<PAGE> 1
AMENDMENT NO. 1
TO
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LIFELINE SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.*
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
* No fee is required under Rule 14a-6(j) as this preliminary proxy statement of
Lifeline Systems, Inc. is part of a joint proxy statement/information
statement/registration statement on Form S-4 which was originally filed by
Protection One Acquisition Holding Corporation on December 10, 1998, and
Amendment No. 1 to which is being filed on February 12, 1999, Registration
Statement No. 333-68647, who has previously paid a filing fee of $343,687.88
in connection therewith.
<PAGE> 2
LIFELINE SYSTEMS, INC.
111 LAWRENCE STREET
FRAMINGHAM, MASSACHUSETTS 01702
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
Dear Stockholder:
The Board of Directors of Lifeline Systems, Inc. has approved a merger
agreement that would result in Lifeline becoming owned by Protection One
Acquisition Holding Corporation (which we refer to as New Protection One), a
wholly-owned subsidiary of Protection One, Inc.
In the merger, each Lifeline stockholder will be entitled to receive, in
exchange for each share of Lifeline common stock, that number of shares of
common stock of New Protection One determined using an exchange ratio based on
the average closing price of Protection One common stock, plus $14.50 in cash,
or additional shares of New Protection One common stock, in lieu of all or any
portion of the cash payment, at each Lifeline stockholder's election. The
average closing price means the average of the closing price per share of
Protection One common stock on the New York Stock Exchange during the ten most
recent trading days on which shares of Protection One common stock actually
traded ending three trading days prior to the date of the Lifeline special
meeting.
At the same time as the Lifeline merger, Protection One also will become a
wholly owned subsidiary of New Protection One and Protection One stockholders
will become stockholders of New Protection One.
The Lifeline Special Meeting will be held at 10:00 a.m., local time, on
, 1999, at the offices of Hale and Dorr LLP located on the 26th
floor of 60 State Street, Boston, Massachusetts.
After careful consideration, your Board of Directors has unanimously
determined that the cash and New Protection One common stock consideration to be
received in the Lifeline merger is fair to and in the best interests of Lifeline
and its stockholders. The Board of Directors of Lifeline has unanimously
approved and adopted the Merger Agreement and unanimously recommends that you
vote FOR approval and adoption of the Merger Agreement at the special meeting.
You are urged to read the accompanying Proxy Statement/Information
Statement/ Prospectus carefully for a description of the merger agreement.
Only holders of record of Lifeline common stock at the close of business on
February 16, 1998 will be entitled to notice of, and to vote at, the Lifeline
special meeting. A list of holders of Lifeline common stock entitled to vote at
the Lifeline special meeting will be open for examination, during ordinary
business hours, at Lifeline's principal offices beginning two business days
after delivery of this notice.
The affirmative vote of holders of two-thirds of the shares of Lifeline
common stock outstanding and entitled to vote as of the close of business on the
record date is necessary to approve the merger agreement.
<PAGE> 3
If you have any questions about the merger, please contact either MacKenzie
Partners, Inc. at (800) 322-2885 or Dennis Hurley, Vice President, Finance and
Chief Financial Officer at (508) 988-1000.
By Order of the Board of Directors,
Norman B. Asher
Clerk
Whether or not you plan to attend the Lifeline special meeting, please
complete, sign, date and return the enclosed proxy card promptly in the enclosed
postage-paid envelope. Stockholders who attend the Lifeline special meeting may
revoke their proxies and vote in person if they desire.
UNLESS YOU INTEND TO ELECT TO RECEIVE ADDITIONAL SHARES OF NEW PROTECTION
ONE COMMON STOCK INSTEAD OF ALL OR A PART OF THE $14.50 CASH PORTION OF THE
MERGER CONSIDERATION, PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
IF YOU ARE MAKING THE STOCK ELECTION, PLEASE FOLLOW THE DETAILED INSTRUCTIONS IN
THE PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS AND THE ACCOMPANYING STOCK
ELECTION FORM AND LETTER OF TRANSMITTAL.
NOTICE OF APPRAISAL RIGHTS
UNDER MASSACHUSETTS LAW, YOU ARE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION
WITH THE MERGER. IN ORDER TO EXERCISE YOUR APPRAISAL RIGHTS, YOU MUST FOLLOW
CERTAIN PROCEDURES PRESCRIBED BY MASSACHUSETTS LAW. FOR A SUMMARY OF THE RIGHTS,
DUTIES AND PROCEDURES RELATED TO YOUR APPRAISAL RIGHTS, SEE "THE
MERGERS -- APPRAISAL AND DISSENTERS' RIGHTS OF LIFELINE STOCKHOLDERS" IN THE
PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS.
<PAGE> 4
THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS
DATED FEBRUARY 12, 1999 IS SUBJECT TO COMPLETION AND AMENDMENT.
PROTECTION ONE, INC. LIFELINE SYSTEMS, INC.
PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS
------------------------
PROTECTION ONE ACQUISITION
HOLDING CORPORATION
(To be renamed "Protection One, Inc." upon consummation of the mergers)
------------------------
MERGER PROPOSED -- THE VOTE OF LIFELINE STOCKHOLDERS IS IMPORTANT
The boards of directors of Protection One, Inc. and Lifeline Systems, Inc.
have agreed on a merger of the two companies to join Lifeline's market-leading
position for providing personal response monitoring services with Protection
One's expansive domestic and growing international presence in the alarm
monitoring industry. The merger will be accomplished by Lifeline and Protection
One each merging with subsidiaries of Protection One Acquisition Holding
Corporation, a company newly formed by Protection One.
This Proxy Statement/Information Statement/Prospectus, which we refer to as
the prospectus, is being sent to stockholders of Lifeline in connection with the
solicitation of proxies by the board of directors of Lifeline for use at the
special meeting of Lifeline stockholders to be held on , 1999, to
consider and to vote upon the proposed merger.
This prospectus is also being sent to stockholders of Protection One
because of the impact of the mergers on them. Following the mergers, Protection
One Acquisition Holding Corporation will be the new parent of Protection One and
Lifeline and will change its name to "Protection One, Inc." We refer to
Protection One Acquisition Holding Corporation as New Protection One. Lifeline
stockholders and Protection One stockholders will receive stock of New
Protection One in the mergers.
If the merger is completed, each share of Lifeline common stock will be
converted into a right to receive $14.50 in cash and a number of shares of New
Protection One common stock determined by an exchange ratio based on the trading
price of Protection One common stock on the New York Stock Exchange. Lifeline
stockholders may elect to take additional shares of New Protection One common
stock in lieu of some or all of the cash consideration.
Each share of Protection One common stock will automatically convert into
one share of New Protection One common stock.
PROTECTION ONE STOCKHOLDERS: YOU DO NOT NEED TO TAKE ANY ACTION. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The Protection One common stock is traded on the New York Stock Exchange
under the symbol "POI". New Protection One will apply to list its common stock
on the New York Stock Exchange under the symbol "POI." The Lifeline common stock
is quoted on the Nasdaq Stock Market's National Market under the symbol "LIFE."
------------------------
PLEASE CAREFULLY REVIEW THE RISK FACTORS DESCRIBED IN THIS PROSPECTUS BEGINNING
ON PAGE 15.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS IS
NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS IS NOT AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THIS PROXY STATEMENT/INFORMATION STATEMENT/PROSPECTUS IS DATED ,
1999
AND WAS FIRST MAILED TO STOCKHOLDERS ON OR ABOUT , 1999.
<PAGE> 5
THE MERGERS
If the proposed combination is approved by Lifeline stockholders, Lifeline
and Protection One will merge with subsidiaries of New Protection One. The
combined company will continue to be known as Protection One, Inc. The following
diagram depicts the proposed mergers:
[PROTECTION ONE DIAGRAM]
Following the mergers, stockholders of Protection One and Lifeline will be
stockholders of New Protection One. Protection One and Lifeline will be wholly
owned subsidiaries of New Protection One.
[PROTECTION ONE DIAGRAM]
NONE OF NEW PROTECTION ONE, PROTECTION ONE NOR LIFELINE HAS AUTHORIZED
ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS ABOUT EITHER
THE MERGERS OR THE OTHER TRANSACTIONS THAT ARE DISCUSSED IN THIS PROSPECTUS
OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE
MATTERS THAT IS NOT DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT
RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO
WHOM NEW PROTECTION ONE IS NOT PERMITTED TO OFFER OR TO SELL SECURITIES UNDER
APPLICABLE LAW. THE DELIVERY OF THIS PROSPECTUS OR THE COMMON STOCK OF NEW
PROTECTION ONE OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCE, MEAN THAT THERE
HAS NOT BEEN A CHANGE IN THE AFFAIRS OF PROTECTION ONE OR LIFELINE SINCE THE
DATE HEREOF. IT ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS OR IN
THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE IS CORRECT AFTER THIS DATE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Frequently Asked Questions And Answers About The Mergers.... 1
Summary..................................................... 4
The Companies............................................. 4
Material Federal Income Tax Consequences.................. 4
The Mergers............................................... 5
Termination of the Merger Agreement.................... 5
Related Agreements and Transactions....................... 5
Voting Agreements...................................... 5
Stock Option Agreement................................. 6
Accounting Treatment...................................... 6
Cautionary Statement Regarding Forward-Looking
Statements............................................. 6
Summary Selected Historical and Unaudited Pro Forma
Financial Data......................................... 8
Market Price Information.................................. 12
Dividend Information...................................... 12
Number of Stockholders.................................... 13
Comparative Per Share Data................................ 13
Risk Factors................................................ 15
The value of the merger consideration is not fixed and,
therefore, could be less than anticipated by Lifeline
stockholders........................................... 15
New Protection One may have difficulty integrating
Lifeline's operations and entering a new line of
business............................................... 15
The competitive market for the acquisition of accounts may
affect Protection One's future profitability........... 16
The integration of acquired businesses places requires
substantial management time and effort, which could
divert management's attention from other matters....... 16
Protection One could discover problems with acquired
businesses after their acquisition..................... 16
New Protection One will need additional funding to finance
its future growth...................................... 17
Protection One has had a history of losses................ 17
Protection One experiences subscriber attrition........... 18
Protection One's recent entrance into Europe presents new
operational challenges and exposes it to foreign
currency fluctuation................................... 19
Protection One has a substantial amount of debt, which
could constrain its growth or otherwise disadvantage
its stockholders....................................... 20
Protection One's debt agreements impose operational
restrictions on Protection One......................... 21
Protection One's increasing reliance on dealers for growth
depends on the ability to continue to acquire accounts
in an increasingly competitive market.................. 21
"False Alarm" ordinances present potential problems for
Protection One......................................... 22
Future government regulations may adversely affect
Protection One......................................... 22
Protection One is exposed to potential litigation and
liability from operations.............................. 22
Declines in new construction of multi-family dwellings may
affect Protection One's sales in this marketplace...... 23
Protection One and Lifeline face Year 2000 issues......... 23
The agreements related to the mergers and the termination
fees may have anti-takeover effects for Lifeline....... 25
Lifeline stockholders will have different rights as New
Protection One stockholders............................ 25
Lifeline's business may be affected by problems with its
new computer system.................................... 26
Western Resources will be the principal stockholder of New
Protection One and will control its actions............ 26
Protection One faces challenges associated with its
operational reorganization............................. 27
Incorporation By Reference To Other Documents............... 28
Where You Can Find More Information......................... 28
Selected Consolidated Financial Data Of Protection One...... 30
Selected Consolidated Financial Data Of Lifeline............ 34
Unaudited Pro Forma Consolidated Financial Data............. 36
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Lifeline Special Meeting................................ 45
General................................................... 45
Matters To Be Considered At The Lifeline Special
Meeting................................................ 45
Date, Time and Place...................................... 45
Record Date; Voting; Revocation of Proxies................ 45
Solicitation of Proxies................................... 46
Accountants............................................... 46
The Mergers................................................. 47
Background................................................ 47
Recommendation of the Protection One Board of Directors... 50
Recommendation of the Lifeline Board of Directors......... 51
Opinion of Financial Advisor to the Board of Directors of
Lifeline............................................... 54
Appraisal and Dissenters' Rights.......................... 58
Accounting Treatment...................................... 59
Material Federal Income Tax Consequences of the Mergers... 60
Stock Exchange Listing.................................... 62
Federal Securities Laws Consequences...................... 62
Financing the Mergers..................................... 62
The Merger Agreement........................................ 63
The Mergers............................................... 63
Conversion of Protection One common stock................. 63
Conversion of Lifeline common stock....................... 63
Exchange of Certificates.................................. 64
Representations and Warranties............................ 65
Representations and Warranties of Protection One, New
Protection One, and New Protection One's Merger
Subsidiaries........................................... 65
Representations and Warranties of Lifeline................ 65
Certain Covenants......................................... 65
Conduct of Business Pending the Mergers................ 65
Employee Stock Options and Benefit Plans............... 67
Access to Information.................................. 67
Fees and Expenses...................................... 67
Certain Other Covenants................................ 68
Conditions to the Mergers................................. 68
Termination of the Merger Agreement....................... 69
Amendments and Waivers.................................... 69
Related Agreements And Transactions......................... 70
Lifeline Voting Agreements................................ 70
Voting and Proxies..................................... 70
Prohibited Actions..................................... 71
Other Provisions....................................... 71
Westar Capital Voting Agreement........................... 71
Voting and Proxies..................................... 71
Prohibited Actions..................................... 71
Other Provisions....................................... 72
Stock Option Agreement.................................... 72
Amendment to Lifeline's Rights Agreement.................. 73
Interests Of Certain Persons In The Mergers................. 73
Protection One............................................ 73
Lifeline.................................................. 74
Business Of Protection One.................................. 76
Recent Developments....................................... 76
Business Of Lifeline........................................ 77
Business Of New Protection One.............................. 78
Management Of New Protection One............................ 79
Executive Officers........................................ 80
Security Ownership Of Certain Beneficial Owners And
Management................................................ 82
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description Of New Protection One Capital Stock............. 83
General................................................... 83
Common Stock.............................................. 84
Preferred Stock........................................... 85
Comparison Of Rights Of Lifeline Stockholders, Protection
One Stockholders And New Protection One Stockholders...... 85
Differences in the Rights of the Stockholders of
Protection One and New Protection One.................. 85
Differences in the Rights of the Stockholders of Lifeline
and New Protection One................................. 85
Voting Requirements and Quorums for Stockholders
Meetings.............................................. 86
Dissenters' Rights..................................... 86
Shareholder Rights Agreement........................... 86
Cumulative Voting...................................... 86
Action by Consent of Stockholders...................... 87
Proxies................................................ 87
Approval of Business Combinations and Asset Sales...... 87
Anti-Takeover Legislation.............................. 87
Classified Board....................................... 87
Inspection Rights...................................... 88
Annual Meeting of Stockholders......................... 88
Special Meetings of Stockholders....................... 88
Notice of Stockholder Meetings......................... 89
Removal of Directors................................... 89
Change in Number of Directors.......................... 89
Indemnification and Limitation of Liability............ 89
Interested Director Transactions....................... 90
Filling Vacancies on the Board of Directors............ 90
Dividends and Repurchases.............................. 91
Classes of Stock....................................... 91
Legal Matters............................................... 91
Independent Auditors........................................ 91
Stockholder Proposals For New Protection One 1999 Annual
Meeting................................................... 92
Annex A -- The Merger Agreement............................. A-1
Annex B -- Massachusetts General Laws, Chapter 156B;
Sections 85-98............................................ B-1
Annex C -- Opinion of BT Alex. Brown Incorporated........... C-1
</TABLE>
<PAGE> 9
ANSWERS TO FREQUENTLY ASKED QUESTIONS ABOUT THE MERGERS
Q: What Will I, As A Holder Of Protection One Common Stock, Receive In The
Merger?
A: Each share of Protection One common stock automatically will become one share
of New Protection One common stock. As a result of the merger, you will own
shares of a larger, more diversified company.
Q: What Will I, As A Holder Of Lifeline Common Stock, Receive In The Merger?
A: You will receive a combination of $14.50 in cash and a number of shares of
New Protection One common stock for each share of Lifeline common stock you own.
The number of shares of New Protection One common stock that you will receive
will be determined by a variable exchange rate that is based on the "Average
Closing Price" of Protection One common stock on the New York Stock Exchange.
The Average Closing Price will be the average of the closing price per share of
Protection One common stock on the New York Stock Exchange during the ten most
recent trading days ending three trading days before the date of the special
meeting of Lifeline stockholders. The lower the Average Closing Price, the more
shares of New Protection One common stock you will receive; conversely, the
higher the Average Closing Price, the fewer shares of New Protection One you
will receive.
The following chart shows the applicable exchange ratio based on the Average
Closing Price. To determine the number of shares of New Protection One common
stock you will receive in the merger, simply multiply the number of shares of
Lifeline common stock you own by the applicable exchange ratio:
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE APPLICABLE EXCHANGE RATIO
- --------------------- ------------------------------
<S> <C>
$11.00 or more....... 1.3182
$9.50 to $10.99...... $14.50 / Average Closing Price
$8.19 to $9.49....... 1.5263
$7.00 to $8.18....... $12.50 / Average Closing Price
Less than $7.00...... 1.7857
</TABLE>
If the Average Closing Price had been determined on February , 1999, it would
have been $ , which would result in an exchange ratio of .
You will also have the opportunity to elect to receive additional stock in lieu
of the $14.50 per share of cash consideration.
The following chart shows the formula for determining the number of additional
shares of New Protection One common stock that you would receive for each
Lifeline share you own if you elect to take stock instead of any of the cash
consideration:
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE FORMULA
- --------------------- -------
<S> <C>
$9.50 or more........ $14.50 / Average Closing Price
Less than $9.50...... 1.5263 shares
</TABLE>
Based on the hypothetical Average Closing Price on February , 1999, the
maximum number of additional shares of New Protection One you would receive in
lieu of all $14.50 in cash is
times the total number of shares you own.
The Average Closing Price does not represent the actual value of the shares of
New Protection One common stock you will receive in the merger. The value of
those shares will depend on market conditions at the time you receive those
shares.
For a more detailed discussion of the stock-for-cash election and the formula
that will be used under the merger agreement to determine the number of shares
of New Protection common stock that you will receive, see pages 63 through 64.
Protection One and Lifeline have established a toll free number that you may
call, beginning on , 1999, to find out the Average Closing Price and
the number of shares of New Protection One common stock that each holder of
Lifeline common stock will receive in the merger. Please call (800) 322-2885.
Q: What Do I, As A Protection One Stockholder, Need To Do Now?
A: Westar Capital, Inc., which owned approximately 84.6% of the outstanding
shares of Protection One common stock as of January 31, 1999, has agreed to vote
its shares to approve the
1
<PAGE> 10
Protection One merger by written consent. Therefore, Protection One will not
require a special meeting of its stockholders to approve the merger, and you do
not need to take any further action.
Q: What Do I, As A Lifeline Stockholder, Need To Do Now?
A: After you have carefully read this prospectus, indicate how you want to vote
on the Lifeline merger by completing and signing the enclosed proxy card. After
completing the proxy card, sign and mail it in the enclosed prepaid return
envelope marked "Proxy" as soon as possible, so that your shares may be
represented and voted at the special meeting. The proxy card must be mailed as
indicated below:
LIFELINE SPECIAL MEETING
, 1999
EquiServe
P.O. Box 9391
Boston, Massachusetts 02205-9969
If you want to receive additional shares of New Protection One common stock in
lieu of some or all of the $14.50 per share cash portion of the merger payment,
you must also complete the enclosed stock election form and send it, along with
all of your Lifeline stock certificates, or properly guarantee that all your
stock certificates will be sent, so that they are received by ,
1999. The stock election form and stock certificates must be mailed as indicated
below:
PROTECTION ONE STOCK ELECTION
c/o ChaseMellon Shareholder Services
520 Pike Street, Suite 1220
Seattle, Washington 98101
Attn: Dennis L. Treibel
IF YOU HAVE ANY QUESTIONS OR NEED FURTHER ASSISTANCE PLEASE CONTACT MACKENZIE
PARTNERS, INC., LIFELINE'S INFORMATION AGENT, AT (800) 322-2885.
YOUR VOTE IS VERY IMPORTANT.
HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF LIFELINE COMMON
STOCK ENTITLED TO VOTE MUST APPROVE THE LIFELINE MERGER, AND THEREFORE IT IS
EXTREMELY IMPORTANT THAT YOU RETURN YOUR SIGNED PROXY CARD. THE LIFELINE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE LIFELINE MERGER.
Q: If My Lifeline Shares Are Held By My Broker, Will My Broker Vote My Shares
For Me?
A: Your broker will vote your Lifeline shares only if you instruct your broker
on how to vote. You must follow the directions provided by your broker regarding
how to instruct your broker to vote your Lifeline shares. If you do not instruct
your broker how to vote, your shares will not be voted at the Lifeline special
meeting, which will have the same effect as voting against the Lifeline merger.
Q: Can I Change My Vote After I Have Mailed My Signed Proxy Card For the
Lifeline Special Meeting?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to EquiServe at the address shown
above stating that you would like to revoke your proxy. Second, you may complete
and submit a new, later dated proxy card. Third, you may attend the Lifeline
special meeting and vote in person. Simply attending the Lifeline special
meeting, however, will not revoke your proxy. If you have instructed a broker to
vote your Lifeline shares, you must follow directions received from your broker
to change your vote.
Q: Should I Send In My Stock Certificates For Protection One Shares?
A: No. Protection One stockholders will keep their existing stock certificates.
Q: Should I Send In My Stock Certificates For Lifeline Shares Now?
A: Only if you want to receive additional shares of New Protection One common
stock instead of some or all of the cash merger payment. Otherwise, after the
Lifeline merger is completed, New Protection One will send you written
instructions for exchanging Lifeline share certificates.
2
<PAGE> 11
Q: When Do You Expect The Mergers To Be Completed?
A: We are working towards completing the mergers as quickly as possible. The
holders of Lifeline common stock must approve the Lifeline merger at the special
meeting of Lifeline stockholders. We expect to complete the mergers within three
business days after the Lifeline special meeting.
Q: What Other Matters Will I, as a Lifeline Stockholder, Be Asked to Vote on at
the Lifeline Special Meeting?
A: We do not expect to ask you to vote on any matter other than the Lifeline
merger at the Lifeline special meeting.
Q: Who Should I Call With Questions and to Obtain Additional Copies of the
Prospectus?
A: LIFELINE'S STOCKHOLDERS SHOULD CONTACT MACKENZIE PARTNERS, INC., LIFELINE'S
INFORMATION AGENT AT (800) 322-2885. LIFELINE STOCKHOLDERS MAY ALSO CALL DENNIS
HURLEY AT (508) 988-1000.
Protection One stockholders may call David Barnes, at (310) 258-6502.
3
<PAGE> 12
SUMMARY
This brief summary highlights selected information from this prospectus. It
does not contain all of the information that may be important to you. We urge
you to read carefully the entire prospectus and the other documents to which
this document refers to understand fully the mergers. To learn how to obtain
more information about Protection One and Lifeline, see page 28. Each item in
this summary includes a page reference directing you to a more complete
description of that item.
THE COMPANIES
Protection One, Inc. (page 76)
Protection One Acquisition Holding Corporation
600 Corporate Pointe
12th Floor
Culver City, California 90230
(310)258-6502
Protection One is a leading provider of security alarm monitoring and related
services in the United States, with approximately 1.5 million subscribers as of
September 30, 1998. Protection One has grown rapidly by participating in both
the expansion and the consolidation of the security alarm monitoring industry.
Protection One monitors digital signals communicated by security systems
installed at subscribers' premises. These systems detect burglaries, fires and
other events. Protection One also provides repair services and, in select
markets, armed response to verify that an actual emergency has occurred.
