[Letterhead of J.P. Morgan Securities Inc.]
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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.
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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.
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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
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Name: Nicholas B. Paumgarten
Title: Managing Director
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