UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______
COMMISSION FILE NUMBER 0-28490
GUARDIAN INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 58-1799634
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3880 N. 28 TERRACE (954) 926-5200
HOLLYWOOD, FLORIDA 33020 (Issuer's telephone number)
(Address of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO _____
As of November 14, 1997, there are 8,996,804 shares of Class A Voting
Common Stock and 484,035 shares of Class B Nonvoting Common Stock of the issuer
outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES ____ NO X
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TABLE OF CONTENTS
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of September 30, 1997 and December 31, 1996 1
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended
September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended
September 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 3. Defaults Upon Senior Securities 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE>
FORM 10-QSB
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
September 30, December 31,
1997 1996
------------- ------------
(Unaudited) *
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 166,860 $ 1,037,861
Accounts receivable, net of allowance for doubtful accounts of
$138,110 at September 30, 1997 and $166,315 at December 31, 1996 732,073 569,180
Other 80,603 20,736
------------- ------------
Total current assets 979,536 1,627,777
------------- ------------
Property and equipment, net 691,314 484,859
Customer accounts, net 7,573,813 5,124,449
Intangible assets, net 1,706,524 1,718,377
Deposits and other assets 57,470 26,517
------------- ------------
Total Assets $ 11,008,657 $ 8,981,979
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 773,710 $ 578,592
Unearned revenue 247,616 123,961
Current portion of long term obligations 85,446 84,004
------------- ------------
Total current liabilities 1,106,772 786,557
------------- ------------
Long term obligations, less current portion 7,601,765 5,079,832
Shareholders' equity:
Class A voting common stock, $.001 par value, 100,000,000 shares authorized,
6,503,804 and 6,453,804 shares issued; and 6,496,804 and 6,453,804 shares
outstanding at September 30, 1997 and December 31, 1996, respectively 6,504 6,454
Class B non voting common stock, $.001 par value, 484,035 shares authorized, issued
and outstanding at September 30, 1997 and December 31, 1996 484 484
Additional paid-in capital 4,745,714 4,777,772
Accumulated deficit (2,446,144) (1,467,762)
Treasury shares (6,438) -
Notes receivable from sale of stock - (201,358)
------------- ------------
2,300,120 3,115,590
------------- ------------
Total Liabilities and Shareholders' Equity $ 11,008,657 $ 8,981,979
============= ============
</TABLE>
* Excerpted from audited Financial Statements filed with the issuer's
Form 10-KSB for the period ended December 31, 1996.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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<TABLE>
<CAPTION>
FORM 10-QSB
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
FOR THE THREE MONTHS For the Nine Months
ENDED SEPTEMBER 30, Ended September 30,
----------------------- -----------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Monitoring $ 1,016,747 $ 679,304 $ 2,836,102 $1,894,290
Installation and service 447,607 228,557 1,182,920 405,151
----------- ---------- ----------- ----------
Total revenue 1,464,354 907,861 4,019,022 2,299,441
----------- ---------- ----------- ----------
Operating expenses:
Monitoring 192,632 92,441 546,061 270,552
Installation and service 408,909 200,637 1,293,882 373,867
General and administrative 633,462 357,646 1,419,475 856,661
Amortization of customer contracts 350,385 184,889 768,212 438,998
Depreciation and amortization 88,009 35,477 245,573 116,500
----------- ---------- ----------- ----------
Total operating expenses 1,673,397 871,090 4,273,203 2,056,578
----------- ---------- ----------- ----------
Income (loss) from operations (209,043) 36,771 (254,181) 242,863
Interest expense 284,081 151,631 724,201 400,051
----------- ---------- ----------- ----------
Net loss before taxes (493,124) (114,860) (978,382) (157,188)
Provision for taxes - (63,000) - (63,000)
----------- ---------- ----------- ----------
Net loss $ (493,124) $ (177,860) $ (978,382) $ (220,188)
=========== ========== =========== ==========
Loss per share $ (0.08) $ (0.04) $ (0.15) $ (0.06)
=========== ========== =========== ==========
Average number of shares outstanding 6,496,804 4,419,453 6,473,705 3,628,787
=========== ========== =========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
2
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<TABLE>
<CAPTION>
FORM 10-QSB
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (978,382) $ (220,188)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 245,573 116,500
Amortization of customer accounts 743,726 438,998
Amortization of deferred financing costs 148,877 -
Provision for doubtful accounts 112,972 24,047
Changes in assets and liabilities:
Accounts receivable (275,865) (233,778)
Intangible and other assets (131,182) (16,435)
Accounts payable and accrued liabilities 82,468 22,916
Unearned revenue 123,655 62,825
------------- -----------
Net cash provided by operating activities 71,842 194,885
------------- -----------
Cash flows from investing activities:
Purchase of fixed assets (139,522) (179,402)
Acquisition of customer accounts (3,154,090) (2,846,742)
Cash acquired in acquisition - 3,153,330
------------- -----------
Net cash (used in) provided by investing activities (3,293,612) 127,186
------------- -----------
Cash flows from financing activities:
Payments of long term obligation (2,818,516) (1,274,129)
Proceeds from line of credit 5,175,723 3,979,649
Purchase of treasury stock (6,438) -
Payment of shareholder loans - (198,887)
Distribution to shareholder - (1,667,838)
------------- -----------
Net cash provided by financing activities 2,350,769 838,795
------------- -----------
Net increase (decrease) in cash and cash equivalents (871,001) 1,160,866
Cash and cash equivalents, beginning of period 1,037,861 14,263
------------- -----------
Cash and cash equivalents, end of period $ 166,860 $ 1,175,129
============= ===========
Noncash investing and financing activities:
Financed acquisition of property and equipment $ 166,168 $ 58,250
============= ===========
Recognition of Class B common stock to be issued $ 130,500 $ -
============= ===========
Accrual of commitment fee to senior lender $ 112,500 $ -
============= ===========
Issuance of common stock to purchase customer contracts $ 39,000 $ -
============= ===========
Write-off of stock subscription receivable from sale of stock $ 201,358 $ -
============= ===========
Fair value of Everest net assets acquired:
Subscriber accounts acquired - $ 352,000
Goodwill - $ 1,223,000
Other assets acquired - $ 332,743
Purchase price of assumed liabilities - $(1,870,032)
Supplemental disclosures:
Interest paid $ 568,264 $ 345,957
============ ===========
Income taxes paid $ - $ -
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ACCOUNTING POLICIES
The accounting policies followed by Guardian International, Inc. ("the
Company") are described in the Company's Form 10-KSB for the fiscal
year ended December 31, 1996. The accompanying unaudited consolidated
financial statements have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain adjustments (consisting only of normal and
recurring adjustments) necessary to present fairly the Company's
financial position and the results of operations for the periods
presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for interim
periods are not necessarily indicative of the results that can be
expected for a full year. These interim financial statements should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto.
2. ACQUISITIONS
On August 28, 1996, Everest Security Systems Corporation ("Everest")
acquired all of the outstanding common stock of Guardian International,
Inc. ("Guardian"), a non public company, by issuing to Guardian's
shareholders 3,226,902 authorized but unissued shares of Everest,
representing 50% of Everest at August 28, 1996. In addition, the merger
agreement required that $1,750,000 be paid to the principal shareholder
of Guardian as consideration for consummating the transaction as a
return of capital (including repayment of remaining shareholder loans
of $82,162 at the merger date). The transaction has been accounted for
under the purchase method of accounting as a reverse acquisition with
Guardian being deemed the acquirer. The name of the surviving entity
was changed from Everest to Guardian. The consolidated balance sheets
at September 30, 1997 and December 31, 1996, the consolidated
statements of operations for the three and nine month periods ended
September 30, 1997, and the consolidated statement of cash flows for
the nine month periods ended September 30, 1997 include the accounts
and activity of the surviving entity and its wholly-owned subsidiary
(Specialty Device Installers, Inc.). The consolidated statements of
operations for the three and nine month periods ended September 30,
1996, and the consolidated statement of cash flows for the nine month
period ended September 30, 1996 include the accounts and activity of
Guardian for the three and nine month periods ended September 30, 1996
and include the wholly owned subsidiary acquired by Guardian from the
merger date (August 28, 1996) through September 30, 1996.
In addition, pursuant to the merger, the Company issued 484,035 shares
of Class B non voting common stock to the Company's senior lender,
Heller Financial, Inc. ("Heller") or ("the Senior Lender") for
cancellation of their existing Capital Appreciation Rights, as defined
in the loan agreement. Also, in accordance with the terms of an
agreement, Heller is entitled to receive an additional 150,000 shares
of Class B non voting common stock. It was not determined until the
quarter ended June 30, 1997 whether the additional 150,000 Class B
shares would be transferred by the former Guardian shareholders from
their personal shares, or whether such shares would be issued by the
Company. Initial discussions indicated the former shareholders would
transfer personal shares to fulfill this obligation. During the quarter
ended June 30, 1997 it was decided the Company would
4
<PAGE>
issue the shares. The shares will be valued at $0.87 per share,
capitalized as a cost of the acquisition of Everest and amortized over
the remaining life of the debt expiring in May 1999 (see Note 4). The
Company has accrued for the deferred cost of $130,500 (150,000 shares
at $0.87 per share), recorded an increase in paid in capital of
$130,350 to recognize the shares to be issued, and recorded $150 in
accrued expense to recognize the par value of the shares to be issued
which will be reclassified to Class B common stock upon issuance of the
shares, which is expected to occur during the fourth quarter of fiscal
1997.
In May 1997 the Company completed the acquisition of the customer
contracts as well as certain other assets of Alarm Control, Inc.
("Alarm Control" or "the Seller"). A total of approximately 2,200
customer contracts were acquired, which has increased monthly revenue
by approximately $60,000 per month. The purchase price consisted of
$2.2 million in cash, 50,000 shares of Class A common stock, and an
option to the Seller to purchase 100,000 additional shares of Class A
common stock at $2.50 per share (the market price of the Company's
stock on the date of the transaction was $0.78) (see Note 6).
3. WRITE-OFF OF NOTES RECEIVABLE FROM SALE OF STOCK
During the time period between December 31, 1995 and August 31, 1996,
and prior to its merger with Guardian International, Inc., Everest
Security Systems Corporation issued, among other issuances of common
stock, 485,000 shares of Common Stock at $2.00 per share. The issuance
was exempt from registration pursuant to Rule 504 of Regulation D
promulgated under the Securities Act. These shares were issued in a
private placement to accredited investors. As consideration for 285,000
of the shares issued pursuant to such offering, Everest received notes
with original balances totaling $570,000. As of the date of the merger
of Guardian and Everest, the balances outstanding on the notes was
$201,358, which was recorded by Guardian. After exhaustive collection
efforts by the Company subsequent to the merger, no further monies have
been received, nor are any additional collections anticipated. In light
of the above factors, during the quarter ended June 30, 1997 the
Company wrote off the $201,358 as a direct reduction to additional paid
in capital.