New Protection One is a Delaware corporation and a wholly owned subsidiary of
Protection One. New Protection One was formed in October 1998. It has not
conducted any substantial business activities to date. As a result of the
mergers, Protection One and Lifeline will become wholly owned subsidiaries of
New Protection One. Accordingly, the business of New Protection One will be the
business currently conducted by Protection One and Lifeline. After the mergers,
New Protection One will change its name to Protection One, Inc.
Lifeline Systems, Inc. (page 77)
111 Lawrence Street
Framingham, Massachusetts 01702
(508)988-1000
Lifeline provides 24-hour personal response monitoring services to its
subscribers, primarily elderly individuals with medical or age-related
conditions as well as physically challenged individuals throughout the United
States and Canada. Through use of the LIFELINE(R) service, individuals in need
of help are able to signal monitoring personnel in one of Lifeline's response
centers. These monitors identify the nature and extent of the subscriber's
particular need and manage the situation by notifying the subscriber's friends,
neighbors, and/or emergency personnel, as set forth in a predetermined protocol
established by the subscriber. In many cases, Lifeline employees are in daily
contact with subscribers, who are often elderly people living alone. This daily
contact can be an important social connection for these subscribers.
Lifeline markets its services and products primarily to hospitals, institutions,
and other service providers in a variety of health care related fields.
Hospitals, however, have historically been Lifeline's primary market.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS (pages 60-62)
Protection One stockholders:
For federal income tax purposes, the Protection One merger is intended to
qualify as a nontaxable transaction. Based on the advice of Weil, Gotshal &
Manges LLP, tax counsel to Protection One, we expect that the exchange of your
shares of Protection One common stock for shares of New Protection One common
stock will not cause you to recognize any gain or loss.
Lifeline stockholders:
For federal income tax purposes, the Lifeline merger is intended to qualify as a
nontaxable transaction. Based on the advice of Hale and Dorr LLP, tax counsel to
Lifeline, we expect that the exchange of your shares of Lifeline common stock
for shares of New Protection One common stock
4
<PAGE> 13
will not cause you to recognize any gain or loss. However, you may have to
recognize income or gain in connection with any cash you receive in the
exchange.
THESE TAX CONSEQUENCES MAY NOT APPLY TO EVERY PROTECTION ONE OR LIFELINE
STOCKHOLDER. DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE MERGERS TO YOU MAY
BE VERY COMPLICATED AND DEPEND ON YOUR SPECIFIC SITUATION AND VARIABLES BEYOND
OUR CONTROL. WE URGE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR FOR A FULL
UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGERS TO YOU.
THE MERGERS
The merger agreement is attached to this document as Annex A. Please read the
merger agreement in its entirety. It is the legal document that governs your
rights in connection with the mergers.
Termination of the Merger Agreement (page 69)
Protection One and Lifeline may together agree in writing to terminate the
merger agreement at any time without completing the mergers, even after the
stockholders of both companies have approved it.
In addition, either Protection One or Lifeline may decide without the consent of
the other to terminate the merger agreement if:
- the mergers have not been completed by April 30, 1999
- the other party breaches any material obligation under the merger
agreement or
- the mergers are prohibited by a final court order.
Also, Lifeline may terminate the merger agreement to enter into an agreement
with another party to acquire Lifeline on terms that are more beneficial to
Lifeline and its stockholders than the Lifeline merger. However Lifeline has
agreed to pay Protection One $5.5 million if Lifeline or Protection One
terminates the merger agreement after another person has approached Lifeline and
proposed a merger or similar transaction or if Lifeline amends its rights plan
in a manner adverse to the mergers. Otherwise, Lifeline has agreed to pay
Protection One $1.0 million if Lifeline terminates the merger agreement because
Lifeline's board of directors does not recommend the Lifeline merger to its
stockholders. The possibility that these termination fees could be triggered may
deter other potential acquirors.
Finally, Protection One may terminate the merger agreement if:
(1) Lifeline's board of directors does not recommend the Lifeline merger to
its stockholders
(2) Lifeline amends its shareholder rights agreement with State Street Bank
and Trust in a way that prohibits the Lifeline merger, which could
include
- defining Protection One as an acquiror and the Lifeline merger as an
event which would trigger the provisions of the rights agreement
- exempting other potential acquirors from triggering the provisions
of the rights agreement or
- redeeming the rights, which might make Lifeline an attractive target
to another potential acquiror or
(3) Lifeline stockholders do not approve the Lifeline merger.
RELATED AGREEMENTS AND TRANSACTIONS
Voting Agreements (page 70)
To induce Protection One to enter into the merger agreement, the executive
officers and directors of Lifeline, collectively owning approximately 17% of
Lifeline's outstanding common stock as of November 30, 1998, entered into voting
agreements with Protection One. These people agreed to vote their shares of
Lifeline common stock "FOR" the approval and adoption of the merger agreement at
the special meeting and against any action that would result in a breach of the
merger agreement. Also, to induce Lifeline to enter into the merger agreement,
Westar Capital, Inc. entered into a voting agreement with Lifeline that requires
Westar Capital, Inc. to vote all of its shares of Protection One common stock in
favor of the
5
<PAGE> 14
Protection One merger and against any action that would result in a breach of
the merger agreement. Because these stockholders have agreed to vote their
shares in this way, the voting agreements may deter other potential acquirors.
Stock Option Agreement (page 72)
To induce Protection One to enter into the merger agreement, Lifeline granted
Protection One an option to purchase up to 1,159,410 shares of Lifeline common
stock at $29.00 per share (representing 19.9% of Lifeline's common stock
outstanding as of the date immediately prior to the exercise of the option).
Protection One may only exercise this option under these circumstances in which
Protection One would be entitled to a termination fee, as discussed above, or if
a third party commences an offer to acquire Lifeline. Protection One may only
realize up to $9.0 million of profit from any combination of the termination fee
and its exercise of the option. The possibility that Protection One could
exercise this stock option might act as a deterrent to other potential
acquirors.
ACCOUNTING TREATMENT (page 59)
The Lifeline merger will be accounted for under the "purchase" method of
accounting, in accordance with generally accepted accounting principles. The
conversion of Protection One common stock into New Protection One common stock
will be treated as a reorganization with no change in the recorded amount of
Protection One's assets and liabilities.
THE MARKET PRICE OF BOTH PROTECTION ONE AND LIFELINE COMMON STOCK WILL FLUCTUATE
PRIOR TO THE MERGERS. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR
MARKET FOR NEW PROTECTION ONE COMMON STOCK. BEFORE VOTING FOR THE LIFELINE
MERGER, WE URGE YOU TO OBTAIN CURRENT STOCK PRICE QUOTATIONS FOR BOTH PROTECTION
ONE AND LIFELINE COMMON STOCK.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus and the materials incorporated by reference herein include
"forward-looking statements." These forward-looking statements generally can be
identified by phrases such as that New Protection One, Protection One, Lifeline
or management "believes," "expects," "anticipates," "foresees" or other words or
phrases of similar import. Similarly, statements that describe the business
strategy, objectives, plans, intentions or goals of Protection One and Lifeline
also are forward-looking statements. These forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated or expressed in the forward-looking
statements. Important factors that could cause actual results to differ
materially from the expectations of New Protection One, Protection One and
Lifeline include, among others:
- - the difficulty of integrating Lifeline as a new line of business
- - the fluctuation in value of the Lifeline merger consideration
- - the impact of New Protection One's acquisition strategy on its operations
- - New Protection One's need for additional funding and Protection One's history
of losses
- - the risks and uncertainties associated with Protection One's international
operations
- - New Protection One's leverage and capital structure
- - the risks and uncertainties related to Protection One's program of buying
subscriber accounts from third parties
- - the possible adverse effect of false alarm ordinances and future government
regulations
- - risks of liability from operations
- - competition in the security alarm industry
- - risks associated with the implementation of Lifeline's new call center
platform
- - subscriber account attrition
6
<PAGE> 15
- - risks associated with Western Resources' control of Protection One
For information with respect to these and other factors that could cause actual
results to differ from the expectations stated in the forward-looking
statements, see the text under the caption "Risk Factors" beginning on page 15.
Stockholders of Lifeline and Protection One, potential investors and other
readers are urged to consider these factors carefully in evaluating the forward-
looking statements contained or incorporated by reference in this prospectus.
7
<PAGE> 16
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The summary selected historical and pro forma financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated financial
statements and the related notes thereto of Protection One and Lifeline and the
financial statements and the related notes thereto of the security business of
Western Resources, Inc., the accounting predecessor of Protection One
("Westinghouse Security"), incorporated by reference to the Annual Report on
Form 10-K for the year ended December 31, 1997 for each of Protection One and
Lifeline and the Quarterly Report on Form 10-Q for the period ended September
30, 1998 of each of Protection One and Lifeline. The pro forma figures shown
assume that (1) no Lifeline optionholders exercise vested options, (2) Lifeline
stockholders elect to receive either all or none of the $14.50 cash payment in
additional shares of New Protection One common stock, and (3) the exchange ratio
in the Lifeline merger is 1.5193, based on the Average Closing Price as if
calculated on December 4, 1998. All amounts are in thousands, except per share
and subscriber data, unless otherwise noted.
<TABLE>
<CAPTION>
PRO FORMA(e)
---------------------------------------------
PROTECTION ONE(a) LIFELINE MAX CASH MAX STOCK
----------------------- -------------------- --------------------- ---------------------
NINE NINE NINE NINE
MONTHS YEAR MONTHS YEAR MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, DEC. 31,
1998 1997 1998 1997 1998 1997 1998 1997
---------- ---------- --------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $ 277,097 $ 144,773 $ 47,255 $ 56,964 $ 339,426 $405,684 $ 339,426 $405,684
Cost of revenues............. 88,027 35,669 18,758 22,079 113,128 129,717 113,128 129,717
---------- ---------- -------- -------- ---------- -------- ---------- --------
Gross profit................. $ 189,070 $ 109,104 $ 28,497 $ 34,885 $ 226,298 $275,967 $ 226,298 $275,967
Selling, general and
administrative expense..... 61,301 77,203 18,836 23,329 83,863 155,485 83,863 155,485
Acquisition and transition
expense.................... 7,327 1,308 -- -- 7,327 6,464 7,327 6,464
Amortization of intangibles
and depreciation expense... 82,787 39,822 3,103 3,919 93,374 108,026 93,292 107,915
Nonrecurring charges(b)...... -- 40,144 -- 4,310 -- 4,310 -- 4,310
---------- ---------- -------- -------- ---------- -------- ---------- --------
Operating income (loss)...... $ 37,655 $ (49,373) $ 6,558 $ 3,327 $ 41,734 $ (1,682) $ 41,816 $ 1,793
Interest expense, net........ 37,330 32,900 -- -- 41,271 42,552 36,293 35,915
Other (income) expense....... (21,288) -- (298) (594) (21,527) 276 (21,527) 276
---------- ---------- -------- -------- ---------- -------- ---------- --------
Income (loss) before income
taxes and extraordinary
gain....................... $ 21,613 $ (82,273) $ 6,856 $ 3,921 $ 21,990 $(41,146) $ 27,050 $(34,398)
Income tax (expense)
benefit.................... (13,251) 32,970 (2,754) (1,623) (13,414) 25,100 (16,500) 20,984
Extraordinary gain........... 1,591 -- -- -- 1,591 -- 1,591 --
---------- ---------- -------- -------- ---------- -------- ---------- --------
Net income (loss).......... $ 9,953 $ (49,303) $ 4,102 $ 2,298 $ 10,167 $(16,046) $ 12,141 $(13,414)
========== ========== ======== ======== ========== ======== ========== ========
Net income (loss) per
share, basic............. $ .10 $ (.70) $ .71 $ .40 $ .09 $ (.14) $ .10 $ (.10)
Net income (loss) per
share, diluted........... $ .10 $ (.70) $ .66 $ .37 $ .09 $ (.14) $ .10 $ (.10)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, SEPT. 30,
1998 1997 1998 1997 1998 1998
---------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Working capital
(deficit)(f)............... $ (111,751) $ 33,632 $ 15,043 $ 12,320 $ (96,708) $ (96,708)
Subscriber accounts and
intangibles, net........... 954,670 538,318 -- -- 954,670 954,670
Goodwill and trademarks,
net........................ 1,214,518 682,180 127 192 1,371,684 1,367,260
Total assets................. 2,424,670 1,446,644 49,014 42,269 2,630,723 2,626,299
Total debt, including capital
leases..................... 820,890 359,470 19 25 918,779 820,890
Total stockholders' equity... 1,349,845 933,975 34,315 29,717 1,443,310 1,536,775
</TABLE>
8
<PAGE> 17
<TABLE>
<CAPTION>
PRO FORMA(e)
---------------------------------------------
PROTECTION ONE(a) LIFELINE MAX CASH MAX STOCK
----------------------- -------------------- --------------------- ---------------------
NINE NINE NINE NINE
MONTHS YEAR MONTHS YEAR MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, DEC. 31,
1998 1997 1998 1997 1998 1997 1998 1997
---------- ---------- --------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Monthly recurring
revenue(c)................. $ 33,350 $ 18,978 $ 3,497 $ 3,006 $ 36,847 $ 21,984 $ 36,847 $ 21,984
Subscribers, net at end of
period..................... 1,498,146 756,818 222,614 195,573 1,720,760 952,391 1,720,760 952,391
EBITDA(d).................... $ 120,442 $ 30,593 $ 9,661 $ 11,556 $ 135,108 $114,018 $ 135,108 $114,018
Net cash provided by (used
in) operating activities... 82,534 (4,928) 8,753 6,620
Net cash (used in) investing
activities................. (820,011) (156,684) (7,661) (7,418)
Net cash provided (used in)
by financing activities.... 677,336 237,000 479 (188)
</TABLE>
- ---------------
(a) Prior to November 24, 1997, Protection One was a standalone security
business. Upon consummation of the combination of Protection One and the
security alarm monitoring business of Western Resources, Inc. in November
1997, Protection One acquired the Western Resources security alarm
monitoring business and Centennial Security Holdings, Inc. As a result of
this business combination, Westar Capital, Inc. acquired ownership of
approximately 82% of Protection One. The business combination was accounted
for as a reverse purchase acquisition, which treats the Western Resources
security alarm monitoring business as the accounting acquiror. Accordingly,
the results of operations of Protection One and Centennial have been
included in the consolidated financial statements only since November 24,
1997.
(b) In connection with the November 1997 business combination, Protection One
incurred nonrecurring charges of $40.1 million in order to reflect business
activities of the accounting acquiror, the Western Resources security alarm
monitoring business, that are no longer of continuing value to the combined
entity and that will be phased out in the integration of operations. These
charges have been separately identified as a component of operating income
in the statements of operations incorporated herein by reference to
Protection One's Annual Report on Form 10-K for fiscal year end 1997.
Charges for the year ended December 31, 1997, are as follows:
<TABLE>
<S> <C>
Inventory and other asset losses............................ $17,697
Customer account transition................................. 12,337
Disposition of excess fixed assets.......................... 4,128
Closure of duplicate facilities............................. 1,991
Severance compensation and benefits......................... 1,865
Other....................................................... 2,126
-------
$40,144
=======
</TABLE>
In December, 1997, Lifeline's management made several strategic decisions
to streamline operations and reduce costs in conjunction with its fourth
quarter announcement to relocate its corporate headquarters and its
significant investment in new information technology. As a result, Lifeline
incurred nonrecurring charges of $4.3 million, which have been separately
identified as a component of operating income in the statements of
operations incorporated herein by reference to Lifeline's
9
<PAGE> 18
Annual Report on Form 10-K for fiscal year end 1997. Charges for the year
ended December 31, 1997, are as follows:
<TABLE>
<S> <C>
Impairment of goodwill...................................... $1,798
Write-downs of property and equipment....................... 898
Severance compensation and benefits......................... 829
Real estate and other commitments........................... 785
------
$4,310
======
</TABLE>
(c) Monthly recurring revenue is revenue that Protection One and Lifeline are
entitled to receive under contracts in effect at the end of the period.
Because Protection One has grown rapidly, often by acquiring security alarm
companies and portfolios of subscriber accounts, Protection One's results
of operations may not reflect the impact of its investment of capital for
the entire period presented. On the other hand, statements of financial
condition show the full impact of capital investment. Management believes
monthly recurring revenue enhances an investor's understanding of
Protection One's financial condition, results of operations and cash flows
because it measures the size of Protection One at the end of a period. As a
result, monthly recurring revenue can be compared to balances in the
statement of financial condition. By comparing monthly recurring revenue to
cash, debt and equity balances at the end of a period, an investor can
assess Protection One's investment track record. Further, management
believes an investor's consideration of monthly recurring revenue relative
to the Protection One's subscriber base may indicate trends in monthly
recurring revenue per subscriber. Monthly recurring revenue does not
measure profitability or performance, and does not include any allowance
for future attrition or allowance for doubtful accounts. Protection One and
Lifeline do not have sufficient information as to the attrition of acquired
subscriber accounts to predict the amount of acquired monthly recurring
revenue that will be realized in future periods or the impact of the
attrition of acquired accounts on their overall rate of attrition.
Protection One and Lifeline's computation of monthly recurring revenue may
not be comparable to other similarly titled measures of other companies and
monthly recurring revenue should not be viewed by investors as an
alternative to actual monthly revenue as determined in accordance with
GAAP.
(d) EBITDA is derived by adding to income (loss) before income taxes, the sum
of:
- interest expense, net,
- nonrecurring charges, and
- amortization of intangibles and depreciation expense and deducting other
(income) expense.
- EBITDA does not represent cash flow from operations as defined by
generally accepted accounting principles, should not be construed as an
alternative to operating income and is indicative neither of operating
performance nor cash flows available to fund the cash needs of Protection
One and Lifeline. Items excluded from EBITDA are significant components
in understanding and assessing the financial performance of Protection
One and Lifeline. Protection One and Lifeline believe presentation of
EBITDA enhances an understanding of their financial condition, results of
operations and cash flows because EBITDA is used by Protection One 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 is used by senior lenders and subordinated creditors and
the investment community to determine the current borrowing capacity and
to estimate the long-term value of companies with recurring cash flows
from operations. Protection One and Lifeline's computation of EBITDA may
not be comparable to other similarly titled measures of other companies.
10
<PAGE> 19
The following table provides a calculation of EBITDA for each of the
periods presented above:
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------
PROTECTION ONE LIFELINE MAX CASH MAX STOCK
-------------------- -------------------- -------------------- --------------------
NINE NINE NINE NINE
MONTHS YEAR MONTHS YEAR MONTHS YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, DEC. 31, SEPT. 30, DEC. 31,
1998 1997 1998 1997 1998 1997 1998 1997
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and extraordinary gain........... $ 21,613 $(82,273) $6,856 $ 3,921 $ 21,990 $(41,146) $ 27,050 $(34,398)
Plus:
Interest expense, net............ 37,330 32,900 -- -- 41,271 42,552 36,293 35,915
Nonrecurring charges............. -- 40,144 -- 4,310 -- 4,310 -- 4,310
Amortization of intangibles and
depreciation expense........... 82,787 39,822 3,103 3,919 93,374 108,026 93,292 107,915
Less:
Other (income) expense........... (21,288) -- (298) (594) (21,527) 276 (21,527) 276
-------- -------- ------ ------- -------- -------- -------- --------
EBITDA......................... $120,442 $ 30,593 $9,661 $11,556 $135,108 $114,018 $135,108 $114,018
======== ======== ====== ======= ======== ======== ======== ========
</TABLE>
(e) At the effective date of the merger, each Lifeline stockholder will receive
a combination of $14.50 in cash and a number of shares of New Protection
One common stock for each share of Lifeline common stock such stockholder
owns. The exact amount of cash and/or shares of New Protection One common
stock to be received by each stockholder of Lifeline is dependent upon,
among other things, (1) the "Average Closing Price" of Protection One
common stock on the New York Stock Exchange, which will determine the
exchange ratio within a defined range, and (2) the allowed election by each
Lifeline stockholder to substitute additional shares of New Protection One
common stock for all or a portion of the $14.50 per share cash portion of
the merger consideration. Accordingly, two alternative scenarios of
unaudited pro forma combined financial statements are presented that give
effect to the range of possible amounts of New Protection One common stock
and/or cash to be received by Lifeline stockholders upon consummation of
the Lifeline merger. The "Max Cash" scenario assumes that all of the
Lifeline stockholders elect to receive the $14.50 cash consideration,
reflecting the maximum cash consideration which could be paid in the
transaction. The "Max Stock" scenario assumes that all Lifeline
stockholders elect to receive the $14.50 cash consideration in equivalent
New Protection One common stock, reflecting the maximum stock consideration
which could be paid in the transaction. These scenarios are based upon the
measurement of the "Average Closing Price" as of February , 1999, the
most recent practicable date prior to the completion of this prospectus.
Lifeline has a total of 924,800 stock options outstanding at a weighted
average exercise price of $10.71 per common share. Assuming that Lifeline
will be purchased for $29.00 per common share, these options are, in the
aggregate, in the money $18.29 per option, or a total intrinsic value of
approximately $16.9 million. Assuming that all of the option holders elect
to receive 25% of this intrinsic value in cash, Protection One will be
required to pay these option holders a total of $4.2 million in cash. New
Protection One is expected to have sufficient liquid reserves in the form
of cash, cash equivalents, marketable securities and availability on its
revolving line of credit to fund this non-recurring $4.2 million liability
and have no material effect on results of operations. Should an option
holder elect to receive the maximum 25% of his option value in the form of
cash, or 0% in the form of cash, his vesting schedule will not be effected.
(f) Working capital represents current assets less current liabilities,
excluding the current portion of long term debt of $339,648.
11
<PAGE> 20
MARKET PRICE INFORMATION
The Protection One common stock has been listed on the New York Stock
Exchange since November 6, 1998 under the symbol "POI" and was previously quoted
on the Nasdaq Stock Market under the symbol "ALRM". The Lifeline common stock is
quoted on the Nasdaq Stock Market under the symbol "LIFE". The table below sets
forth for each of the calendar quarters indicated, the high and low sales prices
per share of Protection One common stock and Lifeline common stock, as reported
by the New York Stock Exchange or the Nasdaq Stock Market, as applicable, and
the dividends per share declared on the Protection One common stock and the
Lifeline common stock. All prices are as reported by the National Quotation
Bureau, Incorporated, as adjusted for applicable stock splits.
<TABLE>
<CAPTION>
PROTECTION ONE COMMON STOCK LIFELINE COMMON STOCK
------------------------------------ ---------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter............................... $11 1/8 $ 7 3/8 -- $19 1/8 $16 1/2 --
Second Quarter.............................. 14 1/8 9 1/4 -- 20 1/2 16 --
Third Quarter............................... 21 3/4 13 3/8 -- 20 1/2 17 --
Fourth Quarter(1)........................... 20 1/8 10 3/4 $ 7 25 1/4 18 --
1998:
First Quarter............................... $13 1/2 $10 1/16 -- $25 3/8 $21 --
Second Quarter.............................. 13 7/8 9 7/16 -- 22 1/2 16 3/4 --
Third Quarter............................... 12 1/8 5 7/8 -- 21 7/8 17 3/4 --
Fourth Quarter.............................. 12 1/4 7 7/8 -- 28 1/4 16 1/2 --
1999:
First Quarter (through February 5, 1999).... 9 7/16 7 7/8 -- 27 13/16 25 --
</TABLE>
- ---------------
(1) On July 31, 1997, Protection One declared a cash distribution of $7.00 per
share to all holders of record of its common stock, which was subsequently
paid on November 24, 1997.
