result of, the information or documents so received by it in connection herewith, such party acknowledging that such use would be unfair and materially detrimental to the other party, PROVIDED that the provisions of this SECTION 8.1(b) shall not apply to information referred to in clause (c) of SECTION 8.1(a) hereof. 8.2. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or supplemented only by a written agreement among the Company, Parent and Purchaser. 8.3. WAIVER OF COMPLIANCE; CONSENTS. Any failure of the Company on the one hand, or Parent and Purchaser on the other hand, to comply with any obligation, covenant, agreement or condition herein may be waived by Parent on the one hand, or the Company on the other hand, only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Whenever this Agreement requires or permits consent by or on behalf of any party hereto, such consent shall be given in writing in a manner consistent with the requirements for a waiver of compliance as set forth in this SECTION 8.3. 8.4. SURVIVAL. The respective representations, warranties, covenants and agreements of the Company and Parent contained herein or in any certificates or other documents delivered prior to or at the Closing shall survive the execution and delivery of this Agreement, notwithstanding any investigation made or information obtained by the other party, but shall terminate at the Effective Time, except for those contained in SECTIONS 1.7, 1.8, 1.9, 1.14, 5.4, 5.5, 5.7 and 8.8 hereof and this SECTION 8.4, which shall survive beyond the Effective Time. 8.5. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by facsimile, receipt confirmed, or on the next business day when sent by overnight courier or on the second succeeding business day when sent by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice): -45- (i) if to the Company, to: Holmes Protection Group, Inc. 440 Ninth Avenue New York, New York 10001 Attention: George V. Flagg, President Telecopy: (212) 629-6763 with a copy to: Dennis M. Stern, Esq. Senior Vice President and General Counsel Holmes Protection Group, Inc. 440 Ninth Avenue New York, New York 10001 Telecopy: (212) 563-0129 and to Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Cornelius T. Finnegan, III, Esq. Telecopy: (212) 821-8111 and (ii) if to Parent or Purchaser, to: Tyco International Ltd. The Gibbons Building 10 Queen Street, Suite 301 Hamilton HM11 Bermuda Attention: Secretary Telecopy: (441) 295-9647 with a copy to: Tyco International (US) Inc. One Tyco Park Exeter, New Hampshire 03833 Attention: Mark H. Swartz Telecopy: (603) 778-7700 and to Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 Attention: Abbe L. Dienstag, Esq. Telecopy: (212) 715-8000 8.6. BINDING EFFECT; ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this -46- Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto prior to the Effective Time without the prior written consent of the Company, in the case of a proposed assignment by Parent or Purchaser, or by Parent, in the case of a proposed assignment by the Company, except that Purchaser may assign its rights, interest and obligations hereunder to any other wholly-owned direct or indirect subsidiary of Parent, provided that the provisions of SECTION 5.7 hereof shall apply to such other subsidiary. 8.7. EXPENSES. (a) Except as provided in SECTION 8.7(b) or 8.7(c) hereof, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses. (b) The Company agrees that if this Agreement is terminated pursuant to (i) Section 7.1(d); (ii) Section 7.1(h); or (iii) SECTION 7.1(F) and, with respect to this clause (iii), at the time of such termination any person, entity or group (as defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of its affiliates or any person identified in the Company's Proxy Statement dated April 30, 1997 and who has executed a Stockholder Agreement of even date herewith with Parent and Purchaser, provided that such person has not breached the terms of such Stockholder Agreement) shall have become the beneficial owner of more than 20% of the outstanding shares of Company Stock and such person, entity or group (or any affiliate of such person, entity or group) thereafter (x) shall make a Company Takeover Proposal and, in the case of a consensual transaction with the Company, shall substantially have negotiated the terms thereof, at any time on or prior to the date which is six months after such termination of this Agreement, and (y) shall consummate such Company Takeover Proposal at any time on or prior to the date which is one year after termination of this Agreement, in the case of a consensual transaction, or six months after termination of this Agreement, in the case of a non-consensual transaction, in each case with a value per share of Company Stock of at least $17.00 (with appropriate adjustments for reclassifications of capital stock, stock dividends, stock splits, reverse stock splits and similar events); then the Company shall pay to Parent the sum of (a) $3.5 million. Any payment required by this SECTION 8.7(b) shall be made as promptly as practicable but in no event later than two business days following termination of this Agreement pursuant to SECTION 7.1(d) OR 7.1(h) hereof, or, in the case of clause (iii) of this SECTION 8.7(b), upon consummation of such Company Takeover Proposal, and shall be made by wire transfer of immediately -47- available funds to an account designated by Parent. (c) The Company further agrees that if this Agreement is terminated pursuant to SECTION 7.1(C)(I) hereof, (i) the Company will pay to Parent, as promptly as practicable