4. RENEWED CREDIT FACILITY
In May 1997 the Company refinanced (the "Renewed Credit Facility") its
existing credit facility with Heller. Under the Renewed Credit
Facility, the maximum credit facility available to the Company was
increased from $7 million, available under the existing agreement, to
$15 million, and will be further increased to $20 million at such time
as the Company achieves a Tangible Net Worth (as defined under the
terms of the Renewed Credit Facility) of $5 million, provided that
there have been no defaults under the Renewed Credit Facility. There
can be no assurances that the Company will achieve a Tangible Net Worth
(as defined) of $5 million. Interest under the Renewed Credit Facility
is based on the 90 day LIBOR plus an additional percentage varying from
4% to 5%, depending on the Company's outstanding borrowings and
Tangible Net Worth (as defined). The Renewed Credit Facility expires in
May 1999, and shall automatically renew from year to year thereafter
unless terminated by either party. The credit facility is
collateralized by substantially all of the Company's assets.
Additionally, guarantees limited to potential losses, damages, costs
and expenses incurred by Heller regarding certain Company
representations have been provided by Harold and Sheilah Ginsburg, both
of whom are directors, officers, and principal shareholders of the
Company.
5
<PAGE>
Availability under the Renewed Credit Facility is subject to certain
"Borrowing Base" limitations (as defined under the terms of the Renewed
Credit Facility). The Renewed Credit Facility includes customary
covenants, including, but not limited to, restrictions related to the
incurring of other debt, the encumbrance or sale of the Company's
assets, and the payment of dividends or making of other distributions
to the Company's shareholders, and other financial performance
covenants. During the three-month period ended September 30, 1997, the
Company was not in compliance with certain of such covenants.
Subsequent to September 30, 1997, the Renewed Credit Facility was
amended and restated to include revisions which would bring the
Company in compliance with all covenants. Also included in the
amendment was a waiver for any previous instances of non compliance
with the covenants.
5. STOCK OPTIONS
The Company has stock options outstanding to various employees to
purchase 100,000 and 10,000 shares of common stock at $2 and $3 per
share, respectively; to an investment banker to purchase 74,720 shares
at $2 per share; and to the Seller (see Note 2) to purchase 100,000
shares at $2.50 per share. All options expire on January 1, 2002. A
summary of stock option transactions for the nine months ended
September 30, 1997 is as follows:
<TABLE>
WEIGHTED
OPTION AVERAGE
SHARES EXERCISE PRICE
------------ ---------------
<S> <C> <C>
Outstanding at January 1, 1997 184,720 $2.05
Granted 100,000 2.50
Cancelled - -
Exercised - -
------------ ---------------
Outstanding at September 30, 1997 284,720 $2.21
============ ===============
Options exercisable at September 30, 1997 184,720 $2.05
============ ===============
</TABLE>
6. LOSS PER SHARE
Primary loss per share is computed for the three and nine month periods
ended September 30, 1997 and 1996 by dividing net loss by the total of
the weighted average number of shares outstanding. Common stock
equivalents have not been considered in calculating loss per share
because their effect would be anti-dilutive.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS No. 128") which establishes standards for computing and
presenting earnings per share ("EPS"). This statement replaces primary
and fully diluted EPS with basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted average
common shares outstanding during the period. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Accounting Principles Board
Opinion No. 15. SFAS No. 128 is effective for both interim and annual
periods ending after December 15, 1997. Earlier application is not
permitted. The effect of adopting this standard is not expected to be
material.
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7. SUBSEQUENT EVENTS
During October 1997, Westar Capital, Inc. acquired approximately 37% of
the equity of the Company by purchasing 2,500,000 newly issued shares
of Class A common stock and agreeing to purchase 1,875,000 shares of
newly authorized and issued Series A 9 3/4% convertible cumulative
preferred stock ("the Preferred Shares"). The Preferred Shares are
convertible into shares of Class A common stock on a share for share
basis. The proceeds of the $7.5 million investment will be used to pay
down long term obligations, for acquisitions and other corporate
purposes. The Company received $3.75 million in October 1997 relating
to the purchase of the common shares. The remaining amount of $3.75
million, relating to the purchase of the Preferred Shares, is expected
be received in November, 1997.
7
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GUARDIAN INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTORY NOTE
FORWARD-LOOKING STATEMENTS. In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"), the Company
is hereby providing cautionary statements identifying important factors that
could cause the Company's actual results to differ materially from those
projected in forward-looking statements (as such term is defined in the Reform
Act) made by or on behalf of the Company herein or orally, whether in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussions as to, expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, identified
through the use of words or phrases such as the Company or management
"believes," "expects," "anticipates," "hopes," words or phrases such as "will
result," "are expected to," "will continue," "is anticipated," "estimated,"
"projection" and "outlook," and words of similar import) are not historical
facts and may be forward-looking. Such forward-looking statements involve
estimates, assumptions, and uncertainties, and, accordingly, actual results
could differ materially from those expressed in the forward-looking statements.
Such uncertainties include, among others, the following: (i) the ability of the
Company to add additional customer accounts to its account base through
acquisitions from third parties, to generate new accounts internally, and to
form strategic alliances; (ii) the level of subscriber attrition; (iii) the
availability of capital to the Company relative to certain larger companies in
the security alarm industry which have significantly greater capital and
resources; (iv) increased false alarm fines and/or the possibility of reduced
public response to alarm signals; and (v) other risk factors described in the
Company's reports filed with the Securities and Exchange Commission (the "SEC")
from time to time.
The Company cautions that the factors described above could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
OVERVIEW
The majority of the Company's revenues is derived from recurring
payments for the monitoring of security systems, pursuant to contracts with
initial terms typically ranging from one to five years. The remainder of the
Company's revenues is derived from the sale and installation of security systems
and the servicing of such installed systems. Monitoring and service revenues are
recognized as the service is provided. Installation revenue is recognized when
the required work is completed. All direct installation costs, which include
equipment, labor and installation overhead, and selling and marketing costs, are
generally expensed in the period when incurred. In cases where the Company
maintains ownership of the equipment, however, the costs of such equipment is
capitalized to property and equipment and amortized over seven years.
8
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Alarm monitoring revenues generate significant gross margins, whereby
installation and service activity may result in direct costs exceeding revenues.
Management believes, however, that such installation and service activity is
necessary for the generation and retention of alarm monitoring subscribers.
All direct external costs associated with purchases of subscriber
accounts (primarily through the Independent Alarm Acquisition Program and Dealer
Program described in the Company's Form 10-KSB for the fiscal year ended
December 31, 1996) are capitalized and amortized over ten years on a
straight-line basis. In contrast, the Company's costs related to the sales,
marketing and installation of new alarm monitoring systems generated by the
Company's internal sales force are generally expensed in the period in which
incurred. In cases where the Company maintains ownership of the equipment,
however, the costs of such equipment are capitalized to property and equipment
and amortized over seven years. To date, the Company has not had a large
internal sales force, and the number of subscriber accounts generated internally
during the three and nine month periods ended September 30, 1997 and 1996 was
not material. In the future, if the Company expands its internal sales
operations, as anticipated, the accounting treatment for such internally
generated revenues would result in higher operating expenses in the period such
revenues are generated, but lower amortization expenses as a percentage of
revenues.
The Company loses customers from time to time for various reasons,
including, primarily, the following: (i) the customer moves; (ii) a business or
commercial account closes or goes out of business; (iii) a customer is
dissatisfied with the Company's level of service; (iv) a building or home is
destroyed; or (v) the customer can no longer afford to pay for service.
Subscriber attrition has a direct impact on the Company's results of operations,
since it affects both the Company's revenues and its amortization expense.
Attrition can be measured in terms of canceled subscriber accounts and the
resulting decreased monitoring revenue. Net attrition for a given period of time
is defined as the number of accounts disconnecting service during the period in
question, net of any replacement of such subscriber by means of Dealer or
independent company replacement during the guarantee period, or by other account
replacement methods employed by the Company. These methods might include, for
example, the solicitation of monitoring contracts from new occupants (where
attrition is attributable to customer relocation). Net subscriber attrition of
the Company's own customers during the three and nine month periods ended
September 30, 1997 and 1996 was less than 10%.
The Company has developed an in-house system for identifying and
decreasing account attrition, which consists of the following: (1) the
identification of possible lost accounts via a daily test; (2) false alarm
tracking; (3) early account delinquent procedures; (4) quality customer service;
(5) control lockout; (6) early identification of new tenants/residences in homes
with alarms installed by the Company; and (7) aggressive problem solving by
management. The No-Tolerance Attrition Policy procedures identify possible
account attrition at various stages and attempt to prevent lost accounts or
replace lost accounts by quick and efficient intervention.
Amounts paid to independent alarm companies and Dealers are capitalized
and amortized over ten years. If a customer signed on by an independent alarm
company or Dealer is lost and not replaced, the unamortized contract amount is
written off. Such write offs are included in amortization of customer contracts
in the accompanying Statements of Operations.
9
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MRR represents the monthly recurring revenue the Company is entitled to
receive under subscriber contracts in effect at the end of the period. Included
in MRR and the number of subscribers are amounts associated with subscribers
with past due balances. The Company maintains the policy and practice of taking
every economically feasible action to preserve the revenue stream associated
with these contractual obligations. To this end, the Company actively works both
towards the collection of amounts owed and the retention of subscribers. In
certain instances, this collection and evaluation period may exceed six months.
When, in the judgment of the Company's collection personnel, all reasonable
efforts have been made to collect balances due and certain legal steps are taken
to ensure proper cancellation of the relevant monitoring contract, nonpaying
subscribers are disconnected from the Company's monitoring center and are
included in the calculation of net subscriber and MRR attrition.
Specialty Device Installers, Inc., a wholly-owned subsidiary of the
Company ("SDI"), provides installation services to third party security alarm
companies, many of which are competitors of the Company. During the first
quarter of fiscal year 1997, the Company significantly downsized SDI because of
SDI's poor operating performance and because the Company intends to focus on its
core business of alarm installation, monitoring, and related services for its
own customers.
RESULTS OF OPERATIONS
As discussed in Note 2 of Notes to Consolidated Financial Statements, the
Company is the surviving corporation of a merger of Guardian with the Company's
predecessor, Everest, which was consummated on August 28, 1996. The transaction
was a reverse acquisition for accounting purposes, with Guardian deemed to be
the acquirer. The consolidated balance sheets at September 30, 1997 and December
31, 1996, the consolidated statements of operations for the three and nine month
periods ended September 30, 1997, and the consolidated statement of cash flows
for the nine month period ended September 30, 1997 include the accounts and
activity of the surviving entity and its wholly owned subsidiary, SDI. The
consolidated statements of operations for the three and nine month periods ended
September 30, 1996, and the consolidated statement of cash flows for the nine
month period ended September 30, 1996 include the accounts and activity of
Guardian for the three and nine month periods ended September 30, 1996 and
include the wholly owned subsidiary acquired by Guardian from the merger date
(August 28, 1996) through September 30, 1996.