DIVIDEND INFORMATION
Following the mergers and subject to the dividend preferences of any New
Protection One preferred stock that may be issued in the future, the holders of
New Protection One common stock will be entitled to receive only dividends
declared by the New Protection One board of directors from funds legally
available for dividends to stockholders.
Other than the cash distribution paid to holders of record of Protection
One common stock as of November 24, 1997, to holders of outstanding options to
purchase Protection One common stock and to holders of warrants exercisable for
Protection One common stock, all in connection with the combination of the
Protection One and Western Resources security businesses in November 1997,
Protection One has never paid any cash dividends on its common stock and does
not intend to pay any cash dividends in the foreseeable future. New Protection
One intends to retain its cash flows for the operation and expansion of its
business. The indenture governing the 13 5/8% Senior Subordinated Discount Notes
due 2005 of Protection One Alarm Monitoring, Inc. ("Protection One Alarm
Monitoring"), which will become New Protection One's principal operating
subsidiary, and the credit agreement relating to its senior credit facility
restrict Protection One Alarm Monitoring's ability to pay dividends or make
other distributions to its corporate parent. Consequently, these agreements will
restrict New Protection One's ability to declare or pay any dividend on, or make
any other distribution in respect of, its capital stock.
12
<PAGE> 21
NUMBER OF STOCKHOLDERS
As of February 16, 1999, the record date for the Lifeline special meeting,
there were approximately stockholders of record who held shares of
Protection One common stock, as shown on the records of Protection One's
transfer agent.
As of February 16, 1999, the record date for the Lifeline special meeting,
there were approximately stockholders of record who held shares of
Lifeline common stock, as shown on the records of Lifeline's transfer agent.
COMPARATIVE PER SHARE DATA
We have summarized below the per share information of Protection One and
Lifeline on a historical, pro forma combined and pro forma equivalent basis. The
information should be read in conjunction with the unaudited pro forma condensed
financial statements included on pages 36 through 44 of this prospectus and in
conjunction with the historical financial statements and related notes of
Protection One and Lifeline contained or incorporated by reference in this
prospectus. For information on where you can find more information about
Protection One and Lifeline, see page 28.
THE MARKET PRICE OF BOTH PROTECTION ONE AND LIFELINE COMMON STOCK WILL
FLUCTUATE PRIOR TO THE MERGERS. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE
PRICES OR MARKET FOR NEW PROTECTION ONE COMMON STOCK. BEFORE VOTING FOR THE
LIFELINE MERGER, WE URGE YOU TO OBTAIN CURRENT STOCK PRICE QUOTATIONS FOR BOTH
PROTECTION ONE AND LIFELINE COMMON STOCK.
13
<PAGE> 22
You should be aware that this pro forma information may not be indicative
of what actual results will be in the future or what the results would have been
for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPT. 30, DEC. 31,
1998 1997
----------- ----------
<S> <C> <C>
Unaudited Pro Forma Combined(1)
Max Cash
Net income (loss) per common share, basic and
diluted............................................... $ .09 $ (.14)
Book value per share................................... $12.81 --
Max Stock
Net income (loss) per common share, basic and
diluted............................................... $ .10 $ (.10)
Book value per share................................... $12.50 --
Lifeline Per Share Equivalent(2)(3)
Max Cash
Net income (loss) per common share, basic and
diluted............................................... $ .14 $ (.21)
Book value per share................................... $19.46 --
Max Stock
Net income (loss) per common share, basic and
diluted............................................... $ .15 $ (.15)
Book value per share................................... $18.99 --
Lifeline Historical
Net income per common share, basic..................... $ .71 $ .40
Net income per common share, diluted................... $ .66 $ .37
Cash dividends per share............................... -- --
Book value per share, basic............................ $ 5.89 $ 5.14
Book value per share, diluted.......................... $ 5.08 $ 4.49
Protection One Historical
Net income (loss) per common share, basic and
diluted............................................... $ .10 $ (.70)
Cash dividends per share(3)............................ $ -- $ 7.00
Book value per share................................... $10.66 $11.20
</TABLE>
- ---------------
(1) The pro forma combined per share data for Protection One and Lifeline for
the year ended December 31, 1997 and the nine months ended September 30,
1998 have been prepared as if the transactions described in "Pro Forma
Financial Information" beginning on page 36 had occurred on January 1, 1997.
(2) The equivalent pro forma per share amounts of Lifeline are calculated by
multiplying pro forma net income per share of Protection One and pro forma
book value per share of Protection One by an exchange ratio of .
(3) Other than the cash distribution paid on November 24, 1997 in connection
with the November 1997 business combination, Protection One has never paid
any cash dividends, and New Protection One does not intend to pay any cash
dividends in the foreseeable future. Accordingly, dividends paid in
connection with the November 1997 business combination have not been given
pro forma effect or included in the per share equivalent presentation.
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<PAGE> 23
RISK FACTORS
We urge you to consider carefully the risk factors set forth below, as well
as the other information set forth in this prospectus, before voting to approve
the Lifeline merger. This prospectus contains forward-looking statements which
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause these differences include, but are not limited to, the risk factors set
forth below.
THE VALUE OF THE MERGER CONSIDERATION IS NOT FIXED AND, THEREFORE, COULD BE LESS
THAN ANTICIPATED BY LIFELINE STOCKHOLDERS.
The number and market price of the shares of New Protection One common
stock that Lifeline stockholders will receive in connection with the Lifeline
merger is subject to fluctuation. The number of shares of New Protection One
common stock that will be received depends upon the average closing price of
Protection One common stock during a prescribed measurement period prior to the
Lifeline special meeting. See "The Merger Agreement -- Conversion of Lifeline
Common Stock" beginning on page 63. Although the number of New Protection One
shares Lifeline stockholders will receive in the Lifeline merger is based on
that average closing price, the market price of Protection One common stock may
fluctuate. Accordingly, on the effective date of the mergers, the date(s)
Lifeline stockholders actually receive their shares of New Protection One common
stock upon surrender of their Lifeline stock certificates, and the date(s) on
which a stockholder may dispose of shares, the market price of the New
Protection One common stock may be more or less than the average closing price
of Protection One common stock used to determine the merger consideration.
NEW PROTECTION ONE MAY HAVE DIFFICULTY INTEGRATING LIFELINE'S OPERATIONS AND
ENTERING A NEW LINE OF BUSINESS.
As a result of the Lifeline merger, New Protection One will enter into a
new line of business. Although security alarm and personal response monitoring
services are similar, New Protection One will be learning the operations of
Lifeline's business following the mergers. Consequently, there can be no
assurance that management will successfully be able to integrate the new
employees and operations following the mergers. Additionally, there is the risk
that Lifeline's company culture will not blend with Protection One's company
culture. There is also no assurance that the operating synergies and cost
savings contemplated by Protection One's board of directors will be realized or
will be realized in the expected time frame. These anticipated synergies include
reductions in manufacturing costs, public company costs, and redundant
administrative costs.
The Protection One board of directors also contemplated synergies in
cross-selling of services between Protection One and Lifeline Systems. There are
differences in the customer demographics and channels of distribution between
the security alarm monitoring business and the personal response monitoring
businesses. Lifeline customers are generally of advanced age and have a short
life expectancy while Protection One customers represent a broad demographic
group. Similarly, Lifeline's distribution channel consists primarily of
hospitals while Protection One's primary distribution channel is its dealer
network. There can be no assurance that Protection One will be able to realize
any meaningful cross-selling of services between Protection One and Lifeline
following the merger. These synergies were not a critical consideration of the
Protection One board in determining to go forward with the transaction.
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<PAGE> 24
THE COMPETITIVE MARKET FOR THE ACQUISITION OF ACCOUNTS MAY AFFECT PROTECTION
ONE'S FUTURE PROFITABILITY.
A principal element of New Protection One's business strategy will be to
continue to grow rapidly by acquiring portfolios of alarm monitoring accounts.
During the 1992-1998 period, acquisitions were the primary source of Protection
One's growth. Since November 1997, Protection One has completed in excess of 30
transactions, adding more than 1.0 million subscribers. Growth through
Protection One's program through which it acquires subscriber accounts from its
authorized dealers (the "Dealer Program") has become an increasingly important
component of its growth. Protection One competes with major firms with
substantial financial resources, including ADT Operations Inc., a subsidiary of
Tyco International, Inc.; the security subsidiaries of the Ameritech
Corporation; and Brinks Home Security Inc., a subsidiary of The Pittston
Services Group. Other alarm service companies have adopted a strategy similar to
Protection One's that entails the aggressive purchase of alarm monitoring
accounts both through acquisitions of account portfolios and through dealer
programs. Some competitors have greater financial resources than Protection One,
or may be willing to offer higher prices than it is prepared to offer, to
purchase subscriber accounts. The effect of competition may be to reduce the
purchase opportunities available to New Protection One, thus reducing New
Protection One's rate of growth, or to increase the price it pays for subscriber
accounts, which could have a material adverse effect on New Protection One's
return on investment in such accounts and its results of operations.
THE INTEGRATION OF ACQUIRED BUSINESSES REQUIRES SUBSTANTIAL MANAGEMENT TIME AND
EFFORT, WHICH COULD DIVERT MANAGEMENT'S ATTENTION FROM OTHER MATTERS.
Significant acquisitions, including the 1997 business combination with the
security businesses of Western Resources, place very significant demands on
Protection One with respect to management, operational resources and financial
and internal control systems. New Protection One's future operating results will
depend in part on its ability to continue to implement and improve its operating
and financial controls and to expand, train and manage its employee base.
Significant changes in quarterly revenues and costs may result from the
execution of this business strategy, resulting in fluctuating financial results.
Additionally, managing the growth of the business may limit the time available
to New Protection One's management to attend to other operational, financial and
strategic issues.
PROTECTION ONE COULD DISCOVER PROBLEMS WITH ACQUIRED BUSINESSES AFTER THEIR
ACQUISITION.
Acquisitions of portfolios of subscriber accounts involve a number of
uncertainties. Sellers in smaller transactions typically do not have audited
historical financial information with respect to the acquired accounts.
Therefore, in making acquisition decisions, Protection One has generally relied
on management's knowledge of the industry, due diligence procedures and
representations and warranties of the sellers. There can be no assurance that
these representations and warranties are or will be true and complete or, if
these representations and warranties are inaccurate, that New Protection One
will be able to uncover any inaccuracies in the course of its due diligence or
recover damages from the
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<PAGE> 25
seller in an amount sufficient to fully compensate it for any resulting losses.
Risks associated with these uncertainties include, without limitation, the
following:
- the possibility of unanticipated problems not discovered prior to the
acquisition
- higher than expected account attrition and
- for acquisitions that are structured as stock purchases of other
companies, the assumption of unexpected liabilities and the disposition
of unnecessary or undesirable assets of the acquired companies.
Also, because the primary consideration in acquiring a portfolio of
subscriber accounts is the monthly recurring revenue associated with the
purchased accounts, the price Protection One has paid has customarily been
directly tied to such monthly recurring revenue. This price varies based on the
number and quality of accounts being purchased from the seller, the historical
activity of these acquired accounts, the anticipated profit margins and other
factors. Moreover, an important aspect of Protection One's acquisition program
is the integration of subscriber accounts into its operations after purchase.
Depending upon the size, frequency and location of acquisitions, the integration
of subscribers may adversely affect the provision of field repair services to
existing subscribers, which may cause subscriber attrition to increase and
monthly recurring revenue to decline. In addition, if corporate or branch
operations fail to integrate a substantial portion of or do not adequately
service acquired subscriber accounts, New Protection One may experience higher
attrition in the future.
NEW PROTECTION ONE WILL NEED ADDITIONAL FUNDING TO FINANCE ITS FUTURE GROWTH.
Protection One's purchases of subscriber accounts through its dealer
program and acquisitions of portfolios of subscriber accounts and new lines of
business have generated cash needs that exceed the net cash provided by its
operating activities. New Protection One intends to continue to pursue
subscriber account growth through the dealer program and acquisitions. As a
result, New Protection One will be required to seek additional funding from
additional borrowings under its credit facility or through the sale of
additional securities in the future. Depending on the price, the issuance of
additional shares of equity securities may dilute the earnings per share
realized by then current stockholders. Any inability to obtain funding through
external financing could adversely affect New Protection One's ability to
increase its subscribers, revenues and cash flows from operations. There can be
no assurance that external funding will be available to New Protection One on
favorable terms or at all.
PROTECTION ONE HAS HAD A HISTORY OF LOSSES.
Protection One incurred a net loss of $49.3 million in 1997 and a net loss
of $0.7 million in 1996, and Westinghouse Security (the predecessor of
Protection One for accounting purposes) reported net losses of $4.9 million,
$5.9 million, $1.8 million and $9.2 million in fiscal 1996, 1995, 1994 and 1993,
respectively. These losses reflect, among other factors:
- substantial charges incurred by Protection One and Westinghouse Security
for amortization of purchased subscriber accounts
- interest incurred on indebtedness and
- non-recurring charges.
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<PAGE> 26
These charges, with the exception of non-recurring charges, will increase
as Protection One and New Protection One continue to purchase subscriber
accounts or increase indebtedness, or if interest rates on their indebtedness
increase. There can be no assurance that New Protection One will attain
profitable operations on an annual basis or at all.
PROTECTION ONE EXPERIENCES SUBSCRIBER ATTRITION.
Protection One experiences attrition of subscriber accounts as a result of,
among other factors:
- relocation of subscribers
- adverse financial and economic conditions and
- competition from other alarm service companies.
In addition, Protection One experiences attrition of newly acquired
accounts to the extent it does not integrate acquired accounts or does not
adequately service those accounts. An increase in attrition rates could have a
material adverse effect on New Protection One's revenues and earnings.
When acquiring accounts, Protection One seeks, and New Protection One will
seek, to withhold a portion of the purchase price as a partial reserve against
excess subscriber attrition. If the actual attrition rate for the accounts
acquired is greater than the assumed rate at the time of the acquisition, and
damages can not be recouped from the portion of the purchase price held back
from the seller, this account attrition could have a material adverse effect on
the business, financial condition, results of operations, prospects or ability
to service the debt obligations of New Protection One. Moreover, there can be no
assurance that New Protection One will be able to obtain purchase price
holdbacks in future acquisitions, particularly acquisitions of large portfolios.
New Protection One has no assurance that actual account attrition for acquired
accounts will not be greater than the attrition rate assumed or historically
incurred by Protection One. In addition, because some acquired accounts are
prepaid on an annual, semiannual or quarterly basis, attrition may not become
evident for some time after an acquisition is consummated.
As of September 30, 1998, the cost of intangible assets, net of accumulated
amortization for Protection One, was approximately $2.2 billion, which
constituted approximately 89% of the book value of its total assets. Purchased
subscriber accounts are amortized on a straight-line basis over the estimated
life of the related revenues (generally ten years) and goodwill is amortized
over a 40-year life. The effects of gross subscriber attrition have historically
been offset by:
- adding new accounts from subscribers who move into premises previously
occupied by prior subscribers and in which security alarm systems are
installed
- conversions of accounts that were previously monitored by other alarm
companies to Protection One monitoring services
- accounts for which Protection One obtains a guarantee from the seller
that allows it to "put" back to the seller canceled accounts
- revenues from price increases and the sale of enhanced services
The resulting figure is used as a guideline to determine the estimated life
of subscriber revenues. Protection One reported gross subscriber attrition of
11.1% and net monthly
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<PAGE> 27
recurring revenue attrition of 8.9% for 1998. Protection One periodically
reviews actual account attrition and, when necessary, adjusts the remaining
estimated lives of purchased accounts to reflect assumed future attrition. There
could be a material adverse effect on the business, financial condition, results
of operations, prospects or ability to service debt obligations of New
Protection One if actual account attrition significantly exceeds assumed
attrition and the period over which the cost of purchased subscriber accounts is
amortized is shortened.
PROTECTION ONE'S RECENT ENTRANCE INTO EUROPE PRESENTS NEW OPERATIONAL CHALLENGES
AND EXPOSES IT TO FOREIGN CURRENCY FLUCTUATION.
As a result of the acquisition of Compagnie Europeenne de Telesecurite
("CET") by Protection One, Protection One will generate a portion of its
revenues and operating income from operations in Europe. Protection One
currently does not engage in hedging activities intended to offset the risk of
exchange rate fluctuations, although it may in the future. Both the revenues
from international operations and obligations of CET denominated in foreign
currency are subject in varying degrees to risks inherent in doing business
outside the United States. Such risks include economic instability, currency
exchange rate fluctuations, changes in import duties, trade restrictions, work
stoppages, currency restrictions and other restraints and taxes. With respect to
Protection One's exposure to fluctuations in currency exchange rates, Protection
One anticipates that substantially all of its foreign exchange transactions will
be denominated in the euro (as discussed below). Any significant change in the
value of the currencies of the countries in which Protection One does business
against the U.S. dollar could affect its ability to control its cost structure
and satisfy foreign denominated obligations, which, in turn, could have a
material adverse effect on Protection One's results of operations and financial
condition. Furthermore, depreciation of the value of the U.S. dollar against
foreign currencies in which Protection One transacts business may have a
negative impact on the income from operations of foreign operations.
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their sovereign currencies (the
"legacy currencies") and a single European currency (the "euro"). During a
transition period from January 1, 1999 through December 31, 2001, legacy
currencies will continue in use; however, the value of these currencies will be
set at fixed and irrevocable conversion rates to the euro. Beginning in January
2002, new euro-denominated bills and coins will be issued and the legacy
currencies will be withdrawn from circulation. Protection One is addressing
issues raised by the conversion to the euro, in ways such as adapting its
information technology systems and assessing whether cross-border price
transparency will limit CET's flexibility to charge different prices for similar
products. CET's efforts to adapt its systems differ at its various European
operations. Currently, none of CET's systems are capable of accommodating
euro-denominated invoicing and purchasing transactions. Management believes the
conversion to the euro has not affected its ability to subscribe new customers,
pay vendors and employees or otherwise service existing customers since January
1, 1999. To the extent that existing or prospective vendors, customers or
employees require CET to engage in euro-denominated transactions prior to CET's
implementing systems capable of accommodating euro transactions, CET could lose
these vendors, customers or employees. CET's significant European operations
have formulated plans to accommodate all euro-denominated transactions and
triangulation conventions by January 1, 2002.
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<PAGE> 28
PROTECTION ONE HAS A SUBSTANTIAL AMOUNT OF DEBT, WHICH COULD CONSTRAIN ITS
GROWTH OR OTHERWISE DISADVANTAGE ITS STOCKHOLDERS.
Protection One has, and New Protection One will have, a large amount of
consolidated indebtedness when compared to the equity of their respective
stockholders. The terms of various indentures and credit agreements that New
Protection One will assume limit, but do not prohibit, the incurrence of
additional indebtedness. Protection One and New Protection One expect to incur
additional indebtedness in the future in order to fund future acquisitions of
subscriber accounts. In December 1998, Protection One's primary subsidiary,
Protection One Alarm Monitoring, issued $350.0 million of 8 1/8% Senior
Subordinated Notes due 2009. Protection One Alarm Monitoring used the proceeds
to repay indebtedness under its senior credit facility with Westar Capital,
which was then replaced with a new $500.0 million credit facility through a
syndicate of banks. Assuming compliance with all financial requirements,
Protection One had approximately $458.0 million of available borrowings under
the facility.
Additionally, please be aware that:
- As of September 30, 1998, Protection One had outstanding long-term
indebtedness, including capital leases, of approximately $481.2 million,
total indebtedness of $820.9 million, an accumulated deficit of $40.0
million and stockholders' equity of $1,349.8 million. Protection One's
ratio of total indebtedness to stockholders' equity was 0.64 and its
total indebtedness to total capitalization was 0.38 as of September 30,
1998.
- As of September 30, 1998, Protection One had approximately $294.8 million
of debt outstanding, or 36% of total indebtedness, bearing interest at a
weighted average floating interest rate of 6.7%. Therefore, Protection
One's financial results are and will continue to be affected by changes
in prevailing interest rates.
- For the nine months ended September 30, 1998, Protection One's ratio of
earnings to fixed charges was 1.5. On a pro forma basis after giving
effect to the mergers, as though such events had occurred at January 1,
1998, Protection One's ratio of earnings to fixed charges would have been
and assuming Lifeline stockholders elect the maximum cash
consideration or maximum stock consideration, respectively.
- As of September 30, 1998, on a pro forma basis after giving effect to the
mergers, as though such events had occurred at such date, Protection One
would have had approximately $918.8 or $820.9 million of indebtedness
outstanding assuming Lifeline stockholders elect the maximum cash
consideration or maximum stock consideration, respectively, and there
would have been approximately $178.0 and $80.1 million available for
future borrowings under its senior credit facility under these same
scenarios, respectively.
A large amount of indebtedness could have negative consequences, including,
without limitation:
- The ability to obtain additional financing in the future for working
capital, acquisitions of subscriber accounts, capital expenditures,
general corporate purposes or other purposes may be impaired.
- The ability of New Protection One to withstand a downturn in its business
or the economy generally.
20
<PAGE> 29
- The ability to compete against other less leveraged companies may be
adversely affected.
The ability of Protection One or New Protection One to satisfy any payment
obligations will depend, in large part, on their performance, which will
ultimately be affected by general economic and business factors, many of which
will be outside management's control. Protection One and New Protection One
believe that the cash flow from operations combined with borrowings under the
senior credit facility will be enough to meet their expenses and interest
obligations. However, if these payment obligations can't be satisfied,
Protection One or New Protection One will be forced to find alternative sources
of funds by selling assets, restructuring, refinancing debt or seeking
additional equity capital. There can be no assurance that any of these
alternative sources would be available on satisfactory terms or at all.
PROTECTION ONE'S DEBT AGREEMENTS IMPOSE OPERATIONAL RESTRICTIONS ON PROTECTION
ONE.
Protection One's indentures and credit agreement require it to maintain
certain financial ratios, the most restrictive of which are listed below:
- Total debt to EBITDA must be less than 5.0 through December 31, 1999 and
less than 4.5 thereafter
- Senior debt to EBITDA must be less than 4.0 and
- EBITDA to interest expense must be greater than 2.75.
Moreover, Protection One is required to obtain approval of the lenders
under the credit facility in order to make acquisitions valued at $125.0 million
or more or in businesses outside Protection One's current scope of operations.
Protection One's ability to comply with the ratios and the tests will be
affected by events outside its control and there can be no assurance that it
will meet those tests. A breach of any of the covenants or failure to meet the
tests could result in an event of default which would allow the lenders to
declare all amounts outstanding immediately due and payable. In the case of the
senior credit facility, if Protection One is unable to pay the amounts due, the
lenders could accelerate the indebtedness under the senior credit facility,
which would in turn be an event of default under Protection One's various
indentures governing its publicly held indebtedness. If the amounts outstanding
under the credit facility are accelerated, there can be no assurance that
Protection One's assets would be sufficient to repay the amount in full. In each
case, the ratio should reflect the impact of acquisitions and other capital
investments for the entire period covered by the calculation.
PROTECTION ONE'S INCREASING RELIANCE ON DEALERS FOR GROWTH MEANS PROTECTION ONE
MUST CONTINUE TO ACQUIRE ACCOUNTS IN AN INCREASINGLY COMPETITIVE MARKET.
During the period 1995-1997, Protection One increasingly began to rely on
independent dealers as a source for new accounts. New Protection One expects
that this emphasis will continue. Protection One's dealer program competes with
other major alarm monitoring firms that also acquire accounts through these
independent dealers. Some of these firms with competitive dealer programs have
substantial financial resources, including ADT Operations, Inc., a subsidiary of
Tyco International, Inc., and the security subsidiaries of the Ameritech
Corporation. Protection One management is also aware of other national firms
with competitive dealer programs including Monitronics International, Inc.,
DMAC, as well as several large regional dealer programs. There can be no
assurance
21
<PAGE> 30
that New Protection One will be able to retain or expand Protection One's
current dealer base or that competitive offers to dealers will not require New
Protection One to pay higher prices to dealers for subscriber accounts than have
previously been paid. Such events could reduce Protection One's growth rate and
increase its use of cash to fund its growth. A lower growth rate or higher use
of cash could have a material adverse effect on Protection One's business,
financial condition, results of operations, prospects and ability to service
debt obligations.
