Opinion ID: 154940
Heading Depth: 2
Heading Rank: 1

Heading: Background of AHI

Text: Alert Holdings, Inc., (AHI) is a Delaware corporation with its principal offices in Colorado. At all times relevant to this litigation, AHI was engaged in the business of providing remote electronic monitoring of business and residential security systems throughout the United States. Barnard is a former director and president of AHI. In the late 1980's, AHI began contacting investors about the possibility of investing in AHI equity securities and loaning funds to AHI or its affiliated entities. One proposed opportunity was for investors to purchase interests in various limited partnerships which were established to purchase alarm monitoring accounts from small, local companies and collect revenues therefrom. AHI allegedly agreed to provide alarm monitoring services for the partnership accounts in return for approximately 20% of the total account revenues of each of the limited partnerships. In addition to collecting fees for the monitoring services, AHI allegedly received account acquisition and set-up fees, as well as other fees. To induce investors to purchase the partnership interests, AHI allegedly projected that investors would receive cash distributions of at least a 14-15% annual rate of return. AHI allegedly predicted it would eventually exercise purchase options and acquire the assets of the limited partnerships at a premium of 35% to 50% over what investors would pay for their partnership interests. Further, AHI allegedly predicted it would ultimately become a fully integrated company after exercising these purchase options, and purchasers of AHI securities would achieve even higher rates of return than purchasers of the limited partnership interests. -4- AHI offerings took place in 1989, 1990, and the first half of 1991. Among the many investors who took part in the offerings were a group of entities, including a company called Wilmington Securities, Inc., owned and/or controlled by Henry Hillman (hereinafter the Hillman Group). Between June 1989 and December 1990, the Hillman Group purchased thousands of shares of AHI stock and, between March 1990 and July 1991, the Hillman Group loaned millions of dollars to AHI and at least one of its related limited partnerships. Due to their large investment in AHI, the Hillman Group sought and obtained representation on AHI’s board of directors, as well as in AHI’s management. Specifically, in June 1989, Steven Hutchinson, an individual associated with the Hillman Group, was appointed as a member of AHI’s board. In December 1990, Frank Terry Savage, another individual associated with the Hillman Group, was appointed as Senior Vice President of AHI. In May 1991, Savage became President and Chief Executive Officer of AHI, replacing Barnard. During 1990, AHI lost approximately thirty million dollars. In November 1991, AHI notified investors in the limited partnerships that scheduled third-quarter cash distributions would not be made. In December 1991 and January 1992, AHI and its related partnerships filed Chapter 11 bankruptcy petitions in the Southern District of New York.