The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
----------------------------
FOR THE THREE MONTH FOR THE NINE MONTH
PERIODS ENDED PERIODS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Monitoring 69% 75% 71% 82%
Installation and service 31 25 29 18
---- ---- ---- ----
Total revenues 100 100 100 100
(CONTINUED)
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<PAGE>
Operating expenses:
Monitoring 13 10 14 12
Installation and service 28 22 32 16
General and administrative 43 39 35 37
Amortization of customer
contracts 24 20 19 19
Depreciation and amortization 6 4 6 5
---- ---- ---- ----
Total operating expenses 114 95 106 89
Income (loss) from operations (14) 5 (6) 11
Interest expense (19) (17) (18) (17)
Provision for taxes - (7) - (3)
Net income (loss) (33)% (19)% (24)% (9)%
==== ==== ==== ====
</TABLE>
Neither the Company nor the pre-merged Guardian International, Inc.
(see Note 2 of Notes to Consolidated Financial Statements) has ever had net
income, and the Company has a history of consistent and sometimes significant
net losses. Although no assurance can be given by the Company as to when or if
the Company will realize net earnings, the Company anticipates that, based on
its strategy of continued growth and customer account expansion, and barring any
unforeseen significant changes in the nature of its business or operations
(including its method of financing customer account acquisitions through its
existing and/or any new credit facility with its Senior Lender, and the
accounting for such acquisitions), it will continue to record net losses at
least until such time as the Company's retail customer contract base totals more
than approximately 20,000 and it has significantly reduced its indebtedness. At
September 30, 1997, the Company had approximately 11,800 retail customers,
compared to approximately 7,900 retail customer contracts at September 30, 1996,
a net increase of 49%. The Company recently increased its credit availability
with Heller from $7 million to $15 million (see Note 4 of Notes to Consolidated
Financial Statements) which, the Company believes, will provide sufficient
capital availability for achieving a customer contract base of 20,000 customers.
There can be no assurances, however, that the Company will achieve a customer
contract base of 20,000 customers or that the Company will become profitable if
it does.
Earnings before interest, taxes, depreciation, and amortization
("EBITDA") is another important factor in considering profitability. EBITDA does
not represent cash flow from operations as defined by generally accepted
accounting principles, should not be construed as an alternative to net earnings
and is indicative neither of the Company's operating performance nor of cash
flows available to fund all the Company's cash needs. Items excluded from EBITDA
are significant components in understanding and assessing the Company's
financial performance. Nevertheless, management believes presentation of EBITDA
enhances an understanding of the Company's financial condition, results of
operations and cash flows because EBITDA is used by the Company to satisfy its
debt service obligations and its capital expenditure and other operational needs
as well as to provide funds for growth. In addition, EBITDA has been used by the
investment community to determine the current borrowing capacity and to estimate
the long-term value of companies with recurring cash flows from operations and
net losses. The following table provides a calculation of EBITDA for the three
and nine month periods ended September 30, 1997 and 1996:
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIODS FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $(493,124) $(177,860) $(978,382) $(220,188)
Plus:
Amortization of customer contracts 350,385 184,889 768,212 438,998
Depreciation and amortization 88,009 35,477 245,573 116,500
Interest expense 2841,081 151,631 724,201 400,051
Provision for taxes - 63,000 - 63,000
EBITDA $229,351 $257,137 $759,604 $798,361
</TABLE>
EBITDA for the three and nine month periods ended September 30, 1997
includes approximately $144,000 of one-time expenses related to a merger
transaction that was not consummated. Without these expenses, EBITDA for the
three and nine month periods ended September 30, 1997 would have been $373,351
and $903,604 and increased 45% and 13% over EBITDA in the corresponding prior
periods.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE AND NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1996
Total revenues for the three and nine month periods ended September 30,
1997 increased 61% and 75% to $1.5 million and $4.0 million, respectively,
from $908,000 and $2.3 million during the corresponding periods in the prior
year. Monitoring revenues for the three and nine month periods ended September
30, 1997 increased by 50% and 50% to $1.0 million and $2.8 million,
respectively, from $679,000 and $1.9 million during the corresponding periods of
the prior fiscal year. Installation and service revenues for the three and nine
month periods ended September 30, 1997 increased by 96% and 192% to $448,000 and
$1.2 million, respectively, compared to $229,000 and $405,000 during the
corresponding period of the prior fiscal year. Total retail subscribers
approximated 11,800 at September 30, 1997, compared to approximately 7,900 at
September 30, 1996, a net increase of 49%. The increase in revenues and number
of subscribers in 1997 from 1996 is primarily attributable to the Company's
ongoing Independent Alarm Acquisition Program and Dealer Program as described in
the Company's Form 10-KSB for the fiscal year ended December 31, 1996.
Additionally, in May 1997, the Company purchased approximately 2,200 retail
customers from Alarm Control, Inc ("ACI").
Total operating expenses for the three and nine month periods ended
September 30, 1997 increased 92% and 108% to $1.7 million and $4.3 million,
respectively, compared to $871,000 and $2.1 million during the corresponding
periods of the prior fiscal year. Monitoring expenses increased 108% and 102% to
$193,000 and $546,000, respectively, compared to $92,000 and $271,000 during the
corresponding periods in the prior fiscal year. The increase in monitoring costs
from 1996 to 1997 was a result of the significant increase in monitoring
revenues and number of subscriber accounts (see previous paragraph). As a
percentage of monitoring revenues during the three and nine month periods ended
September 30, 1997, monitoring expenses were 19% and 19%, respectively, compared
to 14% and 14% during the corresponding periods of the prior fiscal year.
Installation and service costs during the three and nine month periods ended
September 30, 1997 increased by 104% and 246% to $409,000 and $1.3 million,
respectively, compared to $201,000 and $374,000 during the corresponding periods
of the prior
12
<PAGE>
fiscal year. The increase in total installation and service costs in 1997 from
1996 was partly the result of increases in related revenues in 1997 from 1996
(see previous paragraph). As a percentage of installation and service revenue,
installation and service costs were 91% and 109% during the three and nine month
periods ended September 30, 1997, respectively, compared to 88% and 92%,
respectively, during the corresponding periods in the prior fiscal year. The
Company does not now generate, nor does it anticipate generating in the future,
any appreciable margins or profits, and may incur future losses from such
installation and service activity, but such activity is considered necessary to
the generation and retention of alarm monitoring subscribers.
Total gross profit, defined as total revenues less monitoring and
installation and service costs, increased by 40% and 32% to $863,000 and $2.2
million, during the three and nine month periods ended September 30, 1997,
respectively, compared to $615,000 and $1.7 million during the corresponding
periods of the prior fiscal year. Gross profit from monitoring revenues
increased by 40% and 41% to $824,000 and $2.3 million during the three and nine
month periods ended September 30, 1997, respectively, compared to $587,000 and
$1.6 million during the corresponding periods of the prior fiscal year. Gross
profit (loss) from installation and service activities increased/(decreased) by
39% and (455%) to $39,000 and $(111,000) during the three and nine month periods
ended September 30, 1997, respectively, compared to $28,000 and $31,000 during
the corresponding periods of the prior fiscal year. See the previous two
paragraphs for a discussion of revenues and expenses of such monitoring and
installation and service activity.
General and administrative costs ("G&A") increased by 77% and 66% to
$633,000 and $1.4 million, respectively, during the three and nine month periods
ended September 30, 1997, compared to $358,000 and $857,000 during the
corresponding periods of the prior fiscal year. The increase in G&A costs in
1997 from 1996 is related primarily to the Company's growth in revenue,
resulting in an increase in the Company's overhead cost structure. As a
percentage of total revenues, G&A was 43% and 35% during the three and nine
month periods ended September 30, 1997, respectively, compared to 39% and 37%
during the corresponding periods of the prior fiscal year.
Approximately 52% and 26% of the increase in G&A during the three and
nine month periods ended September 30, 1997 arose from one-time expenses of
approximately $144,000 related to a merger transaction that was not consummated.
Without those expenses, G&A for the three months and nine months ended September
30, 1997 would have increased by only $131,000 or 37%, and 419,000 or 49%, over
the corresponding prior periods.
Amortization of customer contracts increased by 90% and 75% to $350,000
and $768,000 during the three and nine month periods ended September 30, 1997,
respectively, compared to $185,000 and $439,000 during the corresponding periods
in the prior fiscal year. The increase in such costs resulted from the increase
in the amount of capitalized customer contracts, which increased to a net
balance of $7.6 million at September 30, 1997 from $4.8 million at September 30,
1996.
Depreciation and amortization increased by 148% and 111% to $88,000 and
$245,000, during the three and nine month periods ended September 30, 1997,
respectively, compared to $35,000 and $117,000 during the corresponding periods
of the prior fiscal year. Such costs include depreciation of property and
equipment (the gross balance of which increased to $691,000 at September 30,
1997 from $399,000 at September 30, 1996 as a result of (i) the Company's
continued expansion activities and (ii) the merger of Guardian and Everest,
which resulted in additional property and equipment being acquired), goodwill
amortization (a gross balance of $1.2 million in goodwill was recorded in
connection with the merger of Guardian and Everest, which is being amortized
over 10 years), and amortization of certain other intangible assets.
13
<PAGE>
Interest expense increased 87% and 81% to $284,000 and $724,000 during
the three and nine month periods ended September 30, 1997, compared to $152,000
and $400,000 during the corresponding periods of the prior fiscal year. The
increase in interest expense resulted from additional debt incurred primarily in
connection with the cost of acquiring subscriber accounts. The majority of such
subscriber acquisition costs were financed by Heller. Total long term
obligations (including the current portion) increased to $7.7 million at
September 30, 1997 from $4.8 million at September 30, 1996.
Net income (loss) was $(493,000), or $(0.08) per share, and $(978,000),
or $(0.15) per share, for the three and nine month periods ended September 30,
1997, compared to $(178,000), or $(0.04) per share, and $(220,000), or $(0.06)
per share, during the corresponding periods of the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
In May 1997 the Company entered into the Renewed Credit Facility with
Heller for $15 million, expiring in May 1999 with automatic yearly renewals
unless terminated by either party. On September 30, 1997, the Company was not in
compliance with certain covenants. Subsequent to September 30, 1997, the Renewed
Credit Facility was amended and restated, including revisions to the covenants
with which the Company was not in compliance. Also included in the amendment was
a waiver for any previous instances of non compliance with the covenants. See
Note 4 of Notes to Consolidated Financial Statements for further discussion of
the terms of the Renewed Credit Facility.
The Renewed Credit Facility will be used primarily for acquisitions of
subscriber accounts. The Company's continued plan of growth through acquisitions
of subscriber accounts is contingent upon its ability to borrow under the
Renewed Credit Facility.