"FALSE ALARM" ORDINANCES PRESENT POTENTIAL PROBLEMS FOR PROTECTION ONE.
According to the International Association of the Chiefs of Police and the
National Burglar & Fire Alarm Association, between 94-98% of all alarms in 1997
were false alarms. Significant concern has arisen in some municipalities about
this high incidence of false alarms.
The majority of local governments in cities served by Protection One have
enacted some measure aimed at reducing the number of false alarms. Enactment of
these measures could adversely affect the business and operations of New
Protection One. Such measures include:
- subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms
- revoking individual alarm system licenses following a specified number of
false alarms
- imposing fines on alarm subscribers for false alarms
- imposing limitations on the number of times the police will respond to
alarms at a particular location after a specified number of false alarms
- requiring further verification of an alarm signal before the police will
respond.
The implementation of false alarm ordinances could increase the cost of
delivering alarm monitoring services or cause a decrease in the likelihood or
timeliness of police response to alarm activations and thereby decrease the
demand for alarm monitoring services. Such a result could adversely affect
Protection One's business, financial conditional, results of operations and
prospects or ability to services debt obligations.
FUTURE GOVERNMENT REGULATIONS MAY ADVERSELY AFFECT PROTECTION ONE.
The operations of Protection One are subject to a variety of laws,
regulations and licensing requirements of both domestic and foreign federal,
state and local authorities. Some jurisdictions require Protection One to obtain
licenses or permits, to comply with standards governing employee selection and
training, particularly with respect to Protection One's armed response
personnel, and to meet standards in the conduct of its business. The loss of
licenses, or the imposition of conditions to the granting or retention of
licenses, could have a material adverse effect on the business, financial
condition, results of operations, prospects or ability to service debt
obligations of New Protection One.
PROTECTION ONE IS EXPOSED TO POTENTIAL LITIGATION AND LIABILITY FROM OPERATIONS.
The nature of the services Protection One provides potentially exposes it
to greater risks of liability for employee acts or omissions or system failure
than may be inherent in
22
<PAGE> 31
other businesses. Most of the alarm monitoring agreements and other agreements
pursuant to which Protection One sells products and services contain provisions
limiting liability to subscribers in an attempt to reduce this risk. However, in
the event of litigation with respect to these types of matters, there can be no
assurance that these limitations will be enforced, and the costs of any
litigation could have a material adverse effect on the business, financial
condition, results of operations, prospects or ability to service debt
obligations of New Protection One.
Protection One's alarm response and patrol services require its personnel
to respond to emergencies that may entail risk of harm to these employees and to
others. In most cities in which Protection One provides these services, its
patrol officers carry firearms, which may increase the risk of harm. Although
Protection One screens and trains its employees, the provision of alarm response
service subjects Protection One and New Protection One to greater risks related
to accidents or employee behavior than other types of businesses. Reduction of
police participation in the handling of emergencies could expose Protection
One's patrol officers to greater hazards and further increase our risk of
liability.
Protection One carries insurance of various types, including general
liability and errors and omissions insurance. Protection One's loss experience
and the loss experience of other security service companies may affect the
availability and cost of insurance. Some of Protection One's insurance policies
and the laws of some states limit or prohibit insurance coverage for punitive or
certain other types of damages, or liability arising from gross negligence.
DECLINES IN NEW CONSTRUCTION OF MULTI-FAMILY DWELLINGS MAY AFFECT PROTECTION
ONE'S SALES IN THIS MARKETPLACE.
Demand for alarm monitoring services in the multi-family alarm monitoring
market is tied to the construction of new multi-family structures. Protection
One believes that developers of multi-family dwellings view the provision of
alarm monitoring services as an added feature that can be used in marketing
newly developed condominiums, apartments and other multi-family structures.
Accordingly, New Protection One anticipates that the growth in the multi-family
alarm monitoring market will continue so long as there is a demand for new
multi-family dwellings. However, the real estate market in general is cyclical
and, in the event of a decline in the market for new multi-family dwellings, it
is likely that demand for New Protection One's alarm monitoring services to
multi-family dwellings would also decline, which could negatively impact New
Protection One's results of operations.
PROTECTION ONE AND LIFELINE FACE YEAR 2000 ISSUES.
An issue exists for all companies that rely on computers as the year 2000
approaches. The "Year 2000" problem is the result of the past practice in the
computer industry of using two digits rather than four to identify the
applicable year. This practice could result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. Protection One and Lifeline are reviewing their respective
computer programs, computer hardware and embedded systems critical to their
businesses and operational needs to identify and correct any components that
could be affected by the change of the date to January 1, 2000. Protection One
and Lifeline will continue their respective reviews until January 1, 2000,
particularly with respect to the acquisition of businesses that include
additional computer systems and equipment. In
23
<PAGE> 32
addition, changes in the state of compliance or preparedness within companies
that provide services or equipment to Protection One and Lifeline will require
management to continue their evaluations.
Protection One Plan
Protection One's Year 2000 readiness program addresses:
- commercial computer software, including mainframe, client/server and
desktop software
- internally developed computer software, including mainframe,
client/server and desktop software
- computer hardware, including mainframe, client/server and desktop,
network, communications, and peripherals
- devices using embedded computer chips, including controls, sensors,
facilities equipment, heating, ventilating and air conditioning equipment
and
- relationships with third-party vendors and suppliers.
Lifeline Plan
Lifeline has implemented a formal six-phase Year 2000 program to determine
the extent of its own Year 2000 exposures. Lifeline's product testing phase has
revealed only minor product behaviors in date keeping that do not, in Lifeline's
judgment, cause operational failure relating to the year 2000. Lifeline believes
that its mission-critical manufacturing equipment and systems are Year 2000
ready. In connection with Lifeline's move to new corporate headquarters in
February 1999, Lifeline confirmed that all embedded systems contained in its new
building, such as its elevators, heating, air conditioning and security systems,
are Year 2000 compliant. Moreover, software replacements and upgrades to
material information systems in the ordinary course of business (without
acceleration for Year 2000 issues) have enhanced Lifeline's Year 2000 readiness
without incremental costs. Of its existing desktop computers, Lifeline believes
that approximately 90% are Year 2000 compliant. Lifeline anticipates that these
Year 2000 modifications will be completed during 1999. Lifeline sent formal
communications to its certified vendors and other key third parties to determine
the extent to which Lifeline is vulnerable in the event those third parties fail
to resolve their own Year 2000 issues. Responses to these letters are still
being received, but of those received to date, 80% of Lifeline's certified
vendors have confirmed their Year 2000 readiness in writing and most other third
parties have informed Lifeline that they believe they are or will be Year 2000
ready.
Reasonable Worst Case Scenario
Based on the results of their on-going reviews, Protection One and Lifeline
believe that the Year 2000 issue does not pose material operational problems.
However, the most reasonably likely worst case scenario is to be found in the
area of external services, specifically firms providing electrical power,
heating, ventilating and air conditioning, and local and long distance
telecommunications.
While Protection One and Lifeline believe the total collapse of service
providers is highly unlikely, one or more of the following scenarios could
occur:
- temporary disruption or unpredictable provision of nationwide
long-distance service,
- temporary or unpredictable provision of local telephone service, or
- temporary interruption or unpredictable provision of electrical power.
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<PAGE> 33
To the extent customers did not receive timely and adequate responses to
alarms, Protection One would be required to rely on its specific disclaimer, in
most of its customer agreements of liability for the acts or omissions of third
party agencies. The enforceability of such disclaimers may be subject to
judicial scrutiny in jurisdictions in which Protection One operates.
Conclusion
Protection One and Lifeline estimate the collective costs associated with
the assessment of risk and the execution of corrective action to be
approximately $3.1 million. The costs of the Year 2000 project and the date on
which Protection One and Lifeline plan to complete the Year 2000 modifications,
estimated to be during 1999, are based on the best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
THE AGREEMENTS RELATED TO THE MERGERS AND THE TERMINATION FEES MAY HAVE
ANTI-TAKEOVER EFFECTS FOR LIFELINE.
The termination fees, stock option agreement, and voting agreements
described below could make it more difficult for a third party to acquire, and
could therefore discourage a third party from attempting to acquire, control of
Lifeline. Specifically:
- Lifeline has agreed to pay to Protection One termination fees of up to a
total of $6.5 million if Lifeline amends its rights plan in a manner
adverse to the mergers, if Lifeline agrees to merge with another
acquiror, or if Lifeline's board of directors withdraws its
recommendation of the Lifeline merger
- Lifeline has granted Protection One an irrevocable stock option under
which, in circumstances similar to those which would trigger the
termination fees, Protection One may purchase approximately 19.9% of
Lifeline's common stock outstanding at that time
- Lifeline's officer and directors have agreed to vote their shares of
Lifeline common stock in favor of the merger agreement and against any
action that would result in a breach of the merger agreement.
LIFELINE STOCKHOLDERS WILL HAVE DIFFERENT RIGHTS AS NEW PROTECTION ONE
STOCKHOLDERS.
Once the Lifeline stockholders exchange their shares of Lifeline common
stock for New Protection One common stock, they will have rights as New
Protection One stockholders that differ from their rights as Lifeline
stockholders in several respects, including:
- Delaware law affords New Protection One stockholders more limited
dissenters' rights in connection with mergers, consolidations and sales
of New Protection One's assets as compared to the dissenters' rights
afforded to Lifeline stockholders under Massachusetts law. Under
Massachusetts law, Lifeline stockholders who follow certain procedures
are entitled to dissenters' rights in connection with any merger,
consolidation or sale of Lifeline's assets.
- New Protection One stockholders may take any action without a meeting or
prior notice if stockholders having the number of votes that would be
necessary to take such action
25
<PAGE> 34
at the meeting consent in writing. Lifeline stockholders may take action
by written consent only if all stockholders consent.
- New Protection One stockholders may approve mergers and asset sales with
only a majority vote. Lifeline stockholders may generally approve mergers
and asset sales only with a two-thirds vote.
LIFELINE'S BUSINESS MAY BE AFFECTED BY PROBLEMS WITH ITS NEW COMPUTER SYSTEM.
Lifeline is in the process of developing a new call center platform located
at the Company's corporate headquarters. Lifeline's call center platform is a
specially designed computer and telecommunications hardware and software system
used to identify, track and respond to subscriber calls. The ability of a
Lifeline employee to answer, identify and track telephone calls from Lifeline
subscribers is essential to Lifeline being able to provide emergency response
services. Lifeline faces risks and uncertainties associated with the development
of this new information technology, including:
- such development effort may not be completed on schedule, or at all, or
within budget
- future developments in information technology may render Lifeline's
system non-competitive
- Lifeline may not realize the intended benefits from the new system, once
completed.
Because of the substantial commitment of funds to the development effort,
Lifeline may have significantly less cash available to finance its operations,
other capital expenditures and future growth, including acquisitions.
WESTERN RESOURCES WILL BE THE PRINCIPAL STOCKHOLDER OF NEW PROTECTION ONE AND
WILL CONTROL ITS ACTIONS.
Western Resources, through Westar Capital, Inc., a wholly owned subsidiary
of Western Resources, owned approximately 84.6% of the outstanding common stock
of Protection One as of November 30, 1998. Westar Capital has indicated that it
may acquire additional shares of Protection One common stock prior to
consummation of the mergers in an amount sufficient for it to maintain an
ownership position in excess of 80% of the issued and outstanding shares of New
Protection One common stock following the consummation of the mergers, although
it is not bound by any agreement with Protection One or New Protection One that
would either obligate it to or prevent it from acquiring additional shares of
Protection One or New Protection One prior to or after the mergers. As long as
Westar Capital continues to beneficially own in excess of 50% of the shares of
New Protection One common stock outstanding, Westar Capital will be able to
direct the election of all directors of New Protection One and exercise a
controlling influence over the business and affairs of New Protection One,
including any determinations with respect to mergers or other business
combinations involving New Protection One, the acquisition or disposition of
material assets by New Protection One and the incurrence of indebtedness by New
Protection One and the payment of dividends on New Protection One common stock.
Similarly, Westar Capital will have the power to determine matters submitted to
a vote of New Protection One's stockholders without the consent of New
Protection One's other stockholders, will have the power to prevent or cause a
change in control of New Protection One and could take other actions that might
be favorable to Western Resources and Westar Capital, whether or not these
actions would be favorable to New Protection One or its stockholders generally.
26
<PAGE> 35
PROTECTION ONE FACES CHALLENGES ASSOCIATED WITH ITS OPERATIONAL REORGANIZATION.
On December 9, 1998, Protection One announced that it had reorganized its
operating structure into new divisions in order to better manage the increased
scale and scope of operations. Protection One contemplates that, upon the
consummation of the merger, Lifeline will become an operating division of New
Protection One. Protection One also created a non-operating Executive Division
with the intent to focus senior management's time on key strategic and capital
formation initiatives. There can be no assurance that Protection One will be
able to realize the intended benefits of its new operating structure Moreover,
Protection One faces certain risks and uncertainties associated with management
and operational reorganizations, including those relating to:
- changes in management responsibility and reporting structures
- potential lack of communications until new reporting and communication
structure becomes familiar
- potential loss of cohesive operational strategies and
- potential employee turnover.
If Protection One is unable to successfully manage these risks and
uncertainties, there can be no assurance that the new operating structure will
not have a material adverse affect upon Protection One's business, financial
condition, results of operations, prospects and ability to service debt
obligations.
27
<PAGE> 36
INCORPORATION BY REFERENCE TO OTHER DOCUMENTS
As allowed by the SEC's rules, this prospectus does not contain all of the
information you can find in the registration statement or the exhibits to the
registration statement. Specifically, the SEC allows New Protection One,
Protection One and Lifeline to "incorporate by reference" information into this
prospectus, which means that New Protection One, Protection One and Lifeline can
disclose important information to you by referring you to another document filed
separately by them with the SEC. The information incorporated herein by
reference is deemed to be part of this prospectus, except for any information
superseded by information that we include in this prospectus. This prospectus
incorporates by reference the documents set forth below that have previously
been filed with the SEC. These documents contain important information about
Protection One, Lifeline and their respective finances.
<TABLE>
<CAPTION>
PROTECTION ONE (SEC FILE NO. 0-24780) PERIOD OR DATE FILED
- ------------------------------------- --------------------
<S> <C>
Annual Report on Form 10-K.............. Fiscal Year ended December 31, 1997
Quarterly Reports on Form 10-Q.......... Fiscal Quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
Current Reports on Form 8-K............. November 2, 1998, December 9, 1998,
December 17, 1998, January 26, 1999 and
February 2, 1999
Proxy Statement on Schedule 14A......... April 2, 1998
Registration Statement on Form 8-A...... October 30, 1998
</TABLE>
<TABLE>
<CAPTION>
LIFELINE (SEC FILE NO. 0-13617) PERIOD OR DATE FILED
- ------------------------------- --------------------
<S> <C>
Annual Report on Form 10-K.............. Fiscal Year ended December 31, 1997
Quarterly Reports on Form 10-Q.......... Fiscal Quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
Amendment to Annual Report on Form August 6, 1998
10-K..................................
Current Reports on Form 8-K............. August 5, 1998 and October 30, 1998
Proxy Statement on Schedule 14A......... April 7, 1998
Registration Statement on Form 8-A...... August 5, 1998
</TABLE>
New Protection One, Protection One and Lifeline are also incorporating by
reference any additional documents that they may file with the SEC between the
date of this prospectus and the date of the special meeting of Lifeline
stockholders.
WHERE YOU CAN FIND MORE INFORMATION
Protection One (File No. 0-24780) and Lifeline (File No. 0-13617) file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission (which we refer to as the "SEC").
You may read and copy any reports, statements and other information filed by
Protection One or Lifeline at the SEC's public reference rooms in Washington,
D.C., New York, New York, and Chicago, Illinois. Please call (800) SEC-0330 for
further information on the public reference rooms. The companies' filings are
also available to the public from commercial document retrieval services and at
the web site maintained by the SEC at http://www.sec.gov.
28
<PAGE> 37
New Protection One has filed a registration statement on Form S-4 to
register with the SEC the New Protection One common stock to be issued to
stockholders of Protection One and Lifeline in the mergers. This prospectus is
part of that registration statement and constitutes a prospectus of New
Protection One in addition to being a proxy statement of Lifeline for its
special meeting of stockholders and an information statement for Protection One
with respect to actions taken by written consent of its principal stockholder in
connection with the mergers.
This prospectus incorporates important business and financial information
about Protection One and Lifeline from documents that are not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain documents incorporated
by reference in this prospectus, other than some of the exhibits to those
documents, by requesting them in writing or by telephone from the appropriate
company at the following addresses:
Protection One, Inc.
600 Corporate Pointe
12th Floor
Culver City, California 90230
Attn: David Barnes
(310) 258-6502
Lifeline Systems, Inc.
111 Lawrence Street
Framingham, Massachusetts 01702
Attn: Dennis Hurley
(508) 988-1000
If you would like to request documents, please do so by , 1999 in
order to receive them before the special meeting of Lifeline stockholders.
Protection One has supplied all information contained or incorporated by
reference in this prospectus relating to Protection One or New Protection One.
Lifeline has supplied all information relating to Lifeline.
29
<PAGE> 38
SELECTED CONSOLIDATED FINANCIAL DATA OF PROTECTION ONE
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
thereto of Protection One and the financial statements and the related notes
thereto of the Westinghouse security business of Western Resources, the
accounting predecessor of Protection One ("Westinghouse Security"), incorporated
by reference to the Annual Report on Form 10-K for the year ended December 31,
1997 and the Quarterly Report on Form 10-Q for the period ended September 30,
1998 for Protection One. All amounts are in thousands, except per share and
subscriber data, unless otherwise noted.
<TABLE>
<CAPTION>
PROTECTION ONE(A) WESTINGHOUSE SECURITY (PREDECESSOR)(B)
----------------------------------- -----------------------------------------
NINE
MONTHS YEAR YEAR 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 30, DEC. 20, DEC. 20, DEC. 16,
1998 1997 1996 1996 1995 1994 1993
---------- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues.............. $ 277,097 $ 144,773 $ 8,097 $110,881 $88,710 $67,253 $ 47,985
Cost of revenues...... 88,027 35,669 3,348 25,960 17,280 15,224 11,615
---------- ---------- --------- -------- -------- -------- --------
Gross profit.......... $ 189,070 $ 109,104 $ 4,749 $84,921 $71,430 $52,029 $ 36,370
Selling, general and
administrative
expense............. 61,301 77,203 5,091 60,166 50,919 27,448 30,674
Acquisition and
transition
expense............. 7,327 1,308 -- 101 101 -- --
Amortization of
intangibles and
depreciation
expense............. 82,787 39,822 609 21,613 17,804 13,959 13,009
Nonrecurring
charges(c).......... -- 40,144 -- -- -- -- --
---------- ---------- --------- -------- -------- -------- --------
Operating income
(loss).............. $ 37,655 $ (49,373) $ (951) $ 3,041 $ 2,606 $10,622 $ (7,313)
Interest expense,
net................. 37,330 32,900 15 10,879 12,159 13,467 7,511
Other (income)
expense............. (21,288) -- -- -- -- -- --
---------- ---------- --------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary
gain................ $ 21,613 $ (82,273) $ (966) $(7,838) $(9,553) $(2,845) $(14,824)
Income tax (expense)
benefit............. (13,251) 32,970 310 2,978 3,630 1,081 5,633
Extraordinary gain.... 1,591 -- -- -- -- -- --
---------- ---------- --------- -------- -------- -------- --------
Net income (loss)... $ 9,953 $ (49,303) $ (656) $(4,860) $(5,923) $(1,764) $ (9,191)
========== ========== ========= ======== ======== ======== ========
Net income (loss)
per share, basic
and diluted....... $ .10 $ (.70) $ (.01) (b) (b) (b) (b)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF
SEPT. 30, DEC. 31, DEC. 31, DEC. 30, DEC. 20, DEC. 20, DEC. 16,
1998 1997 1996 1996 1995 1994 1993
---------- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital
(deficit)(f)........ $ (451,399) $ 11,925 $ (19,447) $(19,515) $(13,035) $(11,551) $ (2,550)
Subscriber accounts
and intangibles,
net................. 954,670 538,318 265,530 157,969 138,620 114,236 94,148
Goodwill and
trademarks, net..... 1,214,518 682,180 218,991 11,102 11,397 11,691 --
Total assets.......... 2,424,670 1,446,644 506,647 187,456 170,907 145,062 109,593
Total debt, including
capital leases...... 820,890 359,470 65,053 47,931 57,617 58,475 35,883
Total stockholders'
equity.............. 1,349,845 933,975 410,430 106,140 89,120 60,108 55,803
</TABLE>
30
<PAGE> 39
<TABLE>
<CAPTION>
PROTECTION ONE(a) WESTINGHOUSE SECURITY (PREDECESSOR)(b)
----------------------------------- -----------------------------------------
NINE
MONTHS YEAR YEAR 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 30, DEC. 20, DEC. 20, DEC. 16,
1998 1997 1996 1996 1995 1994 1993
---------- ---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Monthly recurring
revenue(d).......... $ 33,350 $ 18,978 $ 8,974 $ 7,870 $ 6,437 $ 5,231 $ 4,288
Subscribers, net at
end of period....... 1,498,146 756,818 424,100 313,784 265,839 214,785 224,960
EBITDA(e)............. $ 120,442 $ 30,593 $ (342) $24,654 $20,410 $24,581 $ 5,696
Net cash provided by
(used in) operating
activities.......... $ 82,534 $ (4,928) $ (91) $23,729 $15,073 $21,644
Net cash (used in)
investing
activities.......... $ (820,011) $ (156,684) $(369,536) $(40,460) $(43,094) $(46,741)
Net cash provided by
financing
activities.......... $ 677,336 $ 237,000 $ 369,682 $16,734 $28,129 $22,287
</TABLE>
- ---------------
(a) Prior to November 24, 1997, Protection One was a standalone security
business. Upon consummation of the November 1997 business combination,
Protection One acquired the Western Resources security alarm monitoring
business and Centennial. As a result of this business combination, Westar
Capital acquired ownership of approximately 82% of Protection One. The
November 1997 business combination was accounted for as a reverse purchase
acquisition which treats the Western Resources security alarm monitoring
business as the accounting acquiror. Accordingly, the results of operations
of Protection One and Centennial have been included in the consolidated
financial statements only since November 24, 1997. The 1996 historical
financial statements of Protection One are those of the accounting
acquiror, the Western Resources security alarm monitoring business.
The operating results of the Western Resources security alarm monitoring
business for the year ended December 31, 1995, can be considered nominal in
relation to the consolidated statements of operations. The 1995 results are
comprised of only two months of start-up activity. Summarized operating
results are as follows:
<TABLE>
<S> <C>
Revenue..................................................... $344
Gross Profit................................................ 189
Net Income.................................................. 18
</TABLE>
(b) On December 30, 1996, Western Resources, through its indirect wholly owned
subsidiary, WestSec, Inc., purchased the assets and assumed certain
liabilities comprising the security business of Westinghouse Security from
Westinghouse Electric Company. Westinghouse Security is deemed to be a
predecessor of Protection One for accounting purposes.
Selected financial data for 1993 through 1996 were derived from the
financial statements of Westinghouse Security for those years. Per share
data is omitted because Westinghouse Security was wholly owned by
Westinghouse Electric Company.