but in no event later than two business days following termination of this Agreement, the amount of all documented and reasonable costs and expenses incurred by Parent, Purchaser and their affiliates (including but not limited to fees and expenses of counsel and accountants and out-of-pocket expenses (but not fees) of financial advisors) in an aggregate amount not to exceed $350,000 in connection with this Agreement or the transactions contemplated hereby ("PARENT EXPENSES"); and (ii) in the event that the Company consummates a Company Takeover Proposal (whether or not solicited in violation of this Agreement) within one year from the date of termination of this Agreement, the sum of $3.5 million, less the amount of any payment made pursuant to clause (i) of this Section 8.7(c), which payment shall be made not later than two business days following consummation of such Company Takeover Proposal. (d) The Company further agrees that if this Agreement is terminated pursuant to SECTION 7.1(C)(II) hereof, the Company will pay to Parent, as promptly as practicable but in no event later than two business days following termination of this Agreement, the Parent Expenses. 8.8. GOVERNING LAW. This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with the laws of, the State of New York. 8.9. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.10. INTERPRETATION. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. As used in this Agreement, (i) the term "PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an association, an unincorporated organization, a Governmental Authority and any other entity, (ii) unless otherwise specified herein, the term "AFFILIATE," with respect to any person, shall mean and include any person controlling, controlled by or under common control with such person and (iii) the term "SUBSIDIARY" of any specified person shall mean any corporation 50 percent or more of the outstanding voting power of which, or any -48- partnership, joint venture, limited liability company or other entity 50 percent or more of the total equity interest of which, is directly or indirectly owned by such specified person. 8.11. ENTIRE AGREEMENT. This Agreement and the documents or instruments referred to herein including, but not limited to, the Annex(es) attached hereto and the Disclosure Letter referred to herein, which Annex(es) and Disclosure Letter are incorporated herein by reference, embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants, or undertakings other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. Notwithstanding the foregoing provisions of this SECTION 8.11, the provisions of the letter agreement dated October 14, 1997 between Tyco International (US) Inc. and J.P. Morgan Securities Inc., as agent for the Company, shall remain in effect in accordance with their terms. 8.12. SEVERABILITY. In case any provision in this Agreement shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 8.13. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the parties further agree that each party shall be entitled to an injunction or restraining order to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other right or remedy to which such party may be entitled under this Agreement, at law or in equity. 8.14. THIRD PARTIES. Nothing contained in this Agreement or in any instrument or document executed by any party in connection with the transactions contemplated hereby shall create any rights in, or be deemed to have been executed for the benefit of, any person that is not a party hereto or thereto or a successor or permitted assign of such a party; PROVIDED HOWEVER, that the parties hereto specifically acknowledge that the provisions of SECTION 5.5 hereof are intended to be for the benefit of, and shall be enforceable by, the Indemnified Parties. 8.15. DISCLOSURE LETTER. Parent acknowledges that the Company Disclosure Letter (i) relates to certain matters concerning the disclosures required and transactions contemplated -49- by this Agreement, (ii) is qualified in its entirety by reference to specific provisions of this Agreement, (iii) is not intended to constitute and shall not be construed as indicating that such matter is required to be disclosed, nor shall such disclosure be construed as an admission that such information is material with respect to the Company, except to the extent required by this Agreement. -50- IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this Agreement to be signed and delivered by their respective duly authorized officers as of the date first above written. TYCO INTERNATIONAL LTD. By:/s/ Mark H. Swartz ------------------ Name: Mark H. Swartz Title: Vice President and Chief Financial Officer T9 ACQUISITION CORP. By:/s/ Mark H. Swartz ------------------ Name: Mark H. Swartz Title: Vice President HOLMES PROTECTION GROUP, INC. By:/s/ George V. Flagg ------------------- Name: George V. Flagg Title: President -51- ANNEX I CONDITIONS TO THE OFFER. Notwithstanding any other provision of the Offer, Purchaser shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) promulgated under the Securities Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and (subject to any such rules or regulations) may delay the acceptance for payment of any tendered Shares and (except as provided in this Agreement) amend or terminate the Offer as to any Shares not then paid for if (i) the condition that there shall be validly tendered and not withdrawn prior to the expiration of the Offer a number of Shares which represents at least 51% of the total number of Shares on a fully-diluted basis shall not have