At September 30, 1997, the Company had a working capital deficit of
$(127,000), and a current ratio of 0.89 to 1.0.
Net cash provided by operating activities during the nine month period
ended September 30, 1997 was $72,000. The Company incurred a net loss of
$978,000 during such period; however, included in such loss was depreciation and
amortization expense, amortization of customer contracts expense and
amortization of deferred financing costs totaling $1.1 million, cash outflows of
$407,000 related to increases in assets and cash inflows of $206,000 related to
increases in liabilities. Also included in the net loss for the nine month
period ended September 30, 1997 are one-time expenses of approximately $144,000
related to a merger transaction that was not consummated.
Net cash used in investing activities was $3.3 million during the nine
month period ended September 30, 1997 and was comprised of acquisition of
customer accounts of $3.2 million (including the purchase of contracts in the
amount of $2.2 million from Alarm Control in May 1997 (see Note 2 of Notes to
Consolidated Financial Statements), and purchases of fixed assets of $140,000.
Net cash provided by financing activities was $2.4 million during the
nine month period ended September 30, 1997, consisting of proceeds under
borrowings from Heller of $5.2 million (including $2.2 million relating to the
Alarm Control transaction in May 1997) less repayments to Heller and other
long-term debt of $2.8 million, and purchases of treasury stock of $6,000. The
Company's cash balance was $167,000 at September 30, 1997.
14
<PAGE>
Total shareholders' equity was $2.3 million at September 30, 1997,
decreasing by a net amount of $815,000 during the nine month period ended
September 30, 1997. The net decrease consisted of the net loss incurred during
the period of $978,000, an increase of $39,000 resulting from the issuance of
50,000 shares of Class A common stock to Alarm Control in connection with the
purchase of Alarm Control's customer contracts as well as certain other assets,
an increase of $130,000 resulting from an accrual for the additional 150,000
shares of Class B common stock to be issued to Heller (see Note 2 of Notes to
Consolidated Financial Statements), and a decrease of $6,000 resulting from
purchases of treasury stock.
During October 1997, Westar Capital, Inc. acquired approximately 37% of
the equity of the Company by purchasing 2,500,000 newly issued shares of Class A
common stock and agreeing to purchase 1,875,000 shares of newly authorized and
issued Series A 9 3/4% convertible cumulative preferred stock ("the Preferred
Shares"). The Preferred Shares are convertible into shares of Class A common
stock on a share for share basis. The proceeds of the $7.5 million investment
will be used to pay down long term obligations, for acquisitions and other
corporate purposes. The Company received $3.75 million in October 1997 relating
to the purchase of the common shares. The remaining amount of $3.75 million,
relating to the purchase of the Preferred Shares, is expected be received in
November (see Note 7 of Notes to Consolidated Financial Statements).
With the use of the Heller facility, the Company believes it can make
acquisitions to reach the 20,000 customer contract goal discussed above. The
Company does not anticipate any other significant capital expenditures.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from a
large number of customers, including both residential and commercial customers.
The Company extends credit to its customers in the normal course of business,
performs periodic credit evaluations and maintains allowances for potential
credit losses.
ACCOUNTING CHANGES
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
No. 128") which establishes standards for computing and presenting earnings per
share ("EPS"). This statement replaces primary and fully diluted EPS with basic
and diluted EPS. Basic EPS excludes dilution and is computed by dividing net
income by the weighted average common shares outstanding during the period.
Diluted EPS is computed similarly to fully diluted EPS pursuant to Accounting
Principles Board Opinion No. 15. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The effect of adopting this standard is not expected to be material.
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130") was issued by the Financial Accounting
Standards Board. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS No. 130 beginning
January 1, 1998. The effect of adopting this standard is not expected to be
material.
15
<PAGE>
GUARDIAN INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Each of the Company and SDI experiences routine litigation in the
normal conduct of its business, that is incidental to the business. Neither the
Company nor SDI believes that any such pending litigation will have,
individually or in the aggregate, a material adverse effect on its respective
business or financial condition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See disclosure under Note 4 of Notes to Consolidated Financial
Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3(i) Articles of Incorporation dated October 30, 1986 incorporated
by reference to Exhibit 3(i) of the Company's Form 10-SB filed
May 6, 1996
3(i)(a) Amendment to the Articles of Incorporation incorporated by
reference to Exhibit 3(i)(a) the Company's Form 10-SB filed
May 6, 1996
3(i)(b) Amendment to the Articles of Incorporation incorporated by
reference to Exhibit 3(i)(b) of the Company's Form 10-SB filed
May 6, 1996
3(i)(c) Amendment to the Articles of Incorporation incorporated by
reference to Exhibit 3(i)(c) of the Company's Form 10-SB/A
filed January 24, 1997
3(ii) Amended and Restated By-Laws of the Company
4 Specimen Stock Certificate incorporated by reference to
Exhibit 4 of the Company's Form 10-SB filed May 6, 1996
10(a) Letter from Heller Financial, Inc. Regarding Increase in
Credit Facility incorporated by reference to Exhibit 10(a) of
the Company's Form 10-QSB filed May 15, 1997
10(b) Amended and Restated Loan and Security Agreement dated as of
May 22, 1997 among Guardian International, Inc., the Borrowing
Subsidiaries From Time to Time Party Hereto, as Borrowers, and
Heller Financial, Inc., as Lender incorporated by reference to
Exhibit 10(b) of the Company's Form 10-QSB filed August 14,
1997
10(c) Third Amendment to Loan Agreement dated as of October 21, 1997
by and between the Company and Heller Financial, Inc.
10(d) Stock Subscription Agreement dated as of October 14, 1997
incorporated by reference to Item 7(c) of the Company's Form
8-K dated October 22, 1997
10(e) Registration Rights Agreement dated as of October 21, 1997
incorporated by reference to Item 7(c) of the Company's Form
8-K dated October 21, 1997
10(f) Stockholders Agreement dated as of October 21, 1997
incorporated by reference to Item 7(c) of the Company's Form
8-K dated October 22, 1997
27 Financial Data Schedule (for SEC use only)
16
<PAGE>
(b) Reports on Form 8-K
1. Form 8-K filed July 17, 1997 announcing the merger with a privately
held Florida based security company; also submitting the agreement and
plan of merger.
2. Form 8-K filed September 3, 1997 announcing the termination of
previously announced merger discussions with a privately held Florida
based security company.
17
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, as of the 14th day of November, 1997.
GUARDIAN INTERNATIONAL, INC.
By: /S/ DARIUS G. NEVIN
---------------------
Darius G. Nevin
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
3(ii) Amended and Restated By-Laws of the Company
10(c) Third Amendment to Loan Agreement dated as of October 21, 1997
by and between the Company and Heller Financial, Inc.
27 Financial Data Schedule (for SEC use only)
AMENDED AND RESTATED BY-LAWS
OF
GUARDIAN INTERNATIONAL, INC.,
a Nevada Corporation
ARTICLE I - OFFICES
The principal office of the corporation in the State of Nevada shall be
located in the City of Las Vegas, County of Clark. The corporation may have such
other offices, either within or without the State of incorporation as the board
of directors may designate or as the business of the corporation may from time
to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the
15th day of April in each year, beginning with the year 1996 at the hour 2
o'clock P.M., for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the president
or by the directors, and shall be called by the president at the request of the
holders of not less than fifty per cent of all the outstanding shares of the
corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or
without the State unless otherwise prescribed by statute, as the place of
meeting for any annual meeting or for any special meeting called by the
directors. A waiver of notice signed by all stockholders entitled to vote at a
meeting may designate any place, either within or without the state unless
otherwise prescribed by statute, as the place for holding such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the corporation.
<PAGE>
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of
the meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than two days nor more than
thirty days before the date of the meeting, either personally or by mail, by or
at the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the stockholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, ten days. If the stock transfer
books shall be closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be closed
for at least ten days immediately preceding such meeting. In lieu of closing the
stock transfer books, the directors may fix in advance a date as the record date
for any such determination of stockholders, such date in any case to be not more
than thirty days and, in case of a meeting of stockholders, not less than ten
days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books
for shares of the corporation shall make, at least five days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
five days prior to such meeting, shall be kept on file at the principal office
of the corporation and shall be subject to inspection by any stockholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the
2
<PAGE>
stockholders entitled to examine such list or transfer books or to vote at the
meeting of stockholders.
7. QUORUM.
At any meeting of stockholders fifty-one percent of the
outstanding shares of the corporation entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of stockholders. If less than
said number of the outstanding shares are represented at a meeting, a majority
of the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by
proxy executed in writing by the stockholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the secretary of the corporation before
or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms
and provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders,
shall be as follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
3
<PAGE>
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of the stockholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by a majority of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed
by its board of directors. The directors shall in all cases act as a board, and
they may adopt such rules and regulations for the conduct of their meetings and
the management of the corporation, as they may deem proper, not inconsistent
with these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the Corporation shall be eight.
Each director shall hold office until the next annual meeting of stockholders
and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without
other notice than this by-law immediately after, and at the same place as, the
annual meeting of stockholders. The directors may provide, by resolution, the
time and place for the holder of additional regular meetings without other
notice than such resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the
request of the president or any two directors. The person or persons authorized
to call special meetings of the directors may fix the place for holding any
special meeting of the directors called by them.
4
<PAGE>
5. NOTICE.
Notice of any special meeting shall be given at least two days
previously thereto by written notice delivered business address. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors two directors shall constitute
a quorum for the transaction of business, but if less than said number is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the board for any reason except
the removal of directors without cause may be filled by a vote of a majority of
the directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote
of the stockholders or by action of the board. Directors may be removed without
cause only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to
the board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
5
<PAGE>
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their
services, but by resolution of the board a fixed sum and expenses for actual
attendance at each regular or special meeting of the board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
thereof.
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of
the directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who vote in favor of such
action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members
an executive committee and other committees, each consisting of two or more
directors. Each such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a president, a
vice-president, a secretary and a treasurer, each of whom shall be elected by
the directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors
shall be elected annually at the first meeting of the directors held after each
annual meeting of the stockholders. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
3. REMOVAL.
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Any officer or agent elected or appointed by the directors may
be removed by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the
corporation and, subject to the control of the directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of the
directors. He may sign, with the secretary or any other proper officer of the
corporation thereunto authorized by the directors, certificates for shares of
the corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death,
inability or refusal to act, the vice-president shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. The vice-President shall perform such
other duties as from time to time may be assigned to him by the President or by
the directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and
of the directors' meetings in one or more books provided for that purpose, see
that all notices are duly given in accordance with the provisions of these
by-laws or as required, be custodian of the corporate records and of the seal of
the corporation and keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder, have
general charge of the stock transfer books of the corporation and in general
perform all duties incident to the office of secretary and such other duties as
from time to time may be assigned to him by the president or by the directors.