(c) In connection with the November 1997 business combination, Protection One
incurred nonrecurring charges of $40.1 million in order to reflect business
activities of the accounting acquiror, the Western Resources security alarm
monitoring business, that are no longer of continuing value to the combined
entity and that will be phased out in the integration of operations. These
charges have been separately identified as a component of operating income
in the statements of operations incorporated herein by reference to
31
<PAGE> 40
Protection One's Annual Report on Form 10-K for fiscal year end 1997.
Charges for the year ended December 31, 1997, are as follows:
<TABLE>
<S> <C>
Inventory and other asset losses.......................... $17,697
Customer account transition............................... 12,337
Disposition of excess fixed assets........................ 4,128
Closure of duplicate facilities........................... 1,991
Severance compensation and benefits....................... 1,865
Other..................................................... 2,126
-------
$40,144
=======
</TABLE>
(d) Monthly recurring revenue is revenue that Protection One is entitled to
receive under contracts in effect at the end of the period. Because
Protection One has grown rapidly, often by acquiring security alarm
companies and portfolios of subscriber accounts, Protection One's results
of operations may not reflect the impact of its investment of capital for
the entire period presented. On the other hand, statements of financial
condition show the full impact of capital investment. Management believes
monthly recurring revenue enhances an investor's understanding of
Protection One's financial condition, results of operations and cash flows
because it measures the size of Protection One at the end of a period and
therefore can be compared to balances in the statement of financial
conditions. By comparing monthly recurring revenue to cash, debt and equity
balances at the end of a period, an investor can assess Protection One's
investment track record. Further, management believes an investor's
consideration of monthly recurring revenue relative to the Company's
subscriber base may indicate trends in monthly recurring revenue per
subscriber. Monthly recurring revenue does not measure profitability or
performance, and does not include any allowance for future attrition or
allowance for doubtful accounts. Protection One does not have sufficient
information as to the attrition of acquired subscriber accounts to predict
the amount of acquired monthly recurring revenue that will be realized in
future periods or the impact of the attrition of acquired accounts on
Protection One's overall rate of attrition. Protection One's computation of
monthly recurring revenue may not be comparable to other similarly titled
measures of other companies and monthly recurring revenue should not be
viewed by investors as an alternative to actual monthly revenue as
determined in accordance with GAAP.
(e) EBITDA is derived by adding to income (loss) before income taxes, the sum
of
- interest expense, net
- nonrecurring charges and
- amortization of intangibles and depreciation expense and deducting other
(income) expense.
EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles, should not be construed as an alternative
to operating income and is indicative neither of Protection One's operating
performance nor of cash flows available to fund Protection One's cash
needs. Items excluded from EBITDA are significant components in
understanding and assessing Protection One's financial performance.
Protection One believes presentation of Adjusted EBITDA enhances an
understanding of its financial condition, results of operations and cash
flows because EBITDA is used by Protection One 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 is used by senior
lenders and subordinated creditors and the investment community to
determine the current borrowing capacity and to estimate the long-term
value of companies with recurring cash flows from operations.
32
<PAGE> 41
The following table provides a calculation of EBITDA for each of the
periods presented above:
<TABLE>
<CAPTION>
PROTECTION ONE(a) WESTINGHOUSE SECURITY (PREDECESSOR)(b)
------------------------------- -----------------------------------------
NINE
MONTHS YEAR YEAR 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 30, DEC. 20, DEC. 20, DEC. 16,
1998 1997 1996 1996 1995 1994 1993
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes and
extraordinary
gain................ $ 21,613 $(82,273) $ (966) $(7,838) $(9,553) $(2,845) $(14,824)
Plus:
Interest expense,
net............... 37,330 32,900 15 10,879 12,159 13,467 7,511
Nonrecurring
charges........... -- 40,144 -- -- -- -- --
Amortization of
intangibles and
depreciation
expense........... 82,787 39,822 609 21,613 17,804 13,959 13,009
Less:
Other (income)
expense........... (21,288) -- -- -- -- -- --
-------- -------- ------- -------- -------- ------- --------
EBITDA............ $120,442 $ 30,593 $ (342) $24,654 $20,410 $24,581 $ 5,696
======== ======== ======= ======== ======== ======= ========
</TABLE>
(f) Working capital represents current assets less current liabilities,
excluding the currents portion of long term debt of $339,648.
33
<PAGE> 42
SELECTED CONSOLIDATED FINANCIAL DATA OF LIFELINE
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
thereto of Lifeline, incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1997 and the Quarterly Report on Form 10-Q for
the period ended September 30, 1998 for Lifeline. All amounts are in thousands,
except per share and subscriber data, unless otherwise noted.
<TABLE>
<CAPTION>
NINE
MONTHS YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $47,255 $56,964 $50,223 $43,379 $36,141 $30,059
Cost of revenues................................. 18,758 22,079 18,049 15,489 13,088 10,300
------- ------- ------- ------- ------- -------
Gross profit..................................... $28,497 $34,885 $32,174 $27,890 $23,053 $19,759
Selling, general and administrative expense...... 18,836 23,329 22,663 20,894 17,966 16,068
Amortization of intangibles and depreciation
expense........................................ 3,103 3,919 3,216 2,231 2,021 1,997
Nonrecurring charges(a).......................... -- 4,310 -- -- -- --
------- ------- ------- ------- ------- -------
Operating income................................. $ 6,558 $ 3,327 $ 6,295 $ 4,765 $ 3,066 $ 1,694
Other (income) expense........................... (298) (594) (783) (740) (347) (176)
------- ------- ------- ------- ------- -------
Income before income taxes....................... $ 6,856 $ 3,921 $ 7,078 $ 5,505 $ 3,413 $ 1,870
Income tax expense............................... 2,754 1,623 2,902 2,357 1,433 785
------- ------- ------- ------- ------- -------
Net income....................................... $ 4,102 $ 2,298 $ 4,176 $ 3,148 $ 1,980 $ 1,085
======= ======= ======= ======= ======= =======
Net income per share, basic...................... $ .71 $ .40 $ .74 $ .56 $ .36 $ .20
Net income per share, diluted.................... $ .66 $ .37 $ .67 $ .51 $ .34 $ .19
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $15,043 $12,320 $14,003 $15,253 $14,971 $10,469
Goodwill and trademarks, net..................... 127 192 2,568 2,018 1,748 1,861
Total assets..................................... 49,014 42,269 37,909 31,961 28,883 28,327
Total debt, including capital leases............. 19 25 32 123 358 673
Total stockholders' equity....................... 34,315 29,717 27,620 24,289 21,208 19,421
</TABLE>
<TABLE>
<CAPTION>
NINE
MONTHS YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Monthly recurring revenue........................ $ 3,497 $ 3,006 $ 2,284 $ 1,844 $ 1,417 $ 1,288
Subscribers, net at end of period................ 222,614 195,573 156,368 119,190 88,089 68,062
EBITDA(b)........................................ $ 9,661 $11,556 $ 9,511 $ 6,996 $ 5,087 $ 3,691
</TABLE>
- ---------------
(a) In December, 1997, Lifeline's management made several strategic decisions
to streamline operations and reduce costs. The two most critical components
of the strategy were its fourth quarter announcement to relocate its
corporate headquarters and its significant investment in technology. As a
result, Lifeline incurred nonrecurring charges of $4.3 million, which have
been separately identified as a component of operating income in the
statements of operations incorporated herein by reference to Lifeline's
Annual Report
34
<PAGE> 43
on Form 10-K for fiscal year end 1997. Charges for the year ended December
31, 1997, are as follows:
<TABLE>
<S> <C>
Impairment of goodwill..................................... $1,798
Write-downs of property and equipment...................... 898
Severance compensation and benefits........................ 829
Real estate and other commitments.......................... 785
------
$4,310
======
</TABLE>
(b) EBITDA is derived by adding to income (loss) before income taxes, the sum
of
- interest expense, net
- nonrecurring charges and
- amortization of intangibles and depreciation expense and deducting other
(income) expense.
The following table provides a calculation of EBITDA for each of the
periods presented above:
<TABLE>
<CAPTION>
NINE
MONTHS YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
SEPT. 30, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1998 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income before income taxes
and extraordinary
gain.................... $6,856 $ 3,921 $7,078 $5,505 $3,413 $1,870
Plus:
Interest expense, net... -- -- -- -- -- --
Nonrecurring charges.... -- 4,310 -- -- -- --
Amortization of
intangibles and
depreciation
expense.............. 3,103 3,919 3,216 2,231 2,021 1,997
Less:
Other (income)
expense.............. (298) (594) (783) (740) (347) (176)
------ ------- ------ ------ ------ ------
EBITDA............... $9,661 $11,556 $9,511 $6,996 $5,087 $3,691
====== ======= ====== ====== ====== ======
</TABLE>
35
<PAGE> 44
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma balance sheet as of September 30, 1998 is presented
as if Protection One and Lifeline had merged at that date. The merger of
Lifeline into Protection One is accounted for as a purchase of Lifeline by
Protection One. The allocation of the purchase price of Lifeline is preliminary,
based on management's initial assessment of Lifeline's assets and liabilities.
Management does not believe, however, that a more substantive review of
Lifeline's assets and liabilities will yield significant adjustments to
approximate fair value.
In order to give investors financial data to determine the merits of
investing in Protection One, we present unaudited results of operations adjusted
to reflect significant acquisitions and financing activities as if they had
occurred at the beginning of the period. Significant acquisitions and financing
activities are:
- THE ACQUISITION OF THE SECURITY BUSINESS OF WESTERN RESOURCES BY
PROTECTION ONE, WHICH OCCURRED ON NOVEMBER 24, 1997. In this transaction,
Protection One acquired approximately 490,000 subscribers, a national
infrastructure and $367.4 million in cash and securities in exchange for
68.7 million shares of its common stock. Approximately $94 million of the
securities contributed by Western Resources was 100% of the stock of
Centennial Security Holdings. As a result of the common stock issuance,
Western Resources obtained an 82.4% ownership position in Protection One
and was treated as the accounting acquiror.
- THE ACQUISITION OF NETWORK MULTI-FAMILY SECURITY CORPORATION, WHICH
OCCURRED ON JANUARY 1, 1998. Protection One acquired approximately
200,000 subscribers by purchasing the stock of Network Multi-Family under
the terms of a purchase option granted to Protection One by Western
Resources. Protection One paid approximately $180.0 million for this
leading provider of security alarm monitoring services to multi-family
dwellings.
- THE ACQUISITION OF MULTIMEDIA SECURITY SERVICES, INC., WHICH OCCURRED ON
MARCH 2, 1998. Protection One added approximately 147,000 subscribers and
related assets, including a service center in Wichita, Kansas when it
purchased the stock of Multimedia Security for approximately $233.0
million.
- THE ACQUISITION OF COMSEC/NARRAGANSETT SECURITY, INC., WHICH OCCURRED ON
MARCH 16, 1998. In this acquisition, Protection One obtained 30,000
subscribers located primarily in the Northeast for a purchase price of
$65.0 million consisting of $49.0 million of cash and $16.0 million of
assumed debt.
- A CONCURRENT PUBLIC OFFERING AND PRIVATE PLACEMENT OF PROTECTION ONE'S
COMMON STOCK WHICH OCCURRED IN JUNE 1998. On June 8, 1998, Protection One
sold 6,850,000 shares of common stock to the public and 30,650,000 shares
of common stock to Western Resources for aggregate proceeds of $356.3
million. On June 19, 1998, Protection One sold an additional 667,144
shares to the public and 4,597,500 shares to Western Resources for
aggregate proceeds of $50.0 million. The proceeds from these offerings
were used to repay indebtedness.
- AN OFFERING OF SENIOR NOTES, WHICH OCCURRED ON AUGUST 17,
1998. Protection One offered $250.0 million of senior unsecured notes
bearing an interest rate of 7 3/8% and due in 2005. Proceeds from this
offering were used to repay borrowings under Protection One's revolving
credit facility.
36
<PAGE> 45
The chart below refers to the specific acquisitions and financing
activities and states whether they are included in results of operations for the
period, or whether they need to be added to existing results by making an
adjustment:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
November 1997 Business Combination Already included Adjustment
Centennial Acquisition Already included Adjustment
Network Multi-Family Acquisition Already included Adjustment
Multimedia Security Acquisition Adjustment Adjustment
Comsec/Narragansett Acquisition Adjustment Adjustment
June 1998 Equity Offerings Adjustment Adjustment
August and December 1998 Debt Adjustment Adjustment
Offerings
</TABLE>
The acquisitions of Network Multi-Family, Multimedia Security and
Comsec/Narragansett were accounted for under the purchase method of accounting.
The pro forma consolidated financial data reflects preliminary purchase price
allocations. Management has subsequently finalized the purchase price
allocations of these acquisitions, and changes between preliminary and final
purchase price allocations are not material.
The unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
financial position or results of operations for future periods or the results
that actually would have been realized had the acquisitions and financings
referred to above occurred on the dates specified above. The unaudited pro forma
combined financial information should be read in conjunction with the separate
audited historical financial statements of Protection One and the notes thereto
and the separate audited historical financial statements of Westinghouse
Security and the notes thereto, each of which are incorporated by reference
herein. The pro forma figures assume that:
- no Lifeline optionholders exercise vested options and
- the exchange ratio in the Lifeline merger is , based on the
Average Closing Price as if calculated on February , 1999, the most
recent practicable date prior to the completion of this prospectus.
At the effective date of the merger, each Lifeline stockholder will receive
a combination of $14.50 in cash and a number of shares of New Protection One
common stock for each share of Lifeline common stock he, she or it owns. The
exact amount of cash and/or shares of New Protection One common stock to be
received by each stockholder of Lifeline is dependent upon, among other things:
- the "Average Closing Price" of Protection One common stock on the New
York Stock Exchange, which will determine the exchange ratio within a
defined range, and
- the allowed election by each Lifeline stockholder to substitute
additional shares of New Protection One common stock for all or a portion
of the $14.50 per share cash portion of the merger consideration.
Accordingly, two alternative scenarios of unaudited pro forma combined
financial statements are presented, which give effect to the range of possible
amounts of New Protection One common stock and/or cash to be received by
Lifeline stockholders upon consummation of the Lifeline merger. The "Max Cash"
scenario assumes that all of the Lifeline stockholders elect to receive the
$14.50 cash consideration, reflecting the maximum cash consideration which could
be paid in the transaction. The "Max Stock" scenario assumes that all Lifeline
stockholders elect to receive the $14.50 cash consideration in equivalent New
Protection One common stock, reflecting the maximum stock consideration which
could be paid in the transaction and assumes that Westar Capital does not
purchase any additional shares.
37
<PAGE> 46
PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET -- MAX CASH
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NEW PROTECTION ONE
PRO FORMA
PROTECTION ONE LIFELINE AS ADJUSTED
AS OF SEPTEMBER 30, AS OF SEPTEMBER 30, MERGER AS OF SEPTEMBER 30,
1998 1998 ADJUSTMENTS(a) 1998
------------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 15,415 $ 3,626 $ 19,041
Other current assets.......................... 94,946 21,141 116,087
Subscriber accounts and intangibles, net...... 954,670 -- 954,670
Goodwill and trademarks....................... 1,214,518 127 $157,039 1,371,684
Other assets.................................. 145,121 24,120 169,241
---------- ------- ----------
$2,424,670 $49,014 $2,630,723
========== ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities........................... $ 222,112 $ 9,724 $ 231,836
Current portion of long-term debt............. 339,648 -- $ 97,889(b) 437,537
Long-term debt, net of current................ 481,242 -- 481,242
Other liabilities............................. 31,823 4,975 36,798
---------- ------- ----------
$1,074,825 $14,699 $1,187,413
Stockholders' equity.......................... 1,349,845 34,315 $ 59,150 1,443,310
---------- ------- ----------
$2,424,670 $49,014 $2,630,723
========== ======= ==========
</TABLE>
PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET -- MAX STOCK
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NEW PROTECTION ONE
PRO FORMA
PROTECTION ONE LIFELINE AS ADJUSTED
AS OF SEPTEMBER 30, AS OF SEPTEMBER 30, MERGER AS OF SEPTEMBER 30,
1998 1998 ADJUSTMENTS(a) 1998
------------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 15,415 $ 3,626 $ 19,041
Other current assets.......................... 94,946 21,141 116,087
Subscriber accounts and intangibles, net...... 954,670 -- 954,670
Goodwill and trademarks....................... 1,214,518 127 $152,615 1,367,260
Other assets.................................. 145,121 24,120 169,241
---------- ------- ----------
$2,424,670 $49,014 $2,626,299
========== ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities........................... $ 222,112 $ 9,724 $ 231,836
Current portion of long-term debt............. 339,648 -- 339,648
Long-term debt, net of current................ 481,242 -- 481,242
Other liabilities............................. 31,823 4,975 36,798
---------- ------- ----------
$1,074,825 $14,699 $1,089,524
Stockholders' equity.......................... 1,349,845 34,315 $152,615 1,536,775
---------- ------- ----------
$2,424,670 $49,014 $2,626,299
========== ======= ==========
</TABLE>
- ---------------
(a) Reflects the purchase accounting of the mergers in which the common stock
of Lifeline is exchanged for a combination of new Protection One common
stock and cash and the excess consideration recorded as goodwill, as
calculated below in thousands, except shares and per share amounts:
38
<PAGE> 47
<TABLE>
<CAPTION>
MAX MAX
CASH STOCK
----------- -----------
<S> <C> <C>
Consideration given:
CASH CONSIDERATION
Lifeline shares of common stock outstanding at December 4,
1998...................................................... 6,750,931 6,750,931
Cash given per share........................................ $ 14.50 $ --
----------- -----------
Total cash consideration.......................... $ 97,889 $ --
=========== ===========
STOCK CONSIDERATION
Lifeline shares of common stock outstanding at December 4,
1998...................................................... 6,750,931 6,750,931
Exchange ratio:
Basis..................................................... $ 14.50 $ 29.00
Average closing price(1).................................. 9.54 9.54
Exchange ratio (basis divided by average closing price
at February , 1999)................................. 1.5193 3.0386
New Protection One shares issued as stock consideration..... 10,256,817 20,513,634
Value per New Protection One share(2)....................... $ 9.11 $ 9.11
----------- -----------
Total stock consideration......................... $ 93,465 $ 186,930
=========== ===========
Total consideration, cash and stock......................... $ 191,354 $ 186,930
Less: Lifeline net tangible assets at September 30, 1998.... 34,315 34,315
----------- -----------
Excess of purchase consideration over acquired net tangible
assets.................................................... $ 157,039 $ 152,615
=========== ===========
Protection One shares outstanding:
As of February 1, 1999.................................... 126,838,741 126,838,741
Shares issued in Lifeline merger.......................... 10,256,817 20,513,634
----------- -----------
Protection One shares outstanding post-merger..... 137,095,558 147,352,375
=========== ===========
</TABLE>
--------------------
(1)The purchase agreement between Protection One and Lifeline defines the
average closing price as the average stock price for the 10-day period
prior to the consummation of the transaction.
(2)Value per New Protection One shares was determined based on EITF 95-19.
(b) Reflects the assumption that Protection One will borrow $97.9 million under
its revolving credit facility to fund the cash consideration paid to
Lifeline stockholders. Under the Max Stock scenario, Protection One does
not pay any cash consideration to Lifeline stockholders.
39
<PAGE> 48
PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- MAX CASH
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PROTECTION ONE
ADJUSTMENTS PRO FORMA
PROTECTION ONE PRO FORMA FOR EQUITY AS ADJUSTED
NINE MONTHS ADJUSTMENTS OFFERINGS NINE MONTHS
ENDED 1998 FOR 1998 AND DEBT ENDED
SEPT. 30, 1998 ACQUISITIONS(a) ACQUISITIONS OFFERING SEPT. 30, 1998
-------------- --------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $277,097 $15,074 $292,171
Cost of revenues....................... 88,027 6,343 94,370
-------- ------- --------
Gross Profit.......................... $189,070 $ 8,731 $197,801
Selling, general and administrative
expense............................... 61,301 3,726 65,027
Acquisition and transition expense..... 7,327 -- 7,327
Amortization of intangibles and
depreciation expense.................. 82,787 3,151 384(b) 272(f) 86,594
-------- ------- --------
Operating Income...................... $ 37,655 $ 1,854 $ 38,853
Interest expense....................... 37,330 244 3,035(c) (4,316)(g) 36,293
Other (income) expense................. (21,288) 5,134 (5,075)(d) (21,229)
-------- ------- --------
Income (loss) before income taxes..... $ 21,613 $(3,524) $ 23,789
Income tax expense (benefit)........... 13,251 (23) (1,267)(e) 2,550(e) 14,511
Extraordinary gain..................... 1,591 -- 1,591
-------- ------- --------
Net Income (loss)............... $ 9,953 $(3,501) $ 10,869
======== ======= ========
Net Income (loss) per share,
basic and diluted............. $ .10
========
Weighted average shares outstanding.... 102,445
<CAPTION>
NEW
PROTECTION ONE
PRO FORMA
LIFELINE AS ADJUSTED
NINE MONTHS PRO FORMA NINE MONTHS
ENDED ADJUSTMENTS ENDED
SEPT. 30, 1998 FOR MERGERS SEPT. 30, 1998
-------------- ----------- --------------
<S> <C> <C> <C>
Revenues............................... $47,255 $339,426
Cost of revenues....................... 18,758 113,128
------- --------
Gross Profit.......................... $28,497 $226,298
Selling, general and administrative
expense............................... 18,836 83,863
Acquisition and transition expense..... -- 7,327
Amortization of intangibles and
depreciation expense.................. 3,103 3,677(h) 93,374
------- --------
Operating Income...................... $ 6,558 $ 41,734
Interest expense....................... -- 4,978(i) 41,271
Other (income) expense................. (298) (21,527)
------- --------
Income (loss) before income taxes..... $ 6,856 $ 21,990
Income tax expense (benefit)........... 2,754 (3,851)(e) 13,414
Extraordinary gain..................... -- 1,591
------- --------
Net Income (loss)............... $ 4,102 $ 10,167
======= ========
Net Income (loss) per share,
basic and diluted............. $ .09
========
Weighted average shares outstanding.... 10,257 112,702
</TABLE>
PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- MAX STOCK
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PROTECTION ONE
ADJUSTMENTS PRO FORMA
PROTECTION ONE PRO FORMA FOR EQUITY AS ADJUSTED
NINE MONTHS ADJUSTMENTS OFFERINGS NINE MONTHS
ENDED 1998 FOR 1998 AND DEBT ENDED
SEPT. 30, 1998 ACQUISITIONS(a) ACQUISITIONS OFFERING SEPT. 30, 1998
-------------- --------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $277,097 $15,074 $292,171
Cost of revenues....................... 88,027 6,343 94,370
-------- ------- --------
Gross Profit.......................... $189,070 $ 8,731 $197,801
Selling, general and administrative
expense............................... 61,301 3,726 65,027
Acquisition and transition expense..... 7,327 -- 7,327
Amortization of intangibles and
depreciation expense.................. 82,787 3,151 384(b) 272(f) 86,594
-------- ------- --------
Operating Income...................... $ 37,655 $ 1,854 $ 38,853
Interest expense....................... 37,330 244 3,035(c) (4,316)(g) 36,293
Other (income) expense................. (21,288) 5,134 (5,075)(d) (21,229)
-------- ------- --------
Income (loss) before income taxes..... $ 21,613 $(3,524) $ 23,789
Income tax expense (benefit)........... 13,251 (23) (1,267)(e) 2,550(e) 14,511
Extraordinary gain..................... 1,591 -- 1,591
-------- ------- --------
Net Income (loss)............... $ 9,953 $(3,501) $ 10,869
======== ======= ========
Net Income (loss) per share,
basic and diluted............. $ .10
========
Weighted average shares outstanding.... 102,445
<CAPTION>
NEW
PROTECTION ONE
PRO FORMA
LIFELINE AS ADJUSTED
NINE MONTHS PRO FORMA NINE MONTHS
ENDED ADJUSTMENTS ENDED
SEPT. 30, 1998 FOR MERGERS SEPT. 30, 1998
-------------- ----------- --------------
<S> <C> <C> <C>
Revenues............................... $47,255 $339,426
Cost of revenues....................... 18,758 113,128
------- --------
Gross Profit.......................... $28,497 $226,298
Selling, general and administrative
expense............................... 18,836 83,863
Acquisition and transition expense..... -- 7,327
Amortization of intangibles and
depreciation expense.................. 3,103 3,595(h) 93,292
------- --------
Operating Income...................... $ 6,558 $ 41,816
Interest expense....................... -- --(i) 36,293
Other (income) expense................. (298) (21,527)
------- --------
Income (loss) before income taxes..... $ 6,856 $ 27,050
Income tax expense (benefit)........... 2,754 (765)(e) 16,500
Extraordinary gain..................... -- 1,591
------- --------
Net Income (loss)............... $ 4,102 $ 12,141
======= ========
Net Income (loss) per share,
basic and diluted............. $ .10
========
Weighted average shares outstanding.... 20,514 122,959
</TABLE>
- ---------------
(a) Protection One acquired Multimedia Security on March 2, 1998 and
Comsec/Narragansett on March 17, 1998. This column represents the results
of operations of each company from January 1, 1998 to the respective
acquisition date.