been satisfied (the "MINIMUM CONDITION") or (ii) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer or (iii) at any time after the date of this Agreement and before the time of payment for any such Shares (whether or not any Shares have theretofore been accepted for payment or paid for pursuant to the Offer), any of the following conditions exists: (a) there shall be in effect an injunction or other order, decree, judgment or ruling by a Governmental Authority of competent jurisdiction or a Law shall have been promulgated, or enacted by a Governmental Authority of competent jurisdiction which in any such case (i) restrains or prohibits the making or consummation of the Offer or the consummation of the Merger, (ii) prohibits or restricts the ownership or operation by Parent (or any of its affiliates or subsidiaries) of any portion of the Company's business or assets, or Parent's business or assets relating to the security services business, which is material to the security services business of all such entities taken as a whole, or compels Parent (or any of its affiliates or subsidiaries) to dispose of or hold separate any portion of the Company's business or assets, or Parent's business or assets relating to the security services business, which is material to the security services business of all such entities taken as a whole, (iii) imposes material limitations on the ability of Purchaser effectively to acquire or to hold or to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by Purchaser on all matters properly presented to the stockholders of the Company, or (iv) imposes any material limitations on the ability of Parent or any of its affiliates or subsidiaries effectively to control in any material respect the business and operations of the Company, or (v) seeks to restrict any future business activity by Parent (or any of its affiliates) relating to the security services business, including, without limitation, by requiring the prior consent of any person or entity (including any Governmental Authority) to future transactions by Parent (or any of its affiliates); or (b) there shall have been instituted, pending or threatened an action by a Governmental Authority seeking to restrain or prohibit the making or consummation of the Offer or the consummation of the Merger or to impose any other restriction, prohibition or limitation referred to in the foregoing paragraph (a); or (c) this Agreement shall have been terminated by the Company or Parent in accordance with its terms; or (d) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in the Shares on the NASDAQ National Market System, (ii) any decline, measured from the date of this Agreement, in the Dow Jones Industrial Average or Standard & Poor's 500 Index by an amount in excess of 15%, (iii) a declaration of a banking moratorium or any general suspension of payments in respect of banks in the United States or (iv) in the case of any of the foregoing existing at the time of the execution of this Agreement, a material acceleration or worsening thereof; or (e) Parent and the Company shall have agreed that Purchaser shall amend the Offer to terminate the Offer or postpone the payment for Shares pursuant thereto; or (f) any of the representations and warranties made by the Company in the Merger Agreement shall not have been true and correct in all material respects when made, or shall thereafter have ceased to be true and correct in all material respects as if made as of such later date (other than representations and warranties made as of a specified date), or the Company shall not in all material respects have performed each obligation and agreement and complied with each covenant to be performed and complied with by it under this Agreement, PROVIDED, however, that such breach or future to perform is incapable of being cured or has not been cured within 5 days after the giving of written notice thereof to the Company, PROVIDED, however, that no such 5-day cure period shall require extension of the Offer beyond the twenty (20) business days provided under Section 1.1(b) of the Agreement; or (g) the Company's Board of Directors shall have modified or amended its recommendation of the Offer in any manner adverse to Parent or shall have withdrawn its recommendation of the Offer, or shall have recommended acceptance of any Company Takeover Proposal or shall have resolved to do any of the foregoing; or (h) any corporation, entity or "group" (as defined in Section 13(d)(3) of the Exchange Act) ("PERSON"), other than Parent and Purchaser and any person identified in the Company's Proxy Statement dated April 30, 1997 and who has executed a Stockholder Agreement of even date herewith with Parent and Purchaser, provided that such person has not breached the terms of such Stockholder Agreement, shall have acquired beneficial ownership of more than 20% of the outstanding Shares, or shall have been granted any options or rights, conditional or A-2 otherwise, to acquire a total of more than 20% of the outstanding Shares; (ii) any new group shall have been formed which beneficially owns more than 20% of the outstanding Shares; or (iii) any person (other than Parent or one or more of its affiliates) shall have entered into an agreement in principle or definitive agreement with the Company with respect to a tender or exchange offer for any Shares or a merger, consolidation or other business combination with or involving the Company; or (i) any change, development, effect or circumstance shall have occurred or be threatened that would reasonably be expected to have a Material Adverse Effect with respect to the Company; or (j) the Company shall commence a case under any chapter of Title XI of the United States Code or any similar law or regulation; or a petition under any chapter of Title XI of the United States Code or any similar law or regulation is filed against the Company which is not dismissed within 2 business days. The foregoing conditions are for the sole benefit of Parent and Purchaser and may be asserted by Parent or Purchaser regardless of the circumstances giving rise to any such condition and may be waived by Parent or Purchaser, in whole or in part, at any time and from time to time, in the sole discretion of Parent. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any right, the waiver of such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances, and each right shall be deemed an ongoing right which may be asserted at any time and from time to time. Should the Offer be terminated pursuant to the foregoing provisions, all tendered Shares not theretofore accepted for payment shall forthwith be returned by the Exchange Agent to the tendering stockholders. A-3 GLOSSARY OF DEFINED TERMS 1996 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Bank Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Certificate of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Change in Control Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Company Acquisition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Company Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Company Disclosure Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Company Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . 26 Company Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Company Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Company Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Company Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Company Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Company Securities Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Company Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Company Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Company Superior Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Company Takeover Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Company Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 D&O Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Defined Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Delaware Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Enforceability Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Environmental Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ERISA Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Financial Advisor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Indemnified Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Independent Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ISO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Materials of Environmental Concern . . . . . . . . . . . . . . . . . . . . . . . . 29 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Minimum Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Offer Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Offer to Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Other Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Parent Benefit Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Parent Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Parent Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Parent Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Per Share Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Schedule 14D-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Schedule 14D-9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Securities Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Surviving Corporation Common Stock . . . . . . . . . . . . . . . . . . . . . . . . .7 Takeover Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EX-99.3 4 EXHIBIT 3 STHLD AGMT D/D/ 12/28/97 STOCKHOLDER AGREEMENT THIS STOCKHOLDER AGREEMENT is made and entered into as of this 28th day of December 1997, among TYCO INTERNATIONAL LTD., a Bermuda company ("PARENT"), T9 ACQUISITION CORP., a Delaware corporation and an indirect, wholly owned subsidiary of Parent ("PURCHASER"), and the other parties signatory hereto (each, a "STOCKHOLDER"). WHEREAS each Stockholder desires that HOLMES PROTECTION GROUP, INC., a Delaware corporation (the "COMPANY"), Parent and Purchaser enter into an Agreement and Plan of Merger dated as of the date hereof (as the same may be amended or supplemented, the "MERGER AGREEMENT") with respect to the merger of Purchaser with and into the Company (the "MERGER"); and WHEREAS each Stockholder is executing this Agreement as an inducement to Parent to enter into and execute, and to cause Purchaser to enter into and execute, the Merger Agreement. NOW, THEREFORE, in consideration of the execution and delivery by Parent and Purchaser of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: SECTION 1. REPRESENTATIONS AND WARRANTIES. Each Stockholder severally, and not jointly, represents and warrants to Parent and Purchaser as follows: (a) Such Stockholder (individually or together with such other Stockholders as indicated on SCHEDULE A hereto) has voting and dispositive power over the number of shares of Common Stock, par value $.01 per share, of the Company (the "COMPANY COMMON STOCK"), set forth opposite such Stockholder's name in SCHEDULE A hereto (as may be adjusted from time to time pursuant to Section 5, such Stockholder's "SHARES"). Except for such Stockholder's Shares and any other shares of Company Common Stock subject hereto, such Stockholder does not have dispositive or voting power over any other shares of Company Common Stock. (b) Such Stockholder's Shares and the certificates representing such Shares are now and at all times during the term hereof will be held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. (c) Such Stockholder understands and acknowledges that Parent is entering into, and causing Purchaser to enter into, the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. Such Stockholder acknowledges that the irrevocable proxy set forth in Section 4 is granted in consideration for the execution and delivery of the Merger Agreement by Parent and Purchaser. SECTION 2. AGREEMENT TO TENDER. Each Stockholder hereby severally agrees that it shall tender its Shares into the Offer (as defined in the Merger Agreement) and that it shall not withdraw any Shares so tendered unless the Offer (i) is withdrawn in accordance with the terms of the Merger Agreement or (ii) expires and the conditions set forth in Annex I to the Merger Agreement shall not have been satisfied or waived by Parent or Purchaser. SECTION 3. COVENANTS. Each Stockholder severally, and not jointly, agrees with, and covenants to, Parent and Purchaser as follows: (a) Such Stockholder shall not, except as contemplated by the terms of this Agreement, (i) transfer (the term "TRANSFER" shall include, without limitation, for the purposes of this Agreement, any sale, gift, pledge or other disposition), or consent to any transfer of, any or all of such Stockholder's Shares or any interest therein, (ii) enter into any contract, option or other agreement or understanding with respect to any transfer of any or all of such Shares or any interest therein, (iii) grant any proxy, power-of- attorney or other authorization or consent in or with respect to such Shares, (iv) deposit such Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Shares or (v) take any other action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the transactions contemplated hereby. (b) Such Stockholder shall not, nor shall it permit any investment banker, attorney or other adviser or representative of such Stockholder acting on its behalf to, directly or indirectly, (i) solicit, initiate or encourage the submission of, any Company Takeover Proposal (as defined in the Merger Agreement) or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Company Takeover Proposal, provided that the foregoing restrictions shall not be applicable in any case to the extent that, pursuant to the Merger Agreement, such restrictions would not be applicable to the Company. SECTION 4. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY. (a) Each Stockholder hereby irrevocably (except in accordance with the provisions of Section 8) grants to, and appoints, Parent and Jeff Mattfolk, Brian Moroze and any other individual who shall hereafter be designated by Parent, such Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote such Stockholder's Shares, or grant a consent or approval in respect of such Shares, at any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by the Company and (ii) any amendment of the Company's Articles of Incorporation or By-laws or other proposal or transaction (including any consent solicitation to remove or elect any directors of the Company) involving the Company or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, or result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under or with respect to, the Offer, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (ii) or (iii) above, a "COMPETING TRANSACTION"). (b) Such Stockholder represents that any proxies heretofore given in respect of such Stockholder's Shares are not irrevocable, and that any such proxies are hereby revoked. (c) Such Stockholder hereby affirms that the irrevocable proxy set forth in this Section 4 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Stockholder under this Agreement. Such Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked (except in accordance with the provisions of Section 8). Such Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 212 of the Delaware General Corporation Law (the "DGCL"). 2 SECTION 5. CERTAIN EVENTS. Each Stockholder agrees that this Agreement and the obligations hereunder shall attach to such Stockholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including without limitation such Stockholder's heirs, guardians, administrators or successors. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the Company Common Stock, or the acquisition of additional shares of Company Common Stock or other securities or rights of the Company by any Stockholder, the number of Shares listed on Schedule A beside the name of such Stockholder shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional shares of Company Common Stock or other securities or rights of the Company issued to or acquired by such Stockholder. SECTION 6. STOP TRANSFER. The Company agrees with, and covenants to, Parent that the Company shall not register the transfer of any certificate representing any Stockholder's Shares, unless such transfer is made to Parent or Purchaser or otherwise in compliance with this Agreement. Each Stockholder acknowledges that its Shares will be placed by the Company on the "stop-transfer list" maintained by the Company's transfer agent until this Agreement is terminated pursuant to its terms. SECTION 7. FURTHER ASSURANCES. Each Stockholder shall, upon request of Parent or Purchaser execute and