7
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8. TREASURER.
If required by the directors, the treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the directors shall determine. he shall have charge and custody of
and be responsible for all funds and securities of the corporation; receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time
by the directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the corporation,
shall be signed by such officer or officers, agent or agents of the corporation
and in such manner as shall from time to time be determined by resolution of the
directors.
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4. DEPOSITS.
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be
in such form as shall be determined by the directors. Such certificates shall be
signed by the president and by the secretary or by such other officers
authorized by law and by the directors. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
stockholders, the number of shares and date of issue, shall be entered on the
stock transfer books of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefore upon such terms and indemnity to
the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof, and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
on the part of any other person, whether or not it shall have express or other
notice thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of
January in each year.
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ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may
be adopted by a vote of the stockholders representing a majority of all the
shares issued and outstanding, at any annual stockholders' meeting or at any
special stockholders' meeting when the proposed amendment has been set out in
the notice of such meeting.
ARTICLE XII - INDEMNIFICATION
1. INDEMNIFICATION
(a) Except as provided below, the Corporation shall, and does
hereby, indemnify, to the fullest extent permitted or authorized by current or
future legislation or current or future juridical or administrative decisions
(but, in the case of any such future legislation or decisions, only to the
extent that it permits the Corporation to provide broader indemnification rights
than permitted prior to such legislation or decision), each person (including
the heirs, executors, administrators and estate of the person) who was or is a
party, or is threatened to be made a party, or was or is a witness, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and any appeal therefrom
(collectively, a "Proceeding"), against all liability (which for purposes of
this Article includes all judgments, settlements, penalties and fines) and
costs, charges, and expenses (including
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<PAGE>
attorneys' fees) asserted against him or incurred by him by reason of the fact
that the person is or was a director, officer or employee of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including serving as a fiduciary of an employee benefit plan).
(b) Notwithstanding the foregoing, except with respect to the
indemnification specified in paragraph 3 of this Article, (i) the Corporation
shall indemnify a person entitled to indemnification under subparagraph "(a)" in
connection with a Proceeding (or part thereof) initiated by an indemnified
person only if authorization of the Proceeding (or part thereof) was not denied
by the Board of Directors of the Corporation within 60 days after receipt of
notice thereof from the indemnified person and (ii) the Corporation shall not be
required to indemnify or advance costs to any director or officer (or such
person's heirs, executors, administrators or estate) in an action in which such
person is an adverse party to the Corporation.
2. ADVANCE OF COSTS, CHARGES AND EXPENSES.
Costs, charges and expenses (including attorneys' fees)
incurred by a person referred to in paragraph 1(a) of this Article in defending
a Proceeding shall be paid by the Corporation to the fullest extent permitted or
authorized by current or future legislation or current or future judicial or
administrative decisions (but, in the case of any future legislation or
decisions, only to the extent that it permits the Corporation to provide broader
rights to advance costs, charges and expenses than permitted prior to the
legislation or decisions) in advance of the final disposition of the Proceeding,
upon receipt of an undertaking reasonably satisfactory to the Board of Directors
(the "Undertaking') by or on behalf of the indemnified person to repay all
amounts so advanced if it is ultimately determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article;
provided that, in connection with a Proceeding (or part thereof) initiated by
such person (except a Proceeding authorized by paragraph 3 of this Article), the
Corporation shall pay the costs, charges and expenses in advance of the final
disposition of the Proceeding only if authorization for the Proceeding (or part
thereof) was not denied by the Board of Directors of the Corporation within 60
days after receipt of a request for advancement accompanied by an Undertaking. A
person to whom costs, charges and expenses are advanced pursuant to this Article
shall not be obligated to repay pursuant to the Undertaking until the final
determination of (a) the pending Proceeding in a court of competent jurisdiction
concerning the right of that person to be indemnified or (b) the obligation of
the person to repay pursuant to the Undertaking. The Board of Directors may,
upon approval of the indemnified person, authorize the Corporation's counsel to
represent the person in any action, suit or proceeding, whether or not the
Corporation is a party to the action, suit or proceeding.
3. PROCEDURE FOR INDEMNIFICATION.
Any indemnification or advance under this Article shall be
made promptly, and in any event within 60 days after delivery of the written
request of the director, officer or employee.
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The right to indemnification or advances granted by this Article shall be
enforceable by the director, officer or employee in any court of competent
jurisdiction if the Corporation denies the request under this Article in whole
or in part, or if no disposition of the request is made within the 60-day period
after delivery of the request. The requesting person's costs and expenses
incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any action shall also be indemnified by
the Corporation. It shall be a defense available to the Corporation to assert in
the action that indemnification is prohibited by law or that the claimant has
not met the standard of conduct, if any, required by current or future
legislation or by current or future judicial or administrative decisions for
indemnification (but, in the case of future legislation or decision, only to the
extent that the legislation does not impose a more stringent standard of conduct
than permitted prior to the legislation or decisions). The burden of proving
this defense shall be on the Corporation. Neither (a) the failure of the
Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, and its shareholders) to have made a determination
(prior to the commencement of the action) that indemnification of the claimant
is proper in the circumstances because he has met the applicable standard of
conduct, if any, nor (b) the fact that there has been an actual determination by
the Corporation (including its Board of Directors or any committee thereof, its
independent legal counsel, and its stockholders) that the claimant has not met
the applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
4. SURVIVAL OF INDEMNIFICATION
The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may now or
hereafter be entitled under any statute, agreement, vote of stockholders or
disinterested directors or recommendation of counsel or otherwise, both as to
actions in the person's capacity as an officer, director or employee and as to
actions in another capacity while still an officer, director or employee, and
shall continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of the estate, heirs, beneficiaries,
executors and administrators of such a person. All rights to indemnification
under this Article shall be deemed to be a contract between the Corporation and
each director, officer and employee of the Corporation described in paragraph 1
of this Article who serves or served as such at any time while this Article is
in effect. Any repeal or modification of this Article or any repeal or
modification of relevant provisions of Chapter 78 of the Nevada Revised Statutes
or any other applicable laws shall not in any way diminish the rights to
indemnification of such director, officer or employee or the obligations of the
Corporation arising hereunder for claims relating to matters occurring prior to
the repeal or modification. The Board of Directors of the Corporation shall have
the authority, by resolution, to provide for indemnification of employees or
agents of the Corporation and for such other indemnification of the directors,
officers and employees of the Corporation as it deems appropriate.
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5. INSURANCE
The corporation may purchase and maintain insurance on behalf
of any person who is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including serving as a fiduciary of an employee benefit plan),
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article or the applicable provisions of Chapter 78 of the
Nevada Revised Statutes.
6. SAVINGS CLAUSE.
If this Article or any portion is invalidated or held to be
unenforceable on any ground by a court of competent jurisdiction, the
Corporation shall nevertheless indemnify each director, officer and employee of
the Corporation described in paragraph 1 of this Article to the fullest extent
permitted by all applicable portions of this Article that have not been
invalidated or adjudicated unenforceable, and as permitted by applicable law.
13
EXHIBIT 10.(c)
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Agreement")
dated as of October 21, 1997 is by and between GUARDIAN INTERNATIONAL, INC., a
Nevada corporation ("Borrower"), with its principal place of business at 3880
North 28th Terrace, Hollywood, Florida 33020, and HELLER FINANCIAL, INC., a
Delaware corporation ("Lender"), with offices at 500 West Monroe Street,
Chicago, Illinois 60661.
WHEREAS, Borrower and Lender are parties to an Amended and
Restated Loan and Security Agreement dated as of May 22, 1997 (the "Loan
Agreement"; all capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed thereto in the Loan Agreement); and
WHEREAS, Borrower has entered into the Westar Equity Documents
(as herein defined) to which it is a party, copies of which have been delivered
to Lender, and Lender is willing to consent to the execution and delivery of
such documents and to amend the Loan Agreement to give effect to the
transactions consummated pursuant to such documents; and
WHEREAS, the parties hereto wish to amend, or waive compliance
with, certain other provisions of the Loan Agreement on the terms and conditions
set forth herein as of the date first written above (the "Third Amendment
Effective Date").
NOW, THEREFORE, for and in consideration of the terms and
conditions contained herein, and other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, Borrower and Lender
hereby agree as follows:
Section 1. AMENDMENTS.
1.1 AMENDMENT OF SUBSECTION 2.1(A)(2). From and after the
Third Amendment Effective Date, the Loan Agreement is hereby amended by deleting
subsection 2.1(A)(2) in its entirety and inserting the following in substitution
therefor:
(2) "Borrowing Base" means, as of any date of determination,
an amount equal to the lesser of (a) one hundred percent (100%) of
Borrowers' Net Investment in Eligible Contracts included in the
Borrowing Base from time to time pursuant to subsection 2.1(B), or (b)
aggregate MRI in respect of all Eligible Contracts as of the last day
of the then most recently ended month, multiplied by (x) 25, at any
time from and after the Closing Date through the earlier of the date on
which the transactions contemplated by the Westar Equity Documents
shall have been consummated or October 31, 1997, or (y) 24 at any time
thereafter. The Borrowing Base shall be determined from time to time
based on the most recent Borrowing Base Certificate delivered by
Borrower Representative to Lender.
<PAGE>
1.2 AMENDMENT OF SUBSECTION 2.3. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 2.3
in its entirety and inserting the following in substitution therefor:
2.3 FEES. (a) COMMITMENT FEE. As consideration for Lender's
agreement to make the Commitment available to Borrowers hereunder,
Borrowers, jointly and severally, shall pay to Lender a fee (the
"Commitment Fee") in an aggregate amount equal to three-quarters of one
percent (.75%) of the Commitment. The full amount of the Commitment Fee
shall be deemed to have been fully earned by Lender as of the Closing
Date. The Commitment Fee shall be paid in periodic installments on the
date of each advance made under subsection 2.1, each such installment
to be in an amount equal to three-quarters of one percent (.75%) of the
requested amount of such advance. Each Borrower hereby authorizes and
directs Lender to cause such installments to be paid by deducting the
amount thereof from the proceeds of each such advance and retaining the
amount so deducted for Lender's own account. The aggregate Commitment
Fee payable during the term of this Agreement shall equal (a) $112,500,
so long as the Applicable Commitment Amount is $15,000,000, or (b)
$150,000, in the event the Applicable Commitment Amount is increased to
$20,000,000. Any voluntary commitment reductions which may be made by
Borrowers (or by Borrower Representative on behalf of Borrowers)
pursuant to subsection 2.4(C) shall not be given effect in determining
the amount of the Commitment Fee payable hereunder. Any installments of
the Commitment Fee which remain unpaid on the Termination Date shall be
due and payable in full without notice or demand on such date. Any
amounts paid in respect of the Commitment Fee prior to an increase in
the Applicable Commitment Amount from $15,000,000 to $20,000,000 shall
be credited against the remaining amount of the Commitment Fee then
due.