40
<PAGE> 49
(b) The allocation of the estimated purchase prices of Multimedia Security and
Comsec/Narragansett to subscriber accounts and goodwill, results in the
following increase in amortization of intangibles and depreciation expense:
<TABLE>
<CAPTION>
MULTIMEDIA COMSEC/
SECURITY NARRAGANSETT TOTAL
---------- ------------ --------
<S> <C> <C> <C>
Subscriber accounts: ....................................... $123,250 $27,000 $150,250
Amortization life (years)................................. 10 10
Days prior to acquisition date............................ 62 76
Days in year.............................................. 365 365
Additional amortization expense of subscriber accounts.... $ 2,094 $ 562 $ 2,656
Goodwill: .................................................. $134,750 $58,855
Amortization life (years)................................. 40 40
Days prior to acquisition date............................ 62 76
Days in year.............................................. 365 365
Additional amortization expense of goodwill............... $ 572 $ 307 $ 879
Total amortization expense.................................. $ 3,535
Less: amortization expense prior to acquisition date........ (3,151)
--------
Pro forma adjustment...................................... $ 384
========
</TABLE>
(c) The cash purchase prices of Multimedia Security and Comsec/Narragansett
were funded with borrowings under two promissory notes from Westar Capital,
Inc. a subsidiary of Western Resources. These borrowings result in
additional interest expense, as noted below:
<TABLE>
<CAPTION>
MULTIMEDIA COMSEC/
SECURITY NARRAGANSETT TOTAL
---------- ------------ --------
<S> <C> <C> <C>
Cash purchase price......................................... $209,000 $65,000 $274,000
Interest rate............................................... 6.6875% 6.6875%
Days prior to acquisition date.............................. 62 76
Days in year................................................ 365 365
Additional interest expense................................. $ 2,374 $ 905 $ 3,279
Less: interest expense prior to acquisition date............ (244)
--------
Pro forma adjustment...................................... $ 3,035
========
</TABLE>
(d) Reflects the removal of a nonrecurring charge taken by Comsec/Naragansett
in connection with employee payments arising from the acquisition.
(e) Reflects a 39% income tax rate, adjusted for non-deductible goodwill
amortization.
(f) Protection One issued $250.0 million of senior unsecured notes on August 2,
1998 and incurred placement costs that are deferred and amortized over the
life of the underlying debt. This results in additional amortization
expense, as calculated below:
<TABLE>
<S> <C>
Deferred placement costs.................................... $3,130
Amortization life (years)................................... 7
Days prior to issuance...................................... 222
Days in year................................................ 365
Additional amortization expense prior to financing date..... $ 272
</TABLE>
41
<PAGE> 50
(g) Protection One raised approximately $410.0 million of gross proceeds from a
concurrent public offering and private placement of Protection One common
stock in June, using $65.0 million of the proceeds to redeem 35% of the
13 5/8% senior subordinated discount notes and the remainder to repay
borrowings under the revolving credit facility. By assuming the equity
offerings occurred at the beginning of 1998, interest expense is reduced by
the amount noted below:
<TABLE>
<S> <C>
Revolving credit facility average balance through August 12,
1998...................................................... $238,357
Reduction in balance from equity proceeds................... 238,357
--------
Net adjusted balance for pro forma interest expense
calculation............................................... $ --
========
Reduction in revolving credit facility interest............. $(13,397)
Redemption of 35% of discount notes:
Principal amount redeemed................................. $ 58,100
Effective interest rate................................... 7.56%
Reduction in discount notes interest expense................ $ (2,196)
</TABLE>
Protection One also offered $250.0 million of senior unsecured notes on
August 12, 1998. Had this offering occurred at the beginning of the year,
interest expense would have increased as follows:
<TABLE>
<S> <C>
Senior unsecured notes principal balance.................... $250,000
Effective interest rate..................................... 7.416%
Days prior to issuance...................................... 222
Days in year................................................ 365
Interest expense prior to issuance date..................... $ 11,276
</TABLE>
The net impact of the three interest expense adjustments explained in this
footnote is:
<TABLE>
<S> <C>
Reduction in revolving credit facility interest expense..... $(13,396)
Reduction in discount notes interest expense................ (2,196)
Increase in senior unsecured notes interest expense......... 11,276
--------
Net reduction...................................... $ (4,316)
========
</TABLE>
(h) Reflects the allocation of the acquisition cost of the mergers, as if the
acquisition had occurred on January 1, 1997. In aggregate, Protection One
estimates the allocation of the purchase cost is as follows:
<TABLE>
<CAPTION>
MAX CASH MAX STOCK
-------- ---------
<S> <C> <C>
Goodwill:................................................... $157,039 $152,615
Amortization life......................................... 40 40
Annual amortization of goodwill........................... $ 3,926 $ 3,815
Factor to reduce amortization to nine-month period........ 75% 75%
New amortization expense of goodwill for nine months ended
September 30, 1998...................................... $ 2,944 $ 2,862
Fixed assets, net acquired:................................. $17,899 $ 17,899
Estimated average amortization life....................... 3.5 3.5
-------- --------
Annual depreciation of fixed assets....................... $ 5,114 $ 5,114
Factor to reduce depreciation to nine-month period........ 75% 75%
New depreciation expense of fixed assets for nine months
ended September 30, 1998................................ $ 3,836 $ 3,836
-------- --------
Additional amortization and depreciation expense............ 6,780 6,698
Less: amortization and depreciation expense acquired........ (3,103) (3,103)
-------- --------
Increase in amortization and depreciation expense due to
purchase accounting..................................... $ 3,677 $ 3,595
======== ========
</TABLE>
(i) In the Max Cash scenario, Protection One estimates that it will pay
Lifeline shareholders approximately $97.9 million of cash. It is assumed
that Protection One will borrow this amount under its revolving credit
facility, which carried an average interest rate of 6.8% at December 31,
1998.
42
<PAGE> 51
PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- MAX CASH
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FORMER ADJUSTMENTS
WRSB PROTECTION ONE CENTENNIAL FOR THE PRO FORMA
TWELVE TWELVE TWELVE COMBINATION, ADJUSTMENTS
MONTHS MONTHS MONTHS THE CENTENNIAL FOR EQUITY
ENDED ENDED ENDED ACQUISITION OFFERINGS
DEC. 31, SEPT. 30, DEC. 31, 1998 AND THE 1998 AND DEBT
1997 1997 1997 ACQUISITIONS(g) ACQUISITIONS OFFERING
-------- -------------- ---------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $131,310 $ 98,493 $21,981 $96,936
Cost of revenues................... 31,375 27,944 9,518 38,801
-------- -------- ------- -------
Gross Profit.................... $ 99,935 $ 70,549 $12,463 $58,135
Selling, general and administrative
expense........................... 74,131 19,978 14,194 23,853
Acquisition and transition
expense........................... 544 5,920 -- --
Amortization of intangibles and
depreciation expense.............. 35,472 38,227 5,816 20,778 (112)(a)
Nonrecurring charge............... 40,144 -- -- -- (40,144)(b)
-------- -------- ------- -------
Operating Income................ $(50,356) $ 6,424 $(7,547) $13,504
Interest expense.................. 31,005 29,842 2,271 1,995 (4,976)(c) (23,628)(d)
Other (income) expense............ -- 239 -- 37
-------- -------- ------- -------
Income (loss) before income
taxes....................... $(81,361) $(23,657) $(9,818) $11,472
Income tax expense (benefit)....... (33,000) (1,744) -- 3,101 8,971(h) 16,051(h)
-------- -------- ------- -------
Net Income (loss)............... $(48,361) $(21,913) $(9,818) $ 8,371
======== ======== ======= =======
Net Income (loss) per share,
basic and diluted.............
Weighted average shares
outstanding....................... 37,500
<CAPTION>
PROTECTION ONE NEW
PRO FORMA LIFELINE PROTECTION ONE
AS ADJUSTED TWELVE PRO FORMA
TWELVE MONTHS AS ADJUSTED
MONTHS ENDED PRO FORMA TWELVE MONTHS
ENDED DEC. 31, ADJUSTMENTS ENDED
DEC. 31, 1997 1997 FOR MERGERS DEC. 31, 1997
-------------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues........................... $348,720 $56,964 $405,684
Cost of revenues................... 107,638 22,079 129,717
-------- ------- --------
Gross Profit.................... $241,082 $34,885 $275,967
Selling, general and administrative
expense........................... 132,156 23,329 155,485
Acquisition and transition
expense........................... 6,464 -- 6,464
Amortization of intangibles and
depreciation expense.............. 100,181 3,919 3,926(e) 108,026
Nonrecurring charge............... -- 4,310 4,310
-------- ------- --------
Operating Income................ $ 2,281 $ 3,327 $ 1,682
Interest expense.................. 36,509 (594) 6,637(f) 42,552
Other (income) expense............ 276 -- 276
-------- ------- --------
Income (loss) before income
taxes....................... $(34,504) $ 3,921 $(41,146)
Income tax expense (benefit)....... (6,621) 1,623 (20,102)(h) (25,100)
-------- ------- --------
Net Income (loss)............... $(27,883) $ 2,298 $(16,046)
======== ======= ========
Net Income (loss) per share,
basic and diluted............. $ (.14)
========
Weighted average shares
outstanding....................... 10,257 117,960
</TABLE>
PROTECTION ONE, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS -- MAX STOCK
TWELVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FORMER ADJUSTMENTS
WRSB PROTECTION ONE CENTENNIAL FOR THE PRO FORMA
TWELVE TWELVE TWELVE COMBINATION, ADJUSTMENTS
MONTHS MONTHS MONTHS THE CENTENNIAL FOR EQUITY
ENDED ENDED ENDED ACQUISITION OFFERINGS
DEC. 31, SEPT. 30, DEC. 31, 1998 AND THE 1998 AND DEBT
1997 1997 1997 ACQUISITIONS(g) ACQUISITIONS OFFERING
-------- -------------- ---------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $131,310 $ 98,493 $21,981 $96,936
Cost of revenues................... 31,375 27,944 9,518 38,801
-------- -------- ------- -------
Gross Profit...................... $ 99,935 $ 70,549 $12,463 $58,135
Selling, general and administrative
expense........................... 74,131 19,978 14,194 23,853
Acquisition and transition
expense........................... 544 5,920 -- --
Amortization of intangibles and
depreciation expense.............. 35,472 38,227 5,816 20,778 (112)(a)
Nonrecurring charge................ 40,144 -- -- -- (40,144)(b)
-------- -------- ------- -------
Operating Income.................. $(50,356) $ 6,424 $(7,547) $13,504
Interest expense................... 31,005 29,842 2,271 1,995 (4,976)(c) (23,628)(d)
Other (income) expense............. -- 239 -- 37
-------- -------- ------- -------
Income (loss) before income
taxes......................... $(81,361) $(23,657) $(9,818) $11,472
Income tax expense (benefit)....... (33,000) (1,744) -- 3,101 8,971(h) 16,051(h)
-------- -------- ------- -------
Net Income (loss)............... $(48,361) $(21,913) $(9,818) $ 8,371
======== ======== ======= =======
Net Income (loss) per share,
basic and diluted.............
Weighted average shares
outstanding....................... 37,500
<CAPTION>
NEW
PROTECTION ONE
PRO FORMA LIFELINE PRO FORMA
AS ADJUSTED TWELVE AS ADJUSTED
TWELVE MONTHS TWELVE
MONTHS ENDED PRO FORMA MONTHS
ENDED DEC. 31, ADJUSTMENTS ENDED
DEC. 31, 1997 1997 FOR MERGERS DEC. 31, 1997
------------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues........................... $348,720 $56,964 $405,684
Cost of revenues................... 107,638 22,079 129,717
-------- ------- --------
Gross Profit...................... $241,082 $34,885 $275,967
Selling, general and administrative
expense........................... 132,156 23,329 155,485
Acquisition and transition
expense........................... 6,464 -- 6,464
Amortization of intangibles and
depreciation expense.............. 100,181 3,919 3,815(e) 107,915
Nonrecurring charge................ -- 4,310 4,310
-------- ------- --------
Operating Income.................. $ 2,281 $ 3,327 $ 1,793
Interest expense................... 36,509 (594) --(f) 35,915
Other (income) expense............. 276 -- 276
-------- ------- --------
Income (loss) before income
taxes......................... $(34,504) $ 3,921 $(34,398)
Income tax expense (benefit)....... (6,621) 1,623 (15,987)(h) (20,985)
-------- ------- --------
Net Income (loss)............... $(27,883) $ 2,298 $(13,413)
======== ======= ========
Net Income (loss) per share,
basic and diluted............. $ (.10)
========
Weighted average shares
outstanding....................... 20,514 128,217
</TABLE>
43
<PAGE> 52
- ---------------
(a) Reflects the allocation of the acquisition cost of the November 1997
business combination, the acquisition of Centennial and the 1998
Acquisitions, as if each had occurred on January 1, 1997. At December 31,
1997, Protection One carried balances of $538.3 million, $882.1 million and
$14.9 million in subscriber intangibles, goodwill and property and
equipment, net, respectively. Protection One added $212.1 million to
subscriber intangibles, $439.2 million to goodwill and $4.9 million to
property and equipment, net in its allocation of the aggregate acquisition
cost of the 1998 Acquisitions.
(b) Reflects the removal of the non-recurring charge taken by Protection One in
connection with the November 1997 business combination.
(c) Reflects additional interest expense arising from the 1998 Acquisitions,
offset by repayment of debt in the November 1997 business combination, as
if each had occurred on January 1, 1997.
(d) Reflects the redemption of $65.1 million, or 35%, of the outstanding
discount notes of Protection One Alarm Monitoring and the repayment of
$287.5 million of borrowings under the senior credit facility.
(e) Reflects the allocation of the acquisition cost of the mergers, as if the
acquisition had occurred on January 1, 1997. In aggregate, Protection One
estimates the allocation of the purchase cost is as follows:
<TABLE>
<CAPTION>
MAX CASH MAX STOCK
-------- ---------
<S> <C> <C>
Goodwill.................................................... $157,039 $152,615
</TABLE>
Goodwill is amortized over 40 years. An adjustment for the mergers and
related purchase accounting will be required as of the effective date of
the mergers due to the variable nature of the consideration.
(f) Reflects additional interest expense arising from the mergers, as if they
had occurred on January 1, 1997. Protection One will fund the merger, with
additional financing under its senior credit facility with Westar Capital.
(g) Includes the results for the year ended September 30,1997 for
Comsec/Narragansett and the year ended December 31, 1997 for each of
Multimedia Security and Network Multi-Family.
(h) To reflect 39% tax rate, adjusted for non-deductible goodwill amortization.
44
<PAGE> 53
THE LIFELINE SPECIAL MEETING
GENERAL
We are furnishing this prospectus to you in connection with the
solicitation of proxies by the Lifeline board of directors for use at the
Lifeline special meeting of stockholders. This prospectus, the attached notice
of special meeting of stockholders, the enclosed form of proxy and the stock
election form and letter of transmittal are first being mailed to stockholders
of Lifeline on or about , 1999.
MATTERS TO BE CONSIDERED AT THE LIFELINE SPECIAL MEETING
At the Lifeline special meeting, holders of Lifeline common stock will
consider and vote on a proposal to approve and adopt the merger agreement. A
copy of the merger agreement is attached as Annex A to this prospectus.
AFTER CAREFUL CONSIDERATION, THE LIFELINE BOARD HAS UNANIMOUSLY DETERMINED
THAT THE LIFELINE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF LIFELINE AND
ITS STOCKHOLDERS. THE LIFELINE BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF LIFELINE COMMON STOCK VOTE
TO APPROVE AND ADOPT IT AT THE SPECIAL MEETING.
DATE, TIME AND PLACE
The Lifeline special meeting is scheduled to be held at 10:00 a.m., local
time, on , , 1999, at the offices of Hale and Dorr,
LLP, located on the 26th Floor at 60 State Street, Boston, Massachusetts.
ACTIONS THAT LIFELINE STOCKHOLDERS ARE BEING ASKED TO TAKE BEFORE THE LIFELINE
SPECIAL MEETING:
1. COMPLETE THE PROXY CARD and send it to EquiServe so that they receive it
NO LATER THAN , 1999, at the following address:
EquiServe
P.O. Box 9391
Boston, Massachusetts 02205-9969
2. IF YOU MAKE A STOCK ELECTION, complete the enclosed stock election form
and letter of transmittal and send it and all of your stock certificates
representing Lifeline common stock as to which you are making a stock
election to ChaseMellon Shareholder Services so that they receive it NO
LATER THAN , 1999, at the following address:
PROTECTION ONE STOCK ELECTION
c/o ChaseMellon Shareholder Services
520 Pike Street, Suite 1220
Seattle, Washington 98101
Attn: Dennis L. Treibel
3. IF YOU DO NOT MAKE A STOCK ELECTION, you will receive a separate letter
of transmittal promptly following the closing of the mergers. That
letter of transmittal will give you instructions on how, when and where
to send your Lifeline stock certificates.
RECORD DATE; VOTING; REVOCATION OF PROXIES
The Lifeline board of directors has fixed the close of business on February
16, 1999 as the record date for the determination of the stockholders entitled
to notice of, and to vote at, the Lifeline special meeting. At that date, there
were outstanding shares of Lifeline common stock, the holders of which
will be entitled to one vote per share on each matter submitted to the Lifeline
special meeting.
45
<PAGE> 54
As of December 1, 1998 Lifeline's officers and directors owned and held the
power to vote 991,884 shares of Lifeline common stock, representing
approximately 17% of the outstanding shares on the record date. As a condition
to Protection One's willingness to enter into the merger agreement, the
executive officers and directors have agreed, pursuant to voting agreements
dated as of October 18, 1998, and without any additional consideration being
paid to them, among other things, to vote all of their shares of Lifeline common
stock in favor of approving and adopting the merger agreement at the Lifeline
special meeting.
Shares of Lifeline common stock represented by properly executed proxies
will, unless these proxies have been properly revoked, be voted in accordance
with the instructions indicated on such proxies or, if no instructions have been
indicated, will be voted for approval and adoption of the merger agreement and
in the best judgment of the individuals named in the accompanying proxy on any
other matters which may properly come before the Lifeline special meeting. Any
proxy may be revoked by the stockholder giving it, at any time prior to its
being voted, by filing a notice of revocation or a duly executed proxy bearing a
later date with the Clerk of Lifeline at the address given on the notice of
stockholders' meeting accompanying this prospectus. Any proxy may also be
revoked by the stockholder's attendance at the Lifeline special meeting and
voting in person. A notice of revocation need not be on any specific form.
Abstentions may be specified with respect to the approval and adoption of the
merger agreement by properly marking the "ABSTAIN" box on the proxy for such
proposal. The affirmative vote of the holders of two-thirds of the outstanding
Lifeline common stock entitled to vote at the Lifeline special meeting is
required in order to approve and adopt the merger agreement. Abstentions and
broker nonvotes will have the same effect as a vote against the approval and
adoption of the merger agreement at the Lifeline special meeting.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Lifeline board of
directors. Lifeline will bear the costs relating to the solicitation of proxies.
In addition to solicitation by mail, Lifeline's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
facsimile machine and personal interviews, and Lifeline reserves the right to
retain outside agencies for the purpose of soliciting proxies. Brokers,
custodians, and fiduciaries will be requested to forward proxy soliciting
material to the owners of stock held in their names, and Lifeline will reimburse
them for their out-of-pocket expenses in this regard. In addition, Lifeline has
retained MacKenzie Partners, Inc. to solicit proxies by and on behalf of the
Lifeline board of directors. MacKenzie Partners, Inc. will be paid a fee of not
more than $10,000 for these services.
ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP, Lifeline's principal
accountants, are expected to be present at the Lifeline special meeting. They
will have an opportunity to make a statement if they desire to do so, and will
also be available to respond to appropriate questions from stockholders.
46
<PAGE> 55
THE MERGERS
BACKGROUND
From January to April 1998, Protection One acquired 233,700 shares of
Lifeline common stock through open market purchases. In April 1998, John E.
Mack, III, Chief Strategic Officer of Protection One, contacted Ronald
Feinstein, President, Chief Executive Officer and a director of Lifeline, to
discuss Protection One's desire to arrange for Mr. Feinstein to meet the
management of Protection One.
Independently, during late 1997 and early 1998, Lifeline's board of
directors and management began to explore the possibility of seeking a strategic
business partner to accelerate Lifeline's growth, improve Lifeline's access to
potential subscribers, broaden Lifeline's product offerings and obtain access to
greater financial resources. On March 20, 1998, Lifeline engaged BT Alex. Brown
to provide financial advisory services, including the identification and
evaluation of candidates for potential business combinations. Pursuant to this
engagement, BT Alex. Brown contacted 20 potential business combination partners
identified by Lifeline and BT Alex. Brown as likely to realize strategic
synergies in a combination (including Protection One) from June through August
1998 to assess their level of interest in a transaction with Lifeline. Of the 20
parties contacted, 12 (including Protection One) executed confidentiality
agreements and received confidential information about Lifeline.
In June 1998, Mr. Feinstein visited Protection One's facility in Irving,
Texas and met members of Protection One's senior management, including James
Mackenzie, Mr. Mack, Tom Rankin, John Hesse, and Steve Williams and David
Wittig, the President and Chief Executive Officer of Western Resources.
Protection One discussed its investment in Lifeline and communicated its
interest in either purchasing or entering into a strategic relationship with
Lifeline. These discussions did not, however, give rise to a proposal with
respect to a specific transaction. Following this meeting, Mr. Mack contacted
Mr. Feinstein to arrange for Messrs. Wittig and Mack to visit Lifeline's
headquarters in Cambridge, Massachusetts.
Later that month, Mr. Feinstein contacted Mr. Mack and informed him that
Lifeline had retained BT Alex. Brown to assist the board of directors of
Lifeline in connection with a possible business combination involving Lifeline
and potential strategic partners.
On June 29, 1998, Messrs. Mack and Wittig met with Mr. Feinstein and
representatives of BT Alex. Brown at Lifeline's Cambridge facility. Messrs. Mack
and Wittig were informed by Mr. Feinstein that, if Protection One was interested
in pursuing further discussions with Lifeline, it would have to do so in the
context of the evaluation process being conducted by BT Alex. Brown.