deliver any additional documents and take such further actions as may reasonably be deemed by Parent or Purchaser to be necessary or desirable to carry out the provisions hereof and to vest the power to vote such Stockholder's Shares as contemplated by Section 4 in Parent and the other irrevocable proxies described therein. SECTION 8. TERMINATION. This Agreement, and all rights and obligations of the parties hereunder and the proxy provided in Section 4, shall terminate upon the earlier of (a) the date upon which the Merger Agreement is terminated in accordance with its terms or (b) the date that Parent or Purchaser shall have purchased and paid for the Shares of each Stockholder pursuant to Section 2. SECTION 9. MISCELLANEOUS. (a) Capitalized terms used and not otherwise defined in this Agreement shall have the respective meanings assigned to such terms in the Merger Agreement. (b) All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Purchaser, to the address set forth in Section 8.5 of the Merger Agreement; and (ii) if to a Stockholder, to the address set forth on Schedule A hereto, or such other address as may be specified in writing by such Stockholder. (c) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (d) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective (even without the signature of any other Stockholder) as to any Stockholder when one or more counterparts have been signed by each of Parent, Purchaser and such Stockholder and delivered to Parent, Purchaser and such Stockholder. 3 (e) This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. (f) This Agreement shall be governed by, and construed in accordance with, the laws of the state of New York and, to the extent expressly provided herein, the DGCL, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (g) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except by laws of descent. Any assignment in violation of the foregoing shall be void. (h) If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any event, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. (i) Each Stockholder agrees that irreparable damage would occur and that Parent and Purchaser would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Parent and Purchaser shall be entitled to an injunction or injunctions to prevent breaches by any Stockholder of this Agreement and to enforce specifically the terms and provisions of this Agreement. Each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the State of New York in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court located in the State of New York. The prevailing party in any judicial action shall be entitled to receive from the other party reimbursement for the prevailing party's reasonable attorneys' fees and disbursements, and court costs. (j) No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. 4 IN WITNESS WHEREOF, Parent, Purchaser and the Stockholders have caused this Agreement to be duly executed and delivered as of the date first written above. TYCO INTERNATIONAL LTD. By:/s/ Mark H. Swartz -------------------------------- Name: Mark H. Swartz Title: Executive Vice President and Chief Financial Officer T9 ACQUISITION CORP. By:/s/ Mark H. Swartz -------------------------------- Name: Mark H. Swartz Title: Vice President ACKNOWLEDGED AND AGREED TO AS TO SECTION 6: HOLMES PROTECTION GROUP, INC. By:/s/ George V. Flagg --------------------------- Name: George V. Flagg Title: President 5 SCHEDULE A NUMBER OF SHARES OF NAME, ADDRESS AND SIGNATURE OF STOCKHOLDER COMMON STOCK OWNED - ------------------------------------------ ------------------ HP Partners L.P. 2,201,600 c/o HP Management, Inc. 444 Madison Avenue 38th Floor New York, NY 10022 6 EX-99.4 5 EXHIBIT 4 LETTER TO STHLDS D/D/ 1/6/98 [Letterhead of Holmes Protection Group, Inc.] [LOGO] January 6, 1998 To Our Stockholders: We are pleased to inform you that on December 28, 1997, Holmes Protection Group, Inc. (the "Company") entered into an Agreement and Plan of Merger (the "Merger Agreement") with Tyco International Ltd. ("Tyco") and T9 Acquisition Corp. ("Purchaser"), an indirect wholly owned subsidiary of Tyco, pursuant to which Purchaser has commenced a tender offer (the "Offer") to purchase all of the outstanding shares of the Company's common stock, par value $0.01 per share ("Common Stock"), for a cash price of $17.00 per share. The Offer is conditioned upon, among other things, the tender of at least 51% of the Common Stock outstanding on a fully diluted basis. The Merger Agreement provides that following consummation of the Offer, Purchaser will be merged (the "Merger") with and into the Company, and those shares of Common Stock that are not acquired in the Offer will be converted into the right to receive $17.00 per share of Common Stock in cash. The Board of Directors has unanimously approved the Merger Agreement, the Offer and the Merger and determined that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company and its stockholders and unanimously recommends that the Company's stockholders accept the Offer and tender their Shares pursuant to the Offer. In arriving at its recommendation, the Board of Directors considered the factors described in the accompanying Schedule 14D-9, including the opinion of the Company's financial advisor, J.P. Morgan Securities Inc. ("J.P. Morgan"), to the effect that, as of the date of such opinion, the consideration to be paid to the stockholders of the Company pursuant to the Merger Agreement in the Offer and the Merger is fair to the holders of Common Stock from a financial point of view. A copy of J.P. Morgan's