(b) UNUSED LINE FEE. From and after the Third Amendment
Effective Date, Borrowers, jointly and severally, shall pay a fee in an
amount equal to (i) $7,500,000 LESS the sum of the average daily
principal balance of the Loans during the preceding calendar month,
MULTIPLIED BY (ii) one-half of one percent (.50%) per annum. Such fee
is payable monthly in arrears on the first day of the subsequent
calendar month.
1.3 AMENDMENT OF SUBSECTION 4.1(B). From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection
4.1(B) in its entirety and inserting the following in substitution therefor:
(B) CAPITALIZATION. The authorized capital stock of each of
the Loan Parties is as set forth on Schedule 4.1(B). Except as set
forth on Schedule 4.1(B), all issued and outstanding shares of capital
stock of each of the Loan Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens (other
than Liens in favor of Lender) and such shares were issued in
compliance with all applicable state and federal laws concerning the
issuance of securities. The capital stock of each of the Loan Parties
is owned by the stockholders and in the
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amounts set forth on Schedule 4.1(B); provided that in the case of New
Guardian, such Schedule identifies the amount of capital stock owned by
Westar, each member of the Ginsburg Group and each other principal
stockholders thereof, and the amount collectively held by the public
stockholders . No shares of the capital stock of any Loan Party, other
than those described above, are issued and outstanding. Except as set
forth on Schedule 4.1(B), there are no preemptive or other outstanding
rights, options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition from any Loan Party, of
any shares of capital stock or other securities of any such entity.
1.4 AMENDMENT OF SUBSECTION 5.16. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 5.16
in its entirety and inserting the following in substitution therefor:
5.16 CUSTODIAN. As of August 1, 1997, Lender will act as
Custodian hereunder. At any time from and after such date, however,
Lender shall have the right at any time to utilize another Custodian to
maintain custody of the Contract Obligor Documents. Each Borrower will,
and will cause each other Loan Party to, deliver all original Contract
Obligor Documents to Lender from time to time pursuant to the
provisions of Exhibit D or, if applicable, to another Custodian from
time to time pursuant to the terms of the applicable Custodial
Agreement, and each Loan Party agrees that at all times prior to such
delivery, such original Contract Obligor Documents shall be held by the
applicable Loan Party in trust for the benefit of Lender. Each Loan
Party agrees not to interfere with any Custodian's performance of its
duties under any Custodial Agreement or to take any action that would
be incon sistent in any way with the terms of Exhibit D or any
Custodial Agreement. All custodial fees, and the costs and expenses of
any Custodian, shall be paid by Borrowers.
1.5 AMENDMENT OF SUBSECTION 6.1. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 6.1
in its entirety and inserting the following in substitution therefor:
6.1 LIABILITIES TO TANGIBLE NET WORTH. Borrowers shall not at
any time permit the ratio of (a) all Liabilities (excluding
Subordinated Debt approved in accordance with subsection 7.1) of
Borrowers on a consolidated basis, to (b) Tangible Net Worth to exceed
(i) 15.50 to 1.0, as of September 30, 1997, (ii) 3.00 to 1.0, as of the
last day of each month during the period commencing October 1, 1997
through and including September 30, 1998, and (iii) 3.25 to 1.0, as of
the last day of each month thereafter.
1.6 AMENDMENT OF SUBSECTION 6.4. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 6.4
in its entirety and inserting the following in substitution therefor:
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6.4 ANNUALIZED GROSS ATTRITION RATE. Borrowers shall not at
any time permit the Annualized Gross Attrition Rate, measured as of the
last day of each month, to exceed 8.0%.
1.7 AMENDMENT OF SUBSECTION 6.5. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 6.5
in its entirety and inserting the following in substitution therefor:
6.5 DEBT SERVICE COVERAGE.
(a) Borrowers shall not permit Debt Service Coverage for the
respective periods set forth below to be less than the amount set forth
below for such period.
PERIOD RATIO
------ -----
- ----------------------------------------------------------------------------
One Month ended 9/30/97 1.0 to 1.0
- ----------------------------------------------------------------------------
Two Months ended 10/31/97 1.0 to 1.0
- ----------------------------------------------------------------------------
Three Months ended 11/30/97 1.0 to 1.0
- ----------------------------------------------------------------------------
Four Months ended 12/31/97 1.0 to 1.0
- ----------------------------------------------------------------------------
Five Months ended 1/31/98 1.0 to 1.0
- ----------------------------------------------------------------------------
Six Months ended 2/28/98 1.0 to 1.0
- ----------------------------------------------------------------------------
Seven Months ended 3/31/98 1.0 to 1.0
- ----------------------------------------------------------------------------
Eight Months ended 4/30/98 1.25 to 1.0
- ----------------------------------------------------------------------------
Nine Months ended 5/31/98 1.25 to 1.0
- ----------------------------------------------------------------------------
Ten Months ended 6/30/98 1.25 to 1.0
- ----------------------------------------------------------------------------
Eleven Months ended 7/31/98 1.25 to 1.0
- ----------------------------------------------------------------------------
Twelve Months ended 8/31/98 1.25 to 1.0
- ----------------------------------------------------------------------------
(b) Thereafter, Borrowers shall not permit Debt Service
Coverage to be less than (i) 1.25 to 1.0 as of September 30, 1998 for
the twelve month period then ended, and (ii) 1.50 to 1.0 as of the last
day of any month thereafter for the twelve month period then ended.
1.8 AMENDMENT OF SUBSECTION 6.6. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 6.6
in its entirety and inserting the following in substitution therefor:
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<PAGE>
6.6 TANGIBLE NET WORTH. Borrowers shall maintain a Tangible
Net Worth of not less than the respective amounts set forth below as of
the respective measurement dates set forth below:
MEASUREMENT DATE TANGIBLE NET WORTH
---------------- -------------------
September 30, 1997 $500,000
October 31, 1997 $4,000,000
Last day of each month during
the period from November 1, 1997
through December 31, 1997 $7,250,000
Last day of each month during
the period from January 1, 1998
through March 31, 1998 $7,150,000
Last day of each month during
the period from April 1, 1998
through June 30, 1998 $7,000,000
Last day of each month during
the period from July 1, 1998
through September 30, 1998 $6,850,000
Last day of each month during
the period from October 1, 1998
through December 31, 1998 $6,650,000
Last day of each month during
the period from January 1, 1999
through March 31, 1999 $6,450,000
Last day of each month thereafter $6,400,000
1.9 AMENDMENT OF SUBSECTION 7.1(D). From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection
7.1(d) in its entirety and inserting the following in substitution therefor:
(d) Indebtedness in respect of Capital Leases up to $500,000
in the aggregate;
1.10 AMENDMENT OF SUBSECTION 7.5. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 7.5
in its entirety and inserting the following in substitution therefor:
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<PAGE>
7.5 RESTRICTED JUNIOR PAYMENTS. No Borrower will nor will any
Borrower permit any other Loan Party to directly or indirectly declare,
order, pay, make or set apart any sum for any Restricted Junior
Payment, except that: (a) Subsidiaries of any Borrower may make
Restricted Junior Payments with respect to their common stock to the
extent necessary to permit such Borrower to pay the Obligations, to
make Restricted Junior Payments permitted under clauses (b) and (c)
below and to permit such Borrower to pay expenses incurred in the
ordinary course of business; (b) Borrowers may make payments of
interest on any Subordinated Debt permitted pursuant to Section 7.1 as
and when due on a non-accelerated basis in accordance with the terms of
the applicable agreements evidencing or governing such Subordinated
Debt; (c) New Guardian may consummate repurchases of its outstanding
capital stock from its stockholders (other than Westar or members of
the Ginsburg Group) so long as (i) at the time of any such repurchase
and after giving effect thereto (x) Borrowers shall have Availability
of not less than $500,000, and (y) no Default or Event of Default shall
have occurred and be continuing, and (ii) the aggregate amount of such
repurchases does not exceed $100,000; and (d) New Guardian may declare
and pay cash dividends on the Preferred Stock as and when payable
pursuant to the terms of New Guardian's charter and the Westar Equity
Documents, provided that (i) at the time any such dividend is declared
and paid and after giving effect thereto (x) Borrowers shall have Debt
Service Coverage (calculated on the basis of Borrowers' financial
statements for the then most recently ended fiscal month after giving
pro forma effect to the payment of such dividend) of at least the ratio
then required pursuant to subsection 6.5 for the most recently ended
month for which monthly financial statements and a Compliance
Certificate are required to be delivered pursuant to Annex B, and (y)
no Default or Event of Default shall have occurred and be continuing,
and (ii) the aggregate amount of such cash dividends declared and paid
on any payment date therefor shall not exceed the amount required to be
paid as of such date pursuant to the terms of the Westar Equity
Documents as in effect on the Third Amendment Effective Date.
1.11 AMENDMENT OF SUBSECTION 7.6. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 7.6
in its entirety and inserting the following in substitution therefor:
7.6 RESTRICTION ON FUNDAMENTAL CHANGES. Neither any Borrower
nor any other Loan Party will: (a) enter into any transaction of merger
or consolidation; (b) liquidate, wind-up or dissolve itself (or suffer
any liquidation or dissolution), except that SDI shall cease operations
as promptly as practicable (and, if such operations are not ceased and
SDI is not dissolved on or prior to June 30, 1998, New Guardian shall
execute and deliver a pledge agreement, in form and substance
satisfactory to Lender, pledging all of the issued and outstanding
capital stock of SDI to Lender as additional collateral securing the
Obligations); (c) convey, sell, lease, sublease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or issue, sell or dispose
of any of its capital stock or the capital stock of any of its
Subsidiaries, whether now owned or
-6-
<PAGE>
hereafter acquired, except that (i) New Guardian may issue and sell
shares of its Class A Common Stock to Westar prior to the Third
Amendment Effective Date in accordance with the terms of the Westar
Equity Documents so long as prior to such sale, New Guardian had
received the written consent of Lender, (ii) New Guardian may issue and
sell shares of its Preferred Stock to Westar after the Third Amendment
Effective Date in accordance with the terms of the Westar Equity
Documents, and (iii) subsequent to the Third Amendment Effective Date,
New Guardian may issue shares of its Preferred Stock to Westar in lieu
of the payment of cash dividends on its Preferred Stock owned by
Westar, or may issue shares of its Class A Common Stock to Westar upon
the conversion of its Preferred Stock held by Westar, in either case so
long as such issuance in lieu of dividends or conversion is consummated
and effected in accordance with the terms of the Westar Equity
Documents; or (d) acquire by purchase or otherwise all or any
substantial part of the business or assets of, or stock or other
evidence of beneficial ownership of, any Person, except that any
Borrower may acquire assets from another Person pursuant to a Bulk
Contract Purchase so long as (i) at the time of any such transaction
and after giving effect thereto, no Default or Event of Default shall
have occurred and be continuing; (ii) the applicable Seller shall have
agreed in writing to be bound by a guarantee or replacement clause
substantially similar to that set forth in Schedule 7.6; and (iii)
Lender shall have completed such due diligence in respect of the
portfolio of Contracts to be acquired pursuant to such Bulk Contract
Purchase (or series of related such transactions) as it may request and
Lender shall have given its prior written consent to the consummation
thereof by the applicable Borrower, such consent not to be unreasonably
withheld or delayed; provided that the requirements of this clause
(iii) need not be satisfied in the case of (A) any such Bulk Contract
Purchase (or series of related such transactions) which is for an
aggregate amount of $250,000 or less, or (B) any such Bulk Contract
Purchase (or series of related such transactions) which is for an
aggregate amount in excess of $250,000 but equal to or less than
$500,000, if the average initial term of the Contracts included in such
Bulk Contract Purchase is 36 months or more.
1.12 AMENDMENT OF SUBSECTION 7.7. From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection 7.7
in its entirety and inserting the following in substitution therefor:
7.7 CHANGES RELATING TO SUBORDINATED DEBT, PREFERRED STOCK OR
WESTAR EQUITY DOCUMENTS. Borrowers will not, and will not permit any
other Loan Party to, change or amend the terms of any documents or
instruments evidencing or governing any Subordinated Debt if the effect
of such amendment is to: (a) increase the interest rate on such
Indebtedness; (b) change the dates upon which payments of principal or
interest are due on such Indebtedness; (c) change any event of default
or add any covenant with respect to such Indebtedness; (d) change the
payment provisions of such Indebtedness; (e) change the subordination
provisions thereof; or (f) change or amend any other term if such
change or amendment would materially increase the obligations of the
obligor or confer additional material rights on the holder of such
-7-
<PAGE>
Indebtedness in a manner adverse to any Borrower, any other Loan Party,
or Lender. New Guardian will not change any of the terms of the
Preferred Stock as in effect on the Third Amendment Effective Date, nor
shall New Guardian change or amend any of the terms of the Westar
Equity Documents.
1.13 AMENDMENT OF SUBSECTION 8.1(F). From and after the Third Amendment
Effective Date, the Loan Agreement is hereby amended by deleting subsection
8.1(F) in its entirety and inserting the following in substitution therefor:
(F) CHANGE IN OWNERSHIP. (1) The Ginsburg Group shall
collectively cease to (a) own and/or exclusively control twenty-one
percent (21.0%) of the issued and outstanding voting Common Stock of
New Guardian, or (b) have the right to nominate and elect (i) at least
four of the eight members of New Guardian's Board of Directors, at all
times prior to the conversion of the Preferred Stock of New Guardian
owned by Westar to Class A Common Stock of New Guardian, and (ii) at
least three of the nine members of New Guardian's Board of Directors,
at all times after such conversion of Preferred Stock into Class A
Common Stock, provided that (i) such limitations shall not prevent any
member of the Ginsburg Group from transferring all or any part of their
ownership interests in New Guardian's Common Stock (x) to any other
member of the Ginsburg Group, or (y) into any trust established by such
member for estate planning purposes so long as such member retains
exclusive voting control, for his or her lifetime, over all such shares
so placed in trust; and (ii) such limitation shall terminate upon the
completion of a Qualified Public Offering; or (2) Westar shall cease to
have the right to nominate and elect (a) at least two of the eight
members of New Guardian's Board of Directors, at all times prior to the
conversion of the Preferred Stock of New Guardian owned by Westar to
Class A Common Stock of New Guardian, and (b) at least three of the
nine members of New Guardian's Board of Directors, at all times after
such conversion of Preferred Stock into Class A Common Stock; or (3)
the Ginsburg Group and Westar shall cease to have the right to mutually
agree upon, nominate and elect (i) at least two of the eight members of
New Guardian's Board of Directors, at all times prior to the conversion
of the Preferred Stock of New Guardian owned by Westar to Class A
Common Stock of New Guardian, and (ii) at least three of the nine
members of New Guardian's Board of Directors, at all times after such
conversion of Preferred Stock into Class A Common Stock; or (4) any
other Loan Party ceases to be a wholly-owned Subsidiary of New
Guardian; or
1.14 AMENDMENT OF SECTION 8.1. From and after the Third Amendment
Effective Date, Section 8 of the Loan Agreement is hereby further amended by (a)
deleting the period at the end of subsection 8.1(P) and inserting "; or" in
substitution therefor; (b) deleting the period at the end of subsection 8.1(Q)
and inserting "; or" in substitution therefor; and (c) inserting a new
subsection 8.1(R) as follows:
(R) FAILURE TO ISSUE CLASS B COMMON STOCK. New Guardian shall
for any reason fail, on or prior to November 30, 1997, to issue to
Lender, in its capacity as
-8-
<PAGE>
a holder of Class B Common Stock, an additional 150,000 shares of Class
B Common Stock (which shares New Guardian is contractually required to
so issue and deliver as of the date hereof), or shall fail to deliver
original stock certificates evidencing such additional shares to
Lender's possession on or prior to such date.
1.15 AMENDMENT OF ANNEX A. (a) From and after the Third Amendment
Effective Date, Annex A to the Loan Agreement is hereby amended by inserting the
following additional defined terms in proper alphabetical order:
"Capital Expenditures" means all expenditures for (including
deposits), or contracts for expenditures with respect to, any fixed
assets or improvements, or for replacements, substitutions or additions
therefor, which have a useful life of more than one year, including the
direct or indirect acquisition of such assets by way of increased
product or service charges, offset items or otherwise.
"Class A Common Stock" means the Class A voting common stock
of New Guardian, $.001 par value per share.
"Class B Common Stock" means the Class B non-voting common
stock of New Guardian, $.001 par value per share.
"Common Stock" means, collectively, the Class A Common Stock
and Class B Common Stock.
"Conversion" means, in respect of any Contract, that the
original Contract Obligor has moved or otherwise vacated the premises
at which the applicable Alarm System is located and a new owner or
occupant of such premises has assumed such original Contract Obligor's
Contract or has entered into a new Contract with a Borrower with
respect to such Alarm System.
"Ginsburg Group" means, collectively, Individual Guarantors,
Richard Ginsburg and Rhonda Ginsburg and any transferees of any such
Persons to the extent permitted by subsection 8.1(F) of the Agreement.
"Net Attrition" means, for any period, (a)(i) the aggregate
MRI in respect of Contracts disconnecting service during such period,
multiplied by (ii) 24, less (b)(i) the aggregate MRI in respect of any
replacements of such Contracts during such period (by means of Dealer
or Seller replacement during the Replacement Period or the Holdback
Period, as applicable, by Conversion, by MRI increases in respect of
existing Contracts, by recoveries of previously written off MRI or by
new MRI generated by internal sales efforts, multiplied by (ii) 24.
"Preferred Stock" means the Series A 9 3/4% Convertible
Cumulative Preferred Stock of New Guardian in the aggregate amount of
$3,750,000.
-9-
<PAGE>
"Third Amendment Effective Date" shall mean October 21, 1997.
"Westar" means Westar Capital, Inc., a Kansas corporation.
"Westar Equity Documents" means, collectively, that certain
Stock Subscription Agreement dated as of October 14, 1997 between New
Guardian and Westar, that certain Registration Rights Agreement dated
as of October 21, 1997 between New Guardian and Westar, that certain
Guardian International, Inc. Stockholders Agreement dated as of October
__, 1997 among New Guardian, Harold Ginsburg, Sheilah Ginsburg, Richard
Ginsburg, Rhonda Ginsburg and Westar, and all agreements, instruments
or other documents referred to in any of the foregoing or required
thereby.
(b) From and after the Third Amendment Effective Date, Annex A
to the Loan Agreement is hereby further amended by deleting the defined term
"Annualized Net Attrition Rate" in its entirety and inserting the following in
substitution therefor:
"Annualized Gross Attrition Rate" means, for any period, the
aggregate MRI in respect of Contracts disconnecting service during such
period, net of the aggregate MRI in respect of any replacements of such
Contracts by means of Dealer or Seller replacement during the
Replacement Period or the Holdback Period, as applicable, pursuant to a
Conversion, by MRI increases in respect of existing Contracts or by
recoveries of previously written off MRI. The average gross attrition
rate (expressed as a percentage) as of the last day of any month for
the three month period then ended (any such three month period, a "Test
Period") is equal to:
(a) (i) the aggregate monthly gross attrition (as
defined above) for each month in such Test Period,
DIVIDED BY (ii) three (3),
DIVIDED BY
(b)(i) the aggregate MRI in respect of all Contracts at the end
of each month during the three month period ending on the last
day of the second month in such Test Period, DIVIDED BY (ii)
three (3).
(c) From and after the Third Amendment Effective Date, Annex A
to the Loan Agreement is hereby further amended by deleting the defined terms
"Custodial Agreement" and "Custodian" in their entirety and inserting the
following in substitution therefor:
"Custodial Agreement" means a Custodial Agreement in form and
substance satisfactory to Lender among Borrowers, Lender and a
Custodian (other than Lender) providing for the maintenance of the
Contract Obligor Documents.
-10-
<PAGE>
"Custodian" means Lender, as of the Effective Date, or such
other Person designated by Lender and approved by Borrowers (such
approval not to be unreasonably withheld or delayed) to maintain
physical possession of the Contract Obligor Documents and which has
executed and delivered a Custodial Agreement.
(d) From and after the Third Amendment Effective Date, Annex A
to the Loan Agreement is hereby further amended by deleting the defined term
"Debt Service Coverage" in its entirety and inserting the following in
substitution therefor:
"Debt Service Coverage" means, for any period (a) Operating
Cash Flow, DIVIDED BY (b) the sum of (i) Interest Expenses for such
period, PLUS (ii) scheduled payments of principal with respect to all
Indebtedness (including the principal portion of scheduled payments of
Capital Lease obligations) of Borrowers on a consolidated basis, PLUS
(iii) Restricted Junior Payments made by Borrowers in cash during such
period to the extent permitted pursuant to subsection 7.5 of the
Agreement.
(e) From and after the Third Amendment Effective Date, Annex A
to the Loan Agreement is hereby further amended by deleting the defined term
"List of Contracts" in its entirety and inserting the following in substitution
therefor:
"List of Contracts" means each list delivered to Lender and,
if applicable, to Custodian by Borrower Representative with each
Contract or group of Contracts which: (i) identifies each Contract
being delivered by account number, the name of the Contract Obligor,
the total monthly/quarterly/annual recurring service charge on such
Contract and the number of months remaining in the term of such
Contract, and (ii) shows the total number of Contracts and the
aggregate MRI of all such listed Contracts.