On July 6, 1998, Mr. Mack informed Mr. Feinstein that Protection One would
be interested in pursuing further discussions and executed a confidentiality
agreement. Thereafter, Protection One commenced its due diligence investigation
of Lifeline.
In July and August 1998, representatives of senior management of Lifeline
and BT Alex. Brown met with representatives of interested parties to discuss
Lifeline's strategy, operations and financial performance.
On July 22, 1998, representatives of BT Alex. Brown and Hale and Dorr LLP,
Lifeline's legal counsel, attended a meeting of Lifeline's board of directors in
Weston, Massachusetts. At this meeting, BT Alex. Brown updated the board of
directors on the status of discussions with each of the parties that had been
contacted. The representatives of BT Alex. Brown and Hale and Dorr LLP also
presented materials regarding a potential shareholder rights plan. At a
subsequent telephonic meeting held on July 24, 1998, the Lifeline board of
directors adopted a shareholder rights plan to help ensure that potential
business partners contacted by BT Alex. Brown did not seek to disrupt Lifeline's
business plans.
47
<PAGE> 56
On August 5, 1998, members of Protection One's management and advisors met
with Lifeline's management and representatives of BT Alex. Brown and discussed
Lifeline's strategy, operations and historical and projected financial
performance. Also, members of Protection One's management and advisory team
visited Lifeline's facility.
In early August, BT Alex. Brown solicited preliminary indications of
interest from the parties that had executed confidentiality agreements and had
received confidential information regarding Lifeline. On August 13, 1998, BT
Alex. Brown received four preliminary, non-binding indications of interest from
interested parties (including Protection One). From mid-August through September
1998, senior management of Lifeline and representatives of BT Alex. Brown met
with the interested parties and their legal and other advisors in order to
discuss due diligence information related to Lifeline.
On September 9, 1998, members of Lifeline's senior management met with Mr.
Mackenzie and Mr. Hesse and other officers and advisors of Protection One to
discuss the proposed transaction and Lifeline's historical financial and
operational performance.
In mid-September, BT Alex. Brown distributed proposed contracts to each of
the interested parties and requested final proposals on valuation and the terms
of a definitive merger agreement from each party. During September, two of the
four parties that had submitted preliminary indications of interest elected not
to proceed further in the process.
On September 23, 1998, the Lifeline board of directors met in Cambridge,
Massachusetts to review the status of discussions with potential merger parties
and authorized Lifeline's senior management and BT Alex. Brown to continue
discussions with interested parties.
On September 24, 1998, members of Protection One's senior management met
with members of the executive committee of its board of directors via telephonic
conference call to discuss the proposed acquisition of Lifeline by Protection
One and the form of the contemplated business combination. Among other things,
matters discussed included Lifeline's historical performance, the growth of the
personal security services industry and Lifeline's leading market position in
that industry with respect to services targeted to elderly and physically
challenged individuals, demographic trends with respect to the growing number of
elderly persons in the United States and other factors affecting future business
prospects, and the potentially positive effects the transaction may have with
respect to Protection One's earnings, historical trading prices for Lifeline
common stock and opportunities for economies of scale and other operating
efficiencies and synergies.
On September 29, 1998, Protection One and a publicly traded health care
company each submitted definitive acquisition proposals to acquire 100% of the
outstanding common stock of Lifeline. Protection One's offer contemplated
acquiring Lifeline for $29.00 per share in cash and a 5% termination fee, and
was conditioned upon the approval of Protection One's board of directors. The
other offer contemplated a stock-for-stock merger at a fixed exchange ratio, to
be accounted for as a pooling of interests. Based on market valuations at the
time, the fixed exchange ratio in such proposal offered little or no premium for
Lifeline stockholders.
On October 1, 1998, a representative of Protection One informed BT Alex.
Brown that Protection One was not willing to proceed with an all-cash offer for
Lifeline, but would be interested in proceeding with an offer of $14.50 per
share in cash and $14.50 per share in Protection One common stock. Based on the
offers received, the Company and BT Alex. Brown determined to ask each of the
interested parties to submit revised proposals on October 8, 1998.
From late September through October 15, 1998, management of Protection One
and representatives of BT Alex. Brown had several telephone conferences to
discuss Protection One's proposal, the amount of cash to be received in the
Lifeline merger, price protection for declines in the trading price of
Protection One common stock prior to the closing of the Lifeline merger,
treatment of holders of options to purchase shares of Lifeline common stock and
other matters related to the proposed transaction. During this time, the legal
counsel to
48
<PAGE> 57
Protection One and Lifeline had several telephone conferences to discuss
transaction structure and the documentation related to the proposed acquisition.
On October 8, 1998, the full Protection One board of directors convened a
special meeting via telephonic conference call to further discuss the proposed
acquisition of Lifeline. Mr. Mackenzie updated the board of directors on the
status of negotiations with Lifeline. Mr. Mackenzie and the board of directors
again discussed topics including Lifeline's historical performance, market
position, common stock trading price and opportunities for operating
efficiencies and synergies. The Protection One board of directors also discussed
alternatives such that the acquisition could be structured to be tax-free for
federal income tax purposes for both Protection One and Lifeline stockholders.
Following discussion on these topics, the Protection One board of directors
unanimously approved an offer to be made that would involve the combination of
Protection One and Lifeline under a new holding company to be formed by
Protection One whereby shares of Protection One common stock held by existing
Protection One stockholders would automatically be converted into an equal
number of shares of the new holding company and Lifeline stockholders would
receive a combination of cash and a fixed number of shares of the new holding
company based on an adjustable exchange ratio to be determined based on the
trading prices of Protection One common stock.
On October 9, 1998, the Lifeline board of directors held a telephonic
meeting to discuss the revised proposals submitted to BT Alex. Brown. Management
was authorized and directed to continue negotiations with Protection One. The
proposal from the publicly traded health care company was not significantly
revised from its prior proposal and offered little or no premium for Lifeline
stockholders.
On October 12, 1998, the Protection One board of directors convened another
special meeting to discuss the status of negotiations regarding the proposed
Lifeline acquisition and, after further deliberation, the Protection One board
of directors unanimously approved revisions to the proposal allowing for, among
other things, an adjustable exchange ratio with respect to shares of New
Protection One common stock to be delivered to Lifeline stockholders in
connection with the Lifeline merger and authorized senior management of
Protection One to negotiate the terms and conditions of a merger agreement in
the event that the Lifeline board of directors accepted the revised proposal.
In connection with Protection One's negotiation of the merger agreement,
senior management of Western Resources and Westar Capital participated in
negotiations with respect to the voting agreement that Westar Capital agreed to
execute providing for Westar Capital's vote of all of its shares in favor of the
Protection One merger and against any action that would constitute a breach of
the merger agreement. Concurrently with the negotiations regarding the structure
and terms of the merger agreement, members of senior management of Protection
One and Lifeline also negotiated the terms and conditions of the voting
agreements executed by Lifeline's executive officers and directors and the stock
option agreement affording Protection One the right to acquire from Lifeline
shares of its common stock equal to 19.9% of the issued and outstanding shares
of Lifeline common stock. Protection One had conditioned the execution of the
merger agreement upon the execution of such voting agreement and the stock
option agreement.
On October 15, 1998, Mr. Feinstein and Dennis Hurley, Lifeline's Chief
Financial Officer, and Lifeline's advisors from BT Alex. Brown and Hale and Dorr
LLP, met with members of Protection One's senior management, including Messrs.
Mack and Mackenzie, in Culver City, California and with other members of
Protection One's senior management in Dallas, Texas in order to conduct due
diligence with respect to Protection One's business and to discuss business and
operational aspects of the proposed transaction.
On October 18, 1998, a special meeting of the Lifeline board of directors
was held in Boston, Massachusetts, which was also attended by representatives of
BT Alex. Brown and
49
<PAGE> 58
Hale and Dorr LLP. The board of directors was briefed on the current state of
negotiations with Protection One and reviewed the proposed merger agreement and
related option agreement. The board of directors discussed as potential
alternatives to the proposed transaction pursuing a business combination with
the publicly traded healthcare company that had submitted an offer and remaining
an independent entity. Such alternatives were not deemed preferable given the
lower market value represented by the other offer, perceived risks associated
with remaining an independent entity and the perceived benefits of the proposed
combination with Protection One. After receipt of an oral opinion, which was
subsequently confirmed in writing, from BT Alex. Brown to the effect that, as of
the date of such opinion and based upon and subject to certain matters stated
therein, the consideration to be received in the Lifeline merger by holders of
Lifeline common stock was fair from a financial point of view to such holders,
the Lifeline board of directors unanimously approved the merger agreement and
recommended that Lifeline stockholders approve the Lifeline merger and the
merger agreement.
On October 18, 1998 Protection One and Lifeline signed the merger
agreement. On October 19, 1998, Protection One and Lifeline issued a joint press
release announcing the signing of the merger agreement.
Between October 19, 1998, and October 27, 1998, members of senior
management of Protection One and Lifeline also discussed amending the merger
agreement to allow stockholders of Lifeline to elect to take more shares of New
Protection One common stock in lieu of cash that would otherwise be paid in the
Lifeline merger. The Protection One board of directors and the Lifeline board of
directors approved the amendment, which Protection One and Lifeline signed on
October 28, 1998.
RECOMMENDATION OF THE PROTECTION ONE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF PROTECTION ONE BELIEVES THAT THE PROTECTION ONE
MERGER IS FAIR TO, ADVISABLE AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF
PROTECTION ONE AND HAS APPROVED, ADOPTED AND DECLARED ADVISABLE THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROTECTION
ONE MERGER AND THE CONVERSION OF SHARES OF PROTECTION ONE COMMON STOCK INTO
SHARES OF NEW PROTECTION ONE COMMON STOCK. WESTAR CAPITAL HAS SIGNED THE WESTAR
VOTING AGREEMENT REQUIRING THAT IT CONSENT TO AND APPROVE THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY. PUBLIC STOCKHOLDERS OF PROTECTION ONE
WILL NOT BE REQUIRED TO TAKE ANY ACTION TO APPROVE THE MERGER AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY BECAUSE WESTAR CAPITAL HAS AGREED TO APPROVE
THE MERGER BY A WRITTEN CONSENT EFFECTING THE MERGER AND APPROVAL IN LIEU OF A
STOCKHOLDERS MEETING.
In approving the merger agreement and related transactions, the Protection
One board of directors took into account a number of factors, including the
following:
- the judgment, advice and analysis of Protection One's management
- the historical financial condition, results of operations, cash flows and
market position of Lifeline
- the opportunities for operational efficiencies and synergies of
Protection One and Lifeline
- the demographic trends affecting the market for Lifeline's products and
services
- the potential benefits to Protection One's earnings from the acquisition
of Lifeline
- the terms and conditions of the merger agreement, including the exchange
ratio provisions and
50
<PAGE> 59
- the requirement that Protection One be provided with an opinion of
counsel as to the tax-free nature of the Protection One merger to
Protection One stockholders.
In view of the number of factors considered by the Protection One board of
directors, the board of directors did not assign relative weights to the factors
considered by it in reaching its conclusions. Rather, the board of directors
viewed its conclusions and recommendations as being based on the totality of the
information being presented to and considered by it. In addition, it may be the
case that individual directors of Protection One assigned different weights to
the various factors considered by them in voting to approve the mergers.
While Protection One's financial advisors assisted in the preparation of
the board presentation, they did not provide any independently produced
materials to the Company's board of directors supporting or not supporting the
decision.
The board considered synergies such as monitoring expense improvements,
product sales expenses, reduction in research and development costs, redundant
public company costs, and redundancies in general administrative functions. The
board considered the risk but the total estimated amount of these synergies may
not be realized in the time frame contemplated by Protection One management or
at all.
After factoring these synergies into the other considerations outlined
above, the board determined that the proposed purchase price as a multiple of
pro forma EBITDA was consistent with other strategic acquisitions consummated by
Protection One. The board also determined that the transaction would be
accretive to 1999 earnings based upon information provided and management's
assumptions regarding 1999 earnings.
RECOMMENDATION OF THE LIFELINE BOARD OF DIRECTORS
The Lifeline board of directors has determined that the terms of the merger
agreement and the transactions contemplated thereby are fair to, and in the best
interests of, Lifeline and its stockholders. Accordingly, the Lifeline board of
directors has unanimously approved the merger agreement and the Lifeline merger
and unanimously recommends that the stockholders of Lifeline vote for approval
and adoption of the merger agreement and the Lifeline merger.
The Lifeline board of directors identified a number of potential benefits
of the Lifeline merger to Lifeline and believes for these reasons the
stockholders of Lifeline should vote for approval and adoption of the merger
agreement and the Lifeline merger:
- Lifeline's future success will be largely dependent upon its ability to
significantly increase the number of its subscribers, and hence its
revenues and profits. While Lifeline has experienced growth as an
independent entity, the Lifeline board of directors believes that the
proposed combination with Protection One will provide access to a
significantly larger group of potential consumers, including referrals
through Protection One and its majority owner, Western Resources, from
their existing customer bases, and access to direct marketing affinity
groups.
- Although Lifeline has an established and growing sales force and
distribution channel, Protection One has a much larger consumer network
and a presence in international markets. Lifeline's management believes
that significantly greater customer growth could result from the enhanced
sales channels and marketing presence of the combined company.
- A combination with Protection One should provide Lifeline and its
existing and potential customers with access to new products, services
and technologies that Lifeline would not be able to provide as an
independent supplier. In particular, Lifeline management believes that
Protection One's experience and technology with respect to the
development and operation of centralized call centers is an important
benefit.
51
<PAGE> 60
- The combined company would have more extensive product offerings,
distribution and support and financial resources that should make it a
more effective competitor in the marketplace. In particular, Protection
One had significant cost advantages in sourcing telecommunication
services, product components and product assembly as a result of higher
product and service volumes.
- The combined company should be better positioned to grow through
acquisitions, especially in light of Protection One's significant
experience in identifying and effecting acquisitions.
In making this determination, the Lifeline board of directors consulted
with management of Lifeline, as well as its financial advisors and legal
counsel, and considered a number of factors deemed to be positive by the
Lifeline board of directors and supporting its approval to the merger agreement
and the merger and its recommendation that stockholders vote for and approve the
merger agreement and the merger including, without limitation, the following:
- The following terms of the merger agreement and the option agreement:
(a) The consideration to be paid and the fact that the Lifeline merger
would provide holders of Lifeline common stock with the opportunity to
receive a significant premium over the price at which Lifeline common stock
was trading in the months prior to execution of the merger agreement.
(b) The fact that the mergers would provide holders of Lifeline common
stock with the opportunity to achieve some current liquidity through a
partial cash payment while retaining an equity interest in the combined
company.
(c) The relatively lower risk that Protection One could elect not to
proceed with the transaction because of the limited conditions to
Protection One's obligation to consummate the Lifeline merger and the
limited circumstances under which Protection One can terminate the merger
agreement. See "The Merger Agreement -- Certain Covenants -- Fees and
Expenses" on page 67, "-- Conditions to the Mergers" on page 68 and
"-- Termination of the Merger Agreement" on page 69.
(d) The fact that Lifeline would be able to terminate the merger
agreement to accept an unsolicited proposal deemed more favorable by the
Lifeline board of directors under specified circumstances, while the merger
agreement prohibits Lifeline, its subsidiaries and others on their behalf
from soliciting, initiating or knowingly encouraging or facilitating any
inquiries or proposals that constitute or would reasonably be expected to
lead to an Acquisition Proposal (as defined herein under "The Merger
Agreement -- Certain Covenants -- Conduct of Business Pending the Mergers"
beginning on page 65) or entering into or maintaining or continuing
discussions or negotiating with any person regarding an Acquisition
Proposal or agreeing to endorse any Acquisition Proposal. The merger
agreement permits Lifeline, subject to confidentiality provisions, to
furnish non-public information to, and to enter into discussions or
negotiations with, any person that makes an unsolicited, bona fide written
proposal to acquire Lifeline pursuant to a merger, consolidation, share
exchange, business combination, tender or exchange offer or other similar
transaction, and to terminate the merger agreement upon the payment of a
$5.5 million termination fee to Protection One.
(e) The treatment of the Lifeline stock exchanged for Protection One
stock in the Lifeline merger as a "tax-free exchange" for federal income
tax purposes, allowing Lifeline stockholders the opportunity to defer tax
on some of the gain to be received. See "The Mergers -- Material Federal
Income Tax Consequences of the Merger" beginning on page 60.
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- The opinion of BT Alex. Brown to the effect that, as of the date of its
opinion and based upon and subject to certain matters stated therein, the
consideration to be received in the Lifeline merger was fair to holders
of Lifeline common stock from a financial point of view, which opinion
was adopted by the Lifeline board of directors. For a more detailed
discussion of the opinion of BT Alex. Brown, we urge you to read the text
under the caption "The Mergers -- Opinion of Financial Advisor to the
Board of Directors of Lifeline" beginning on page 54. The full text of BT
Alex. Brown's written opinion, which sets forth the assumptions made,
matters considered and limitations on review undertaken by BT Alex. Brown
is attached hereto as Annex C and is incorporated herein by reference.
Lifeline stockholders are urged to read the opinion of BT Alex. Brown in
its entirety.
- Historical and pro forma information concerning the financial performance
and condition, business operations and prospects of each of Lifeline and
Protection One as separate entities and on a pro forma combined basis,
with anticipated benefits to be derived from operating on a combined
basis.
- The risk to Lifeline stockholders of continuing as a free-standing public
enterprise given the relatively small size of Lifeline in the overall
healthcare marketplace and the possibility that a larger and better
capitalized healthcare, telecommunications or other company might become
a significant competitor, as well as the volatility of the equity
markets. In particular, even slight revenue or earnings shortfalls to
analyst forecasts could have a significant adverse effect upon Lifeline's
stockholder value.
- The fact that Lifeline is expected to be operated separately and remain
headquartered in Massachusetts, without any significant reduction in
employment opportunities for Lifeline employees.
- The greater liquidity Lifeline stockholders would be afforded by holding
Protection One common stock.
- The opportunity that Lifeline stockholders would be able to vote on
whether to approve and adopt the Lifeline merger and would be entitled to
appraisal rights if they objected to the terms of the Lifeline merger.
The Lifeline board of directors also considered factors deemed to be
negative relating to the Lifeline merger, including:
- The risk that the benefits sought in the Lifeline merger would not be
fully achieved, which might have the effect of adversely affecting the
market value of the Protection One common stock received in the Lifeline
merger.
- The fact that the merger agreement requires Lifeline to pay Protection
One a termination fee of $5.5 million and reimburse Protection One for
$1.0 million in out-of-pocket expenses under certain circumstance as
described under the "Merger Agreement -- Certain Covenants -- Fees and
Expenses" on page 67, and the provisions of the option agreement that
permit Protection One, under certain circumstances as described under
"Related Agreements and Transactions -- Stock Option Agreement" beginning
on page 72 to purchase up to 1,159,410 shares of Lifeline common stock at
a cash purchase price of $29.00 per share. Although the Lifeline board of
directors initially resisted the grant of the option and sought to
decrease the amount of the termination fee, the Lifeline board of
directors determined that the negative features of the option and
termination fee were outweighed by the benefits to be derived from the
consummation of the Lifeline merger.
- The risk that the Lifeline merger would not be consummated, and the
effect of the public announcement of the Lifeline merger on the employees
and customers of
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Lifeline. In evaluating this risk, the Lifeline board of directors
considered the limited circumstances under which Protection One could
terminate the merger agreement and the fact that Lifeline was expected to
be operated separately and therefore the impact on Lifeline's
relationships with its current and prospective employees and customers
should be minimized.
- The risk that the trading price of Protection One common stock may be
adversely affected by the announcement of the Lifeline merger or
otherwise, and that decreases in such price might not be fully reflected
in changes in the exchange ratio. The Lifeline board of directors
determined that the premium reflected in the proposed transaction over
historical market prices for Lifeline common stock and the much smaller
relative size of Lifeline mitigated these risks.
- The fact that Western Resources would own a controlling interest in
Protection One following the consummation of the Lifeline merger.
However, the Lifeline board of directors also considered the fact that
the common stock of Protection One was publicly traded and as such
Protection One would be subject to certain provisions of applicable
securities laws designed to protect investors.
The foregoing sets forth the material factors considered by the Lifeline
board of directors in its consideration of the Lifeline merger.
In view of the wide variety of factors, both positive and negative,
considered by the Lifeline board of directors, the Lifeline board of directors
did not find it practical to, and did not, quantify or otherwise assign relative
weights to the specific factors considered. The determination was made after
consideration of all of the factors as a whole. In addition, individual
directors of Lifeline may have given different weights to different factors.
OPINION OF FINANCIAL ADVISOR TO THE BOARD OF DIRECTORS OF LIFELINE
Lifeline engaged BT Alex. Brown to act as its exclusive financial advisor
in connection with the Lifeline merger based on BT Alex. Brown's reputation,
experience and expertise in similar transactions. On October 18, 1998, at a
meeting of the Lifeline board of directors held to evaluate the proposed
Lifeline merger, BT Alex. Brown rendered to the Lifeline board of directors an
oral opinion (which opinion was subsequently confirmed by delivery of written
opinions dated October 18, 1998 and , 1999) to the effect that, as
of such date and based upon and subject to certain matters stated in such
opinions, the consideration to be received by holders of Lifeline common stock
in the Lifeline merger was fair, from a financial point of view, to the holders
of Lifeline common stock. No limitations were imposed by the Lifeline board of
directors upon BT Alex. Brown with respect to the investigations made or the
procedures followed by it in rendering its opinions.
A SIGNIFICANT PORTION OF BT ALEX. BROWN'S COMPENSATION IS DEPENDENT ON THE
CONSUMMATION OF THE PROPOSED MERGER.
The full text of the written opinion of BT Alex. Brown dated as of ,
1999, which sets forth the assumptions made, matters considered and limitations
of the review undertaken, is attached as Annex C to this prospectus and is
incorporated herein by reference. BT ALEX. BROWN'S OPINION IS DIRECTED TO THE
LIFELINE BOARD OF DIRECTORS, ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO
BE RECEIVED BY HOLDERS OF LIFELINE COMMON STOCK IN THE LIFELINE MERGER FROM A
FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE LIFELINE SPECIAL
MEETING OR AS TO WHETHER SUCH STOCKHOLDER SHOULD ELECT TO RECEIVE ADDITIONAL
SHARES OF NEW PROTECTION ONE COMMON STOCK IN LIEU OF SOME OR ALL OF THE CASH
CONSIDERATION TO BE RECEIVED BY SUCH STOCKHOLDER. The summary of the opinion of
BT Alex. Brown in this prospectus is qualified in its entirety by reference to
the full text of such opinion.
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In connection with its opinion, BT Alex. Brown reviewed certain publicly
available financial information and other information concerning Lifeline and
Protection One and certain internal analyses and other information furnished to
BT Alex. Brown by Lifeline and Protection One. BT Alex. Brown also held
discussions with members of the senior management of Lifeline and Protection One
regarding the business and prospects of their respective companies and the joint
prospects of a combined company. In addition, BT Alex. Brown
- reviewed the reported prices and trading activity for the Lifeline common
stock and the Protection One common stock
- compared certain financial and stock market information for Lifeline and
Protection One with similar information for certain other companies whose
securities are publicly traded
- reviewed the financial terms of certain recent business combinations
which BT Alex. Brown deemed comparable in whole or in part
- reviewed the terms of the merger agreement and
- performed such other studies and analyses and considered such other
factors as BT Alex. Brown deemed appropriate.