written opinion, which sets forth the assumptions made, procedures followed and matters considered in, and the limitation on, the review by J.P. Morgan in rendering its opinion, is attached to the Schedule 14D-9 as Schedule I. The accompanying Offer to Purchase sets forth all of the terms of the Offer. Additionally, the enclosed Schedule 14D-9 sets forth additional information regarding the Offer and the Merger relevant to making an informed decision. We urge you to read these materials carefully and in their entirety. Very truly yours, /s/ George V. Flagg George V. Flagg President and Chief Executive Officer EX-99.5 6 EXHIBIT 5 JOINT PRESS RELEASE Tyco International Ltd. Cedar House 41 Cedar Avenue Hamilton HM 12, Bermuda (441) 292-2033 NEWS FOR IMMEDIATE RELEASE CONTACT: CONTACT: David P. Brownell George V. Flagg Tyco International Ltd. Holmes Protection Group, Inc. (603) 778-9700 (212) 629-1213 TYCO INTERNATIONAL TO ACQUIRE HOLMES PROTECTION ACQUISITION TO EXPAND TYCO'S COMMERCIAL SECURITY PRESENCE Hamilton, Bermuda, and New York, New York, December 29, 1997 -- Tyco International Ltd. (NYSE-TYC, LSE-TYI) (Tyco), a diversified manufacturing and service company, and Holmes Protection Group, Inc. (NASDAQ-HLMS) (Holmes), a provider of electronic security systems, announced today that they have entered into a definitive merger agreement pursuant to which Tyco will purchase, for cash, all of the outstanding common stock of Holmes for $17.00 per share. Holmes, headquartered in New York, NY, has revenues of $70 million and provides electronic security systems to over 65,000 commercial and residential customers throughout the United States with a strong presence in the Northeast. Over 50 percent of its revenues are from monitoring services, which provide a strong base of recurring revenue. Holmes will be integrated with Tyco's ADT Security Services. "Holmes is an excellent addition to our growing electronic security business. Their emphasis on industrial, commercial and institutional customers will enhance ADT's current position in this important market," said L. Dennis Kozlowski, Tyco's Chairman and Chief Executive Officer. "We will continue to grow our presence in the electronic security industry with a combination of internal growth coupled with acquisitions that are immediately accretive to our shareholders," he concluded. Under the agreement, a subsidiary of Tyco will commence a tender offer to purchase all of Holmes' approximately 6.3 million shares of common stock outstanding for cash of $17.00 per share. The tender offer will be followed by a merger in which each of the remaining shares of Holmes will be exchanged for $17.00 in cash. The offer will be made pursuant to definitive offering documents which will be filed with the Securities and Exchange Commission. The offer is conditioned on the tender of a majority of the outstanding shares of common stock on a fully diluted basis, as well as certain other conditions. Tyco International Ltd., a diversified manufacturing and service company, is the world's largest manufacturer and installer of fire protection systems, the largest provider of electronic security services in North America and the United Kingdom and has strong leadership positions in disposable medical products, packaging materials, flow control products, electrical and electronic components and underwater telecommunications systems. The Company operates in more than 50 countries around the world and will have annual revenues of in excess of $12 billion. FORWARD LOOKING INFORMATION Certain statements in this release are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All forward looking statements involve risks and uncertainties. In particular, any statements contained herein regarding the consummation and benefits of future acquisitions, as well as expectations with respect to future sales, operating efficiencies and product expansion, are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factors that might affect such forward looking statements include, among other things, overall economic and business conditions, the demand for the Company's goods and services, competitive factors in the industries in which the Company competes, changes in government regulation and the timing, impact and other uncertainties of future acquisitions. 2 EX-99.6 7 EXHIBIT 6 OPINION OF J.P. MORGAN [Letterhead of J.P. Morgan Securities Inc.] [LOGO] December 26, 1997 The Board of Directors Holmes Protection Group, Inc. 440 Ninth Avenue New York, NY 10001 Attention: William P. Lyons Chairman Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to the stockholders of Holmes Protection Group, Inc. (the "Company) of the consideration proposed to be paid to such stockholders in connection with the proposed Tender Offer (as hereinafter defined) and subsequent merger (the "Merger") of the Company with T9 Acquisition Corp. (the "Sub"), a wholly owned subsidiary of Tyco International Ltd. (the "Buyer"). We understand that pursuant to an Agreement and Plan of Merger (the "Agreement") to be entered into among the Company, the Buyer and the Sub, the Sub will commence a tender offer (the "Tender Offer") for all of the outstanding shares of the common stock of the Company, par value $.01 per share (the "Shares"), at a price of $17.00 per Share, net to the seller in cash, to be followed by the Merger of the Company with the Sub pursuant to which the Company will become a wholly owned subsidiary of the Buyer and each outstanding Share (other than Shares owned by the Buyer, the Sub or any direct or indirect wholly owned subsidiaries of the