(f) From and after the Third Amendment Effective Date, Annex A
to the Loan Agreement is hereby further amended by deleting the defined term
"Loan Documents" in its entirety and inserting the following in substitution
therefor:
"Loan Documents" means the Agreement, the Notes, the
Individual Guaranty, the Pledge Agreement, the Lockbox Agreement(s),
any Custodial Agreement from time to time in effect, and all other
instruments, documents and agreements executed by or on behalf of any
Loan Party and delivered concurrently herewith or at any time hereafter
to or for Lender in connection with the Loans and other transactions
contemplated by the Agreement (including without limitation any such
instruments, documents and agreements delivered at any time pursuant to
Section 2.11 of the Agreement), all as amended, restated, supplemented
or modified from time to time.
(g) From and after the Third Amendment Effective Date, Annex A
to the Loan Agreement is hereby further amended by deleting the defined term
"Operating Cash Flow" in its entirety and inserting the following in
substitution therefor:
-11-
<PAGE>
"Operating Cash Flow" means, for any period, (a) EBITDA for
such period; PLUS (b) in respect of any period ending on or prior to
August 31, 1998, up to $150,000 of expenses incurred in connection with
the proposed merger with SPS, to the extent such expenses were deducted
in determining EBITDA for such period; LESS (c) Net Attrition in
respect of all Contracts for such period (if a positive number); LESS
(d) unfinanced Capital Expenditures for such period.
1.16 AMENDMENT OF ANNEX B. From and after the Third Amendment Effective
Date, the Loan Agreement is hereby amended by deleting subparts (H) and (I) of
Annex B in their entirety and inserting the following in substitution therefor:
(H) MONTHLY COLLATERAL REPORTING. As soon as available and in
any event within twenty (20) days after the end of each month, Borrower
Representative will deliver each of the following, all prepared as of
the last day of the preceding month for the period then ended and all
in such form and containing such detail as Lender may specify or
request: (i) a summary aged trial balance of all then-existing Accounts
(with details to be made available upon Lender's request); (ii) an
attrition report reflecting recovery income; (iii) an aging/delinquency
report; (iv) a new business report reflecting purchased Contracts and
internally generated Contracts; (v) a detailed MRI report listing all
Contracts for the applicable period; and (vi) such additional monthly
reports and information as Borrower Representative and Lender shall
mutually agree upon within thirty (30) days following the Third
Amendment Effective Date or, such additional monthly reports and
information as Lender may require upon written notice to Borrower
Representative, if Borrower Representative and Lender are unable after
good faith negotiations to mutually agree upon such additional
reporting within such thirty (30) day period.
(I) BORROWING BASE CERTIFICATES. At least monthly, no later
than twenty (20) days after the last day of each month, or more
frequently as Borrower Representative may elect or Lender may request,
and as promptly as practicable if Availability is less than $500,000,
Borrower Representative will deliver a Borrowing Base Certificate
setting forth the calculation of the Borrowing Base as of such date as
Lender may specify.
1.17 AMENDMENT OF SCHEDULE 4.1(B). From and after the Third Amendment
Effective Date, SCHEDULE 4.1(B) to the Loan Agreement is hereby deleted in its
entirety and shall be replaced by SCHEDULE 4.1(B) attached hereto, which has
been prepared after giving effect to the consummation of the transactions
contemplated by the Westar Equity Documents on the Third Amendment Effective
Date.
1.18 EXHIBIT D. From and after the Third Amendment Effective Date, the
Loan Agreement is hereby amended by adding thereto an Exhibit D, in the form of
Exhibit D attached hereto.
2. WAIVERS. Lender hereby waives all Defaults or Events of
Default arising under (i) Section 6.1 of the Loan Agreement as the result of
Borrowers' failure to maintain a ratio of Senior
-12-
<PAGE>
Debt to Tangible Net Worth not in excess of 6.0 to 1.0 during the period
commencing May 31, 1997 through August 31, 1997, (ii) Section 6.5 of the Loan
Agreement as the result of Borrowers' failure to maintain Debt Service Coverage
for the period ended as of August 31, 1997 of not less than 1.0 to 1.0, (iii)
Section 6.6 of the Loan Agreement as the result of Borrower's failure to
maintain Tangible Net Worth of at least $1,500,000 during the period commencing
May 31, 1997 through August 31, 1997, and (iv) Annex B of the Loan Agreement as
the result of Borrowers' late delivery of monthly collateral reporting as
required pursuant to such Annex B for the months ended May 31, 1997 and June 30,
1997, respectively. The consents and waivers set forth in this Section 2 shall
be limited precisely as written and shall not be deemed to (i) be a consent to
any other transaction or of any waiver or modification of any other term or
condition of the Loan Agreement or of any of the other Loan Documents or (ii)
prejudice any right or rights which Lender may now have or may have in the
future under or in connection with the Loan Agreement or any other Loan
Document.
3. CONDITIONS TO EFFECTIVENESS. This Agreement shall become
effective upon satisfaction of the following conditions:
(a) Lender shall have received counterparts of this Agreement
duly executed by Borrowers;
(b) Each of the Westar Equity Documents shall be in form and
substance satisfactory to Lender and shall have been duly executed and
delivered by each Person party thereto (and copies of such
fully-executed documents shall have been delivered to Lender), and all
of the transactions contemplated by such Westar Equity Documents shall
have been fully consummated in accordance with the terms thereof (other
than the issuance of the Preferred Stock thereunder); without
limitation of the foregoing (i) New Guardian shall have issued and sold
shares of its Class A Common Stock to Westar, the cash proceeds of
which shall be at least $3,750,000, and New Guardian shall have
delivered to caused to be delivered to Lender all such cash proceeds
for application to the Loans and other Obligations under the Loan
Agreement; and (ii) Lender, in its capacity as a holder of Class B
Common Stock of New Guardian, shall have given its written consent to
the issuance of the Preferred Stock pursuant to the Westar Equity
Documents;
(c) All of the conditions precedent set forth in the Westar
Equity Documents to the issuance and sale of the Preferred Stock, but
for the passage of time between the issuance and sale of the Class A
Common Stock and such Preferred Stock, shall have been satisfied as of
the Third Amendment Effective Date;
(d) On or as of the Third Amendment Effective Date, New
Guardian shall have filed with the Securities and Exchange Commission
the information memorandum required to enable New Guardian to
authorize, issue and sell the Preferred Stock pursuant to the Westar
Equity Documents and the additional 150,000 shares of Class B Common
Stock required to be issued and delivered to Lender, in its capacity as
a holder of Class B Common Stock;
-13-
<PAGE>
(e) Borrowers shall have paid all invoices for attorneys' fees
and disbursements incurred by Lender which are or remain outstanding as
of the Third Amendment Effective Date;
(f) Lender shall have received a certificate duly executed by
the Secretary or Assistant Secretary of New Guardian (a) certifying the
resolutions approving this Agreement, the Westar Equity Documents and
the execution and delivery of all agreements, instruments, certificates
and other documents in connection herewith and therewith; (b)
certifying as to signatures and incumbency of officers executing any
such documents; and (c) certifying that, since May 22, 1997, except as
specifically contemplated by the Westar Equity Documents, there have
been no modifications or amendments to New Guardian's articles of
incorporation or bylaws; in addition to the foregoing, on the earlier
of the date on which the Preferred Stock is issued to Westar or
November 30, 1997, New Guardian shall deliver to Lender (a) a certified
copy of its Articles of Incorporation and all amendments and
supplements thereto, duly certified by the Secretary of State of the
State of Nevada, and (b) a copy of its bylaws and all amendments
thereto, certified by its Secretary or an Assistant Secretary, which
certified documents shall, in each case, contain all the amendments and
modifications which may be required to authorize or reflect the
consummation of the transactions contemplated by the Westar Equity
Documents and the issuance of the additional shares of Class B Common
Stock to Lender as contemplated herein; and
(g) No Default or Event of Default shall exist under the Loan
Agreement, after giving effect to the terms of this Agreement and the
transactions contemplated herein.
4. REPRESENTATIONS AND WARRANTIES OF BORROWERS. In order to
induce Lender to enter into this Agreement, Borrowers represent and warrant to
Lender that:
(a) After giving effect to this Agreement:
(i) No Default or Event of Default has occurred and
is continuing; and
(ii) the representations and warranties of Borrowers
contained in the Loan Documents are true and correct on and as
of the date hereof to the same extent as though made on and as
of the date hereof except to the extent such representations
and warranties specifically relate to an earlier date.
(b) The execution, delivery and performance by Borrowers of
this Agreement and each of the documents and agreements described
herein to which any Borrower is a party, including without limitation
the Westar Equity Documents, is within its corporate powers and have
been duly authorized by all necessary corporate action on the part of
such Borrower, and this Agreement and such documents and agreements are
the legal, valid and
-14-
<PAGE>
binding obligation of such Borrower enforceable against it in
accordance with their respective terms.
5. REFERENCE TO AND EFFECT ON THE LOAN AGREEMENT.
5.1. Except as specifically amended above, the Loan Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
5.2. Except as specifically provided herein, the execution,
delivery and effectiveness of this Agreement shall not operate as a waiver of
any right, power or remedy of Lender under the Loan Agreement or any of the
other Loan Documents, or constitute a waiver of any provision of the Loan
Agreement or any of the other Loan Documents. Upon the effectiveness of this
Agreement, each reference in the Loan Agreement to "this Agreement,"
"hereunder," "hereof," or words of similar import shall mean and be a reference
to the Loan Agreement as amended hereby.
6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT. This Agreement, including all schedules
and other documents attached hereto or incorporated by reference herein,
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all other understandings, oral or written, with
respect to the subject matter hereof.
6.2. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed an
original, but all such counterparts shall constitute one and the same
instrument.
6.3. COSTS AND EXPENSES. As provided in Section 9.3 of the
Loan Agreement, Borrowers agree to pay on demand all reasonable fees, costs and
expenses incurred by Lender in connection with the preparation, execution and
delivery of this Agreement.
6.4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
6.5. HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
6.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon each of the parties hereto and their respective successors and assigns,
except that no Borrower may assign its rights or obligations hereunder without
the written consent of Lender. Without limitation of the foregoing, the parties
hereto acknowledge that, as of the date hereof, New Guardian is the only
Borrower under the Loan Agreement, and that this Agreement shall be binding upon
any Borrowing
-15-
<PAGE>
Subsidiary which may become a Borrower under the Loan Agreement at any time
after the date hereof.
-16-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
GUARDIAN INTERNATIONAL, INC.
By:
Title:
HELLER FINANCIAL, INC.
By:
Title:
-17-
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 166,860
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<RECEIVABLES> 870,183
<ALLOWANCES> 138,110
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<CURRENT-ASSETS> 979,536
<PP&E> 1,087,952
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<BONDS> 7,601,765
0
0
<COMMON> 6,988
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<TOTAL-LIABILITY-AND-EQUITY> 11,008,657
<SALES> 4,019,022
<TOTAL-REVENUES> 4,019,022
<CGS> 1,839,943
<TOTAL-COSTS> 1,839,943
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