As described in its opinion, BT Alex. Brown has not independently verified
the information described above and for purposes of its opinion has assumed the
accuracy, completeness and fairness thereof. With respect to the information
relating to the prospects of Lifeline and Protection One, BT Alex. Brown assumed
that such information reflects the best currently available judgments and
estimates of the management of Lifeline and Protection One, as the case may be,
as to the matters covered thereby. In addition, BT Alex. Brown has not made an
independent evaluation or appraisal of the assets or liabilities of Lifeline or
Protection One, nor has it been furnished with any such evaluation or appraisal.
BT Alex. Brown has assumed that the Lifeline merger will qualify as a tax-free
exchange under Section 351 of the Internal Revenue Code of 1986, as amended. BT
Alex. Brown's opinion is based on market, economic and other conditions as they
exist and can be evaluated as of the date of its opinion letter.
The following is a summary of the material analyses included within the
report presented by BT Alex. Brown to the Lifeline board of directors in
connection with its opinion dated October 18, 1998:
Analysis of Selected Public Companies. BT Alex. Brown compared certain
financial and stock market information for Lifeline and Protection One with
similar information for the following selected publicly held companies. In the
case of Lifeline, BT Alex. Brown reviewed information regarding APAC
TeleServices, Inc., Precision Response Corporation, SITEL Corporation, Sykes
Enterprises, Incorporated, TeleSpectrum Worldwide Inc., TeleTech Holdings, Inc.
and West TeleServices Corporation (the "Lifeline Selected Companies"). In the
case of Protection One, BT Alex. Brown reviewed information regarding Adelphia
Communications, Cablevision Systems, Jones Intercable, Inc. and TCA Cable TV,
Inc. (the "Protection One Selected Companies") and Pittston Brink's Group
("Pittston Brink's").
For Lifeline and the Lifeline Selected Companies, BT Alex. Brown calculated
equity market value relative to each company's calendar year 1998 and 1999
earnings per share ("EPS"), and adjusted market values (equity market value plus
debt less cash and equivalents) relative to each company's latest twelve months
("LTM") revenues and earnings before interest, taxes, depreciation and
amortization ("EBITDA"). BT Alex. Brown compared these multiples to the implied
multiples for Lifeline in the Lifeline merger. All multiples were based on
closing stock prices on October 16, 1998. EPS estimates for the Lifeline
Selected Companies were based on analysts' estimates as reported by I/B/E/S, a
market research database. EPS estimates for Lifeline were based on Lifeline
management estimates. For the Lifeline Selected Companies, this analysis
indicated multiples of LTM revenues of 0.5x to 1.9x,
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with a mean of 1.3x, compared to 3.0x for Lifeline; multiples of LTM EBITDA of
4.8x to 12.6x, with a mean of 8.8x, compared to 14.3x for Lifeline; multiples of
calendar year 1998 EPS of 16.1x to 27.9x, with a mean of 20.1x compared to 32.4x
for Lifeline; and multiples of calendar year 1999 EPS of 5.8x to 20.2x, with a
mean of 13.2x compared to 27.1x for Lifeline.
For Protection One and the Protection One Selected Companies, BT Alex.
Brown calculated adjusted market values relative to each company's LTM and
latest quarter annualized ("run-rate") EBITDA. This analysis indicated LTM and
run-rate EBITDA multiples for the Protection One Selected Companies of 12.4x to
18.0x, with a mean of 14.2x and 11.2x to 18.3x, with a mean of 13.8x,
respectively. These multiples were compared to Protection One trading multiples
of LTM EBITDA and run-rate EBITDA of 16.0x and 12.2x, respectively. For
Protection One and Pittston Brink's, BT Alex. Brown calculated adjusted market
values relative to each company's run-rate EBITDA and monthly recurring revenue.
BT Alex. Brown also calculated adjusted market value per subscriber for each
company and calculated each company's expected growth in EBITDA in calendar year
1999 based on analysts' research reports. These analyses yielded multiples of
run-rate EBITDA and monthly recurring revenue of 7.1x and 68.7x, respectively,
for Pittston Brink's, compared to 12.2x and 72.0x, respectively, for Protection
One. These analyses yielded enterprise value per subscriber and projected
calendar year 1999 EBITDA growth of $1,753 and 13%, respectively, for Pittston
Brink's, compared to $1,514 and 34%, respectively, for Protection One.
Analysis of Selected Merger and Acquisition Transactions. BT Alex. Brown
reviewed the purchase price and implied transaction multiples paid in the
following seven merger and acquisition transactions (acquiror/target): APAC
TeleServices, Inc./ITI Marketing Services, Inc.; HBO & Company/National Health
Enhancement Systems, Inc.; Tyco International Ltd./ ADT Limited; SITEL
Corporation/Tele-Action, S.A.; SITEL Corporation/Mitre Plc; TeleTech Holdings,
Inc./Access 24 Service Corporation Pty Limited; and ADT Limited/Alert Centre,
Inc. (collectively, the "Selected Merger and Acquisition Transactions"). For the
Selected Merger and Acquisition Transactions, this analysis indicated multiples
of LTM revenues of 0.9x to 3.6x (with a mean of 2.2x) compared to 3.0x for
Lifeline, multiples of LTM EBITDA of 8.8x to 23.1x (with a mean of 13.7x)
compared to 14.3x for Lifeline, and multiples of LTM net income of 11.8x to
68.7x (with a mean of 34.2x) compared to 35.4x for Lifeline.
Premiums Paid Analysis. BT Alex. Brown reviewed the range of premiums paid
in 203 change-of-control transactions with transaction values of $100 million to
$250 million involving non-finance companies. These transactions indicated a
range of premiums, based on the target company's stock price one-month prior of
(51.7)% to 540% (with a mean of 41.4% and a median of 34.5%) and one-day prior
of (42.6)% to 189.2% (with a mean of 25.7% and a median of 20.0%). The premiums
payable in the Lifeline merger based on the closing stock price of Lifeline
common stock one-month prior, and one-day prior, to public announcement of the
Lifeline merger were 52.3% and 31.5%, respectively.
Discounted Cash Flow Analysis. BT Alex. Brown performed a discounted cash
flow analysis of Lifeline to estimate the present value of the stand-alone,
unlevered, after-tax free cash flows that Lifeline could generate over the
periods January 1, 1999 through December 31, 2003 based on the estimates of the
management of Lifeline. The discounted cash flow analysis was determined by (i)
adding (x) the present value at December 31, 1998 of Lifeline's projected free
cash flows over the five-year period from January 1, 1999 through December 31,
2003 and (y) the present value of the terminal value for Lifeline in 2003, and
(ii) adding the projected net cash of Lifeline at December 31, 1998. The range
of estimated terminal values for Lifeline at the end of 2003 was calculated by
applying terminal value multiples ranging from 8.0x to 10.0x to the projected
2003 EBITDA of Lifeline, representing the estimated values of Lifeline beyond
the year 2003. The cash flows and terminal values of Lifeline were discounted to
present value using discount rates ranging from 12.0% to 16.0%. This analysis
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yielded equity reference ranges for Lifeline common stock of $26.26 to $36.76
per share. BT Alex. Brown also performed a similar analysis based on alternative
estimates for the performance of Lifeline provided by Lifeline's management,
including lower estimates of net revenue growth and EBITDA growth for the next
four years. This analysis yielded equity reference ranges for Lifeline common
stock of $20.89 to $28.86 per share.
Accretion/Dilution Analysis. BT Alex. Brown analyzed the pro forma effect
of the Lifeline merger on the after-tax cash flow (defined as net income plus
depreciation and amortization) of Protection One in calendar year 1999, based,
in the case of Lifeline, on the estimates of the management of Lifeline and, in
the case of Protection One, on estimates of equity research analysts, both
before and after giving effect to certain cost savings and other potential
synergies anticipated by the management of Lifeline and Protection One to result
from the Lifeline merger (excluding non-recurring costs resulting from the
Lifeline merger). BT Alex. Brown performed sensitivity analyses on the accretion
or dilution to Protection One's after-tax cash flow for a range of cost savings
and other potential synergies between $0 and $10 million. This analysis
indicated that the Lifeline merger would be dilutive to Protection One's
after-tax cash flow in calendar year 1999 without giving effect to cost savings
and other potential synergies. This analysis also indicated that the Lifeline
merger would be accretive to Protection One's after-tax cash flow in calendar
year 1999 assuming certain levels of cost savings and other potential synergies
were achieved. Depending on the Average Closing Price (as defined below) of
Protection One shares, pre-tax cost savings and other potential synergies
necessary for no dilution to Protection One's after-tax cash flow ranged from
approximately $6 million to more than $10 million. The actual operating or
financial results achieved by the pro forma combined company may vary from
projected results and variations may be material as a result of business and
market risks, the timing and amount of synergies, the cost associated with
achieving such synergies and other factors.
The summary set forth above describes the material portions of the opinion
of BT Alex. Brown to the Lifeline board of directors, but does not purport to be
a complete description of such opinion or the financial analyses performed and
factors considered by BT Alex. Brown in connection with its opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. BT Alex. Brown believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting portions of the above
summary, without considering all factors and analyses, could create a misleading
or incomplete view of the processes underlying such analyses and opinion. In
performing its analyses, BT Alex. Brown made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Lifeline
and Protection One, including, among others, assumptions relating to the
continuation of general levels of economic activity, continued relative
stability in the capital markets and the continued viability of the industries
in which Lifeline and Protection One operate. No company, transaction or
business used in such analyses as a comparison is identical to Lifeline,
Protection One, or the proposed Lifeline merger, nor is an evaluation of the
results of such analyses entirely mathematical; rather, such analyses involve
complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, businesses or transactions being
analyzed. The estimates contained in such analyses and the ranges of valuations
resulting from any particular analysis are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
those suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial
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uncertainty. BT Alex. Brown's opinion and financial analyses were only one of
many factors considered by the Lifeline board of directors in its evaluation of
the proposed Lifeline merger and should not be viewed as determinative of the
views of the Lifeline board of directors or Lifeline's management with respect
to the consideration or the Lifeline merger.
Lifeline selected BT Alex. Brown to serve as its exclusive financial
advisor based on BT Alex. Brown's reputation, experience and expertise in
similar transactions. BT Alex. Brown is an internationally recognized investment
banking firm and, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. In the ordinary course of
business, BT Alex. Brown may actively trade the securities of Lifeline,
Protection One or Western Resources for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to a letter agreement dated March 20, 1998, between Lifeline and
BT Alex. Brown, Lifeline has agreed to pay BT Alex. Brown $500,000 for rendering
its opinion, which amount will be credited against a transaction fee equal to
1.0% of the consideration payable upon consummation of the Lifeline merger, or
approximately $1.9 million. These fees were determined by mutual negotiation and
agreement between Lifeline and BT Alex. Brown. In addition, Lifeline has agreed
to reimburse BT Alex. Brown for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of counsel, and to indemnify BT Alex. Brown
and certain related parties against certain liabilities, including certain
liabilities under the federal securities laws, relating to, or arising out of,
its engagement.
APPRAISAL AND DISSENTERS' RIGHTS
The holders of Protection One common stock do not have appraisal rights
under the Delaware General Corporation Law as a result of the mergers. If the
Lifeline merger becomes effective, any Lifeline stockholder who does not vote
his, her or its shares of Lifeline common stock in favor of the Lifeline merger
and who follows the procedures prescribed under Chapter 156B of the General Laws
of the Commonwealth of Massachusetts may require Lifeline (as it exists after
the effective time of the Lifeline merger as the surviving corporation) to pay
the fair value, as determined in accordance with Massachusetts Law, for those
shares held by the dissenting stockholder. The following is a summary of
features of the relevant Massachusetts law, the statutory provisions of which
are set forth in full in Annex B annexed hereto. In order to exercise statutory
appraisal rights, strict adherence to the statutory provisions is required, and
each stockholder who may desire to exercise these rights should carefully review
and follow those provisions.
A dissenting stockholder who desires to exercise his appraisal rights must:
- file a written objection to the Lifeline merger with Lifeline before the
stockholders' vote on approval of the merger agreement at the Lifeline
special meeting, stating the dissenting Lifeline stockholder's intention
to demand payment for his, her or its dissenting shares if the merger
agreement is approved and the merger is consummated
- not vote his, her or its shares in favor of the merger agreement and
- within twenty days of the date of mailing of a notice by Lifeline to
objecting stockholders that the Lifeline merger has become effective,
make written demand to Lifeline for payment for the shares held by the
dissenting stockholder. The written objection must be delivered to
Lifeline Systems, Inc., 111 Lawrence Street, Framingham, Massachusetts,
01702, Attention: Vice President, Finance. It is recommended that any
objection and demand be sent by registered or certified mail, return
receipt requested.
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A dissenting Lifeline stockholder who files the required written objection
with Lifeline prior to the Lifeline special meeting need not vote against the
merger agreement. Any Lifeline stockholder who does not file the written
objection or who votes in favor of the merger agreement will waive his, her or
its appraisal rights. LIFELINE STOCKHOLDERS SHOULD NOTE THAT RETURNING A
PROPERLY SIGNED PROXY CARD THAT DOES NOT INDICATE A VOTE OR ABSTENTION ON
APPROVAL OF THE MERGER AGREEMENT WILL CONSTITUTE A VOTE IN FAVOR OF THE MERGER
AGREEMENT. A VOTE AGAINST THE MERGER AGREEMENT DOES NOT, ALONE, CONSTITUTE A
WRITTEN OBJECTION. IN ACCORDANCE WITH MASSACHUSETTS LAW, NOTICE THAT THE
LIFELINE MERGER HAS BECOME EFFECTIVE WILL BE SENT TO EACH DISSENTING STOCKHOLDER
WITHIN TEN DAYS AFTER THE DATE ON WHICH THE LIFELINE MERGER BECOMES EFFECTIVE.
The value of the Lifeline common stock will be determined initially by
Lifeline, as it exists following the merger, and the dissenting stockholder. If,
during the period of 30 days after the expiration of the period during which the
foregoing demand for payment may be made, Lifeline and the Lifeline stockholder
fail to agree on an appraisal value, either of them may file a bill in equity in
the Superior Court of Middlesex County, Massachusetts asking that the court
determine the value of the Lifeline common stock of all dissenting stockholders.
The bill in equity must be filed within four months after the date of expiration
of the foregoing thirty-day period. After a hearing, the court will determine
the fair value of the Lifeline common stock and will order Lifeline to make
payment of such value, with interest, if any, to the Lifeline stockholders
entitled to such payment, upon transfer by them to Lifeline of the certificate
or certificates representing their Lifeline common stock. Although Lifeline and
Protection One believe it is unlikely, they have made no decision whether or not
the surviving company would file such a bill in equity in Superior Court if no
agreement on value is reached. If it does not, any dissenting stockholder with
whom agreement has not been reached will likely be required to incur the expense
of initiating an appraisal proceeding.
For appraisal proceeding purposes, value is determined as of the day before
the approval of the merger agreement by Lifeline stockholders, excluding any
element of value arising from the expectation or accomplishment of the Lifeline
merger.
If a Lifeline stockholder withdraws his, her or its demand for appraisal or
fails to establish entitlement to appraisal rights under Massachusetts law, such
Lifeline stockholder will forfeit the right to appraisal and his, her or its
shares of Lifeline common stock will be deemed to have been converted into the
right to receive shares of New Protection One common stock as of the effective
time of the Lifeline merger, without interest.
Under Massachusetts statutory law, procedures relating to dissenters'
rights are stated to be the exclusive remedy available to a stockholder
objecting to the Lifeline merger except upon the grounds that the Lifeline
merger will be or is illegal or fraudulent as to a dissenting stockholder.
However, under Massachusetts case law, dissenting stockholders may not be
limited to the statutory remedy of judicial appraisal where violations of
fiduciary duty are found.
The law pertaining to the statutory appraisal remedy also contains
provisions regarding costs, dividends on dissenting shares, rights under
dissenting shares prior to purchase, discontinuance of dissenters' rights, and
other miscellaneous matters. See Annex B.
ACCOUNTING TREATMENT
The Lifeline merger will be accounted for under the purchase method of
accounting, in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of Lifeline, including
direct costs of the mergers, will be allocated to the assets acquired and
liabilities assumed based upon their estimated relative fair values, with the
excess purchase consideration allocated to goodwill. The conversion of
Protection One common stock into New Protection One common stock will be treated
as a
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reorganization with no change in the recorded amount of Protection One's assets
and liabilities. The historical financial statements of Protection One will
become the financial statements of New Protection One. The results of New
Protection One's operations will include the results of operations of Lifeline
from the date of the completion of the mergers.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
The following is a discussion of the material federal income tax
consequences of the mergers and is based on the opinions of Weil, Gotshal &
Manges LLP, counsel to Protection One, and Hale and Dorr LLP, counsel to
Lifeline. These opinions are based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing regulations thereunder,
current administrative rulings and interpretations, and current judicial
decisions. All of the foregoing are subject to change at any time, possibly with
retroactive effect. The discussion set forth below does not address all aspects
of federal income taxation that may be relevant to a stockholder in light of
that stockholder's particular circumstances or to stockholders subject to
special rules under the federal income tax laws, such as non-United States
persons, financial institutions, tax-exempt organizations, insurance companies,
dealers in securities, stockholders under the jurisdiction of a court in a title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code or
stockholders who acquired their Protection One or Lifeline shares pursuant to
the exercise of employee stock options, employee stock purchase plans or
otherwise as compensation, nor any consequences arising under the laws of any
state, locality or foreign jurisdiction. This discussion assumes that holders of
Protection One common stock and holders of Lifeline common stock hold their
respective shares of stock as capital assets within the meaning of Section 1221
of the Code.
None of Protection One, Lifeline or New Protection One intends to secure a
ruling from the Internal Revenue Service with respect to the tax consequences of
the mergers. Protection One has received an opinion from its counsel, Weil,
Gotshal & Manges LLP, to the effect that the Protection One merger will qualify
as an exchange within the meaning of Section 351 of the Code and a
reorganization within the meaning of Section 368 of the Code. Accordingly, no
gain or loss will be recognized by New Protection One, Protection One or P-1
Merger Sub (Delaware) as a result of the Protection One merger and no gain or
loss will be recognized by holders of Protection One common stock as a result of
the receipt of New Protection One common stock pursuant to the Protection One
merger. Lifeline has received an opinion from its counsel, Hale and Dorr LLP, to
the effect that the Lifeline merger will qualify as an exchange within the
meaning of Section 351 of the Code. Accordingly, no gain or loss will be
recognized by Lifeline as a result of the Lifeline merger and no gain or loss
will be recognized by holders of Lifeline common stock as a result of the
receipt of New Protection One common stock pursuant to the Lifeline merger
except:
- gain realized, if any, will be recognized to the extent of the cash
consideration (as described in the text under the caption "The Merger
Agreement -- Conversion of Lifeline Common Stock" beginning on page 63)
received,
- gain or loss may be recognized with respect to the cash received in lieu
of fractional shares and
- gain or loss may be recognized with respect to the cash received by
holders who properly exercise their appraisal rights.
In rendering their opinions, counsel to each of Protection One and Lifeline have
relied upon representations made by New Protection One, Protection One, Lifeline
and Westar Capital.
Tax Implications to Protection One stockholders. No gain or loss will be
recognized for federal income tax purposes by holders of Protection One common
stock who exchange their Protection One common stock for New Protection One
common stock pursuant to the Protection One merger.
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The aggregate tax basis of New Protection One common stock received as a
result of the Protection One merger will be the same as the stockholder's
aggregate tax basis in the Protection One common stock surrendered in the
exchange. The holding period of the New Protection One common stock held by
holders of Protection One common stock as a result of the exchange will include
the period during which such stockholders held the Protection One common stock
exchanged.
Tax Implications to Lifeline stockholders. No gain or loss will be
recognized for federal income tax purposes by holders of Lifeline common stock
who exchange their Lifeline common stock for New Protection One common stock
pursuant to the Lifeline merger except:
- gain realized, if any, will be recognized to the extent of the cash
consideration received,
- gain or loss may be recognized with respect to cash received in lieu of
fractional shares as discussed below and
- gain or loss may be recognized with respect to the cash received by
holders who properly exercise their appraisal rights.
In the case of the first bulleted clause of the preceding paragraph, gain
will be measured by the excess of the sum of the fair market value of the New
Protection One common stock received plus the cash consideration over the tax
basis of the shares of Lifeline common stock exchanged in the Lifeline merger
(excluding the basis allocable to fractional shares for which cash is received).
Any such gain will be recognized to the extent of the cash consideration
received and will be long-term capital gain if the shares of Lifeline common
stock have been held for more than one year at the effective time of the
Lifeline merger.
Cash received in lieu of fractional share interests will be treated as
received in exchange for a fractional share of New Protection One common stock.
Gain or loss recognized on such exchange will be measured by the difference
between the amount of cash received and the portion of the tax basis in the
shares of the Lifeline common stock surrendered that is allocable to such
fractional share. Such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if such fractional share of New Protection One
common stock is considered to have been held for more than one year at the
effective time of the Lifeline merger.
Cash received by a holder of Lifeline common stock in satisfaction of
appraisal rights will result in the recognition of gain or loss for federal
income tax purposes, measured by the difference between the amount of cash
received and the basis of the Lifeline common stock surrendered. Such gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
the Lifeline common stock had been held for more than one year at the effective
time of the Lifeline merger.
The aggregate tax basis of New Protection One common stock received as a
result of the Lifeline merger will be the same as the stockholder's aggregate
tax basis in the Lifeline common stock surrendered in the exchange, decreased by
the basis allocable to fractional shares for which cash is received in the
Lifeline merger and by the amount of the cash consideration, and increased by
the amount of gain recognized on the exchange. The holding period of the New
Protection One common stock held by holders of Lifeline common stock as a result
of the exchange will include the period during which such stockholder held the
Lifeline common stock exchanged.
Under the Code, a holder of Lifeline common stock may be subject, under
certain circumstances, to backup withholding at a rate of 31% with respect to
any cash consideration received, cash received in lieu of fractional share
interests or cash received upon the exercise of appraisal rights pursuant to the
Lifeline merger unless such holder provides proof of an applicable exemption or
a correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholdings rules. Any amounts withheld under the
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backup withholding rules are not an additional tax and may be refunded or
credited against the holder's federal income tax liability, provided the
required information is furnished to the Internal Revenue Service.
Tax Implications to New Protection One, Protection One, Lifeline and the
Protection One merger subsidiaries. No gain or loss will be recognized for
federal income tax purposes by New Protection One, Protection One, Lifeline, P-1
Merger Sub (Delaware) or P-1 Merger Sub (Massachusetts) as a result of the
mergers.
We urge stockholders to consult their own tax advisors as to the particular
tax consequences to them of the mergers including the applicability and effect
of foreign, state, local and other tax laws and the effect of any proposed
changes in the tax laws.
STOCK EXCHANGE LISTING
New Protection One has applied for the listing of New Protection One common
stock on the New York Stock Exchange under the symbol "POI". It is a condition
to the mergers that the shares of New Protection One common stock to be issued
to Lifeline stockholders in connection with the Lifeline merger shall have been
approved for listing on the New York Stock Exchange or the Nasdaq Stock Market,
subject only to official notice of issuance.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of New Protection One common stock received by Protection One
and Lifeline stockholders in the mergers will be freely transferable, except
that shares of New Protection One common stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
Protection One or Lifeline prior to the mergers may be resold by them only in
transactions permitted by the resale provisions of Rule 145 promulgated under
the Act (or Rule 144 in the case of such persons who become affiliates of New
Protection One) or as otherwise permitted under the Act. Persons who may be
deemed to be affiliates of Protection One, Lifeline or New Protection One
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party. Certain
directors and officers of Lifeline will deliver a letter agