EXHIBIT 20
SENTRY TECHNOLOGY CORPORATION
350 WIRELESS BOULEVARD
HAUPPAUGE, NEW YORK 11788
July 27, 1999
Dear Stockholder:
The Board of Directors of Sentry Technology Corporation has announced the
adoption of a Shareholders Rights Plan. The Plan provides for a Dividend of
Rights to purchase shares of a new series of Preferred Stock (or, in certain
circumstances, Common Stock or other consideration), exercisable upon the
occurrence of certain events.
We believe that the Plan protects your interests in the event that the Company
is confronted with coercive or unfair takeover tactics. The Plan contains
provisions to protect you in the event of an unsolicited offer to acquire the
Company. Although we are not aware of any such potential offer, the Plan affords
protection from offers that do not treat all stockholders equally, acquisitions
in the open market of shares constituting control without offering fair value to
all stockholders and other coercive or unfair takeover tactics that could impair
the Board's ability to represent your interests fully.
The Plan will not affect an offer at a fair price and otherwise in the best
interests of the Company and its stockholders as determined by its Board of
Directors. The Rights Plan will not interfere with a merger or other business
combination transaction that the Board of Directors approves as fair and as
constituting a recognition of full value to the stockholders.
The Rights would become exercisable to purchase Preferred Stock (or, in certain
circumstances, Common Stock or other consideration) only if (i) a person or
group (other than those who report ownership on Schedule 13G under the
Securities Exchange Act of 1934) acquired 15% or more of the Company's Common
Stock, or (ii) a person commenced a tender or exchange offer for 15% or more of
the Company's Common Stock. In the circumstance described in clause (i) above,
holders of Rights would be entitled to purchase, in lieu of Preferred Stock,
Common Stock of the Company at a 50% discount from market value. Moreover, in
the event that the Company were to enter into certain merger or asset sale
transactions, after the occurrence of the circumstance described in clause (i),
holders would be entitled to exercise the Rights for common stock of the
acquiring entity. The acquiring person described in clause (i) would not be
entitled to exercise Rights.
The issuance of Rights does not in any way weaken the financial strength of the
Company or interfere with its business plans. The issuance of the Rights has no
dilutive effect, will not affect reported earnings per share and will not change
the way in which you can currently trade shares of the Company's Common Stock.
A summary of the Plan is enclosed. The Plan is complex, and we urge you to read
this summary carefully. Its premise, however, is straightforward: to serve and
protect the interests of the Company's stockholders.
Sincerely,
/s/ Thomas A. Nicolette
--------------------------------
Thomas A. Nicolette
President and Chief Executive Officer
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On July 12, 1999, the Board of Directors of Sentry Technology
Corporation (the "Company") declared a dividend of one Right for each
outstanding share of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), to stockholders of record at the close of business on July 23,
1999. Each Right entitles the registered holder to purchase from the Company a
unit consisting of one one-hundredth of a share of Series B Junior Participating
Preferred Stock, par value $.001 per share (the "Preferred Stock"), at a
Purchase Price of $5.00 per unit of one one-hundredth of a share, subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and American Stock
Transfer & Trust Company, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. A Distribution Date will occur and the Rights
will separate from the Common Stock upon the earliest of (i) ten days following
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the shares of Common Stock then
outstanding* (the "Stock Acquisition Date"), or (ii) ten business days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 15% or more of such outstanding shares of
Common Stock (unless such tender offer or exchange offer is an offer for all
outstanding shares of Common Stock which a majority of the unaffiliated
Directors who are not officers of the Company determine to be fair to and
otherwise in the best interests of the Company and its stockholders).
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, (ii) new Common Stock certificates issued after July 23,
1999 will contain a notation incorporating the Rights Agreement by reference,
and (iii) the surrender for transfer of any certificates for Common Stock
outstanding will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate.
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* Under the Rights Agreement, for purposes of calculating percentages of
Common Stock outstanding, shares of Common Stock outstanding shall include
all shares of Common Stock deemed to be beneficially owned by a person and
its affiliates and associates, even if not actually then outstanding.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on July 23, 2009, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except (i) with respect to certain
shares of Common Stock issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement, or upon the exercise, conversion or
exchange of certain securities of the Company, or (ii) as otherwise determined
by the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that a person becomes the beneficial owner of 15% or more
of the then outstanding shares of Common Stock (except pursuant to an offer for
all outstanding shares of Common Stock which a majority of the Directors who are
not officers of the Company and who are not affiliates or associates of such
person determine to be fair to and otherwise in the best interests of the
Company and its stockholders) (a "Flip-in Event"), each holder of a Right will
thereafter have the right to receive, upon payment of the Purchase Price, Common
Stock (or, in certain circumstances, cash, property or other securities of the
Company) having a value (based on a formula set forth in the Rights Agreement)
equal to two times the Purchase Price of the Right. Notwithstanding any of the
foregoing, following the occurrence of the Flip-in Event, all Rights that are,
or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by an Acquiring Person (or by certain related parties) will
be null and void. However, Rights are not exercisable following the occurrence
of the Flip-in Event until such time as the Rights are no longer redeemable by
the Company as set forth below.
For example, at a Purchase Price of $5.00 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following a Flip-in
Event would entitle its holder to purchase $10.00 worth of Common Stock (or
other consideration, as noted above) determined pursuant to a formula set forth
in the Rights Agreement, for $5.00. Assuming that the Common Stock had a per
share value of $1.00 at such time (as determined pursuant to such formula), the
holder of each valid Right would be entitled to purchase ten shares of Common
Stock for $5.00.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation or in which it
is the surviving corporation but its Common Stock is changed or exchanged (other
than a merger meeting certain conditions which follows an offer for all
outstanding shares of Common Stock which a majority of the unaffiliated
Directors who are not officers of the Company determine to be fair to and
otherwise in the best interests of the Company and its stockholders), or (ii)
50% or more of the Company's assets, earning power or cash flow is sold or
transferred, each holder of a Right (except Rights which previously have been
voided as set forth above) shall thereafter have the right to receive, upon
payment of the Purchase Price, common stock of the acquiring company having a
value equal to two times the exercise price of the Right. The events set forth
in this paragraph and the Flip-in Event described in the second preceding
paragraph are referred to as the "Triggering Events."
The Purchase Price payable, and the number of units of one
one-hundredths of a share of Preferred Stock or other securities or property
issuable, upon exercise of the Rights are subject to adjustment from time to
time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred Stock, (ii) if
holders of the Preferred Stock are granted certain rights or warrants to
subscribe for Preferred Stock or convertible securities at less than the current
market price of the Preferred Stock, or (iii) upon the distribution to holders
of the Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends out of the earnings or retained earnings of the
Company) or of subscription rights or warrants (other than those referred to
above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Preferred Stock (other than fractions of one
one-hundredth of a share, or integral multiples thereof) will be issued and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the Preferred Stock on the last trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (payable in cash, Common Stock or other consideration deemed appropriate
by the Board of Directors). Immedi ately upon the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the $.01 redemption
price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above, or are redeemed as
provided in the second preceding paragraph.
Other than certain provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (other than an Acquiring Person or an
affiliate or associate thereof), or to shorten or lengthen any time period under
the Rights Agreement; PROVIDED, however, that no amendment to adjust the time
period governing redemption shall be made at such time as the Rights are not
redeemable.
The Rights have certain anti-takeover effects. Exercise of the Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company on terms not approved by the Company's Board of Directors. The
existence of Rights, however, should not affect an offer at a fair price and
otherwise in the best interests of the Company and its stockholders as
determined by the Board of Directors. The Rights should not interfere with any
merger or other business combination approved by the Board of Directors since
the Board of Directors may, at its option, at any time until ten days following
the Stock Acquisition Date redeem all but not less than all of the then
outstanding Rights at the $.01 redemption price.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Current Report on Form 8-K. A copy of the
Rights Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement, which is incorporated herein
by reference.