Buyer, or any of the Company's direct or indirect wholly owned subsidiaries, Shares held in the treasury of the Company or Shares as to which dissenter's rights are perfected) will be converted into the right to receive $17.00 in cash. In arriving at our opinion, we have reviewed (i) a draft of the Agreement; (ii) certain publicly available information concerning the Company and of certain other companies engaged in businesses comparable to those of the Company, and the reported market prices for certain other companies' securities deemed comparable; (iii) publicly available terms of certain transactions involving companies comparable to the Company and the consideration received for such companies; (iv) current and historical market prices of the Shares of the Company; (v) the financial statements of the Company for the fiscal year ended December 31, 1996, the financial statements of the Company for the period ended September 30, 1997, the draft Form 10-K/A of the Company for the fiscal year ended December 31, 1996 and the draft Form 10-Q/A of the Company for each of the quarterly periods ended September 30, 1997, June 30, 1997, and March 31, 1997 which drafts, among other things, included the restatement of the Company's financial statements; (vi) certain agreements with respect to outstanding indebtedness or obligations of the Company; (vii) certain internal financial analyses and forecasts prepared by management of the Company; and (viii) the terms of other business combinations that we deemed relevant. [LOGO] In addition, we have held discussions with certain members of the senior management of the Company with respect to certain aspects of the proposed Tender Offer and Merger, the past and current business operations of the Company, the financial condition and future prospects and operations of the Company, and certain other matters we believed necessary or appropriate to our inquiry. We have reviewed such other financial studies and analyses and considered such other information as we deemed appropriate for the purposes of this opinion. In addition, we note that a public announcement was made by the Company on November 12, 1997 that the Company had retained J.P. Morgan & Co. to assist the Company in exploring strategic alternatives as part of an overall review of its business strategy aimed at maximizing shareholder value, including the possible sale or merger of the Company. In giving our opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or was furnished to us by the Company or otherwise reviewed by us, and we have not assumed any responsibility or liability therefor. We have not conducted any valuation or appraisal of any assets or liabilities of the Company, nor have any such valuations or appraisals been provided to us. In relying on financial analyses and forecasts provided to us, we have assumed that they have been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by the Company's senior management as to the expected future results of operations and financial condition of the Company. We have also assumed that the Tender Offer, the Merger and the other transactions contemplated by the Agreement will be consummated as provided in the Agreement. We have relied as to all legal matters relevant to rendering our opinion upon the advice of counsel. Our opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. It should be understood that subsequent developments may affect this opinion and that we do not have any obligation to update, revise, or reaffirm this opinion. We have acted as financial advisor to the Company with respect to the proposed Tender Offer and Merger and will receive a fee from the Company for our services. We will also receive an additional fee if the proposed Tender Offer is consummated. Our affiliate, Morgan Guaranty Trust Company of New York, acts as agent bank for the Buyer on a revolving credit facility and we have acted as lead and co-lead manager for the Buyer on several debt offerings and an equity offering, respectively. In the ordinary course of their businesses, our affiliates may actively trade the debt and equity securities of the Company or the Buyer for their own account or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities. On the basis of and subject to the foregoing, it is our opinion as of the date hereof that the consideration to be paid to the holders of Shares pursuant to the Merger Agreement in the proposed Tender Offer and Merger is fair, from a financial point of view, to such holders. 2 [LOGO] This letter is provided to the Board of Directors of the Company in connection with and for the purposes of its evaluation of the Merger. This opinion does not constitute a recommendation to any stockholder of the Company as to whether or not such stockholder should tender Shares pursuant to the Tender Offer or how such stockholder should vote with respect to the Merger. This opinion may not be disclosed, referred to, or communicated (in whole or in part) to any third party for any purpose whatsoever except with our prior written consent in each instance. This opinion may be reproduced in full in any proxy or information statement or Solicitation/ Recommendation Statement on Schedule 14D-9 mailed to stockholders of the Company but may not otherwise be disclosed publicly in any manner without our prior written approval and must be treated as confidential. Very truly yours, J.P. MORGAN SECURITIES INC. By: /s/ NICHOLAS B. PAUMGARTEN ----------------------------------------------- Name: Nicholas B. Paumgarten Title: Managing Director 3 -----END PRIVACY-ENHANCED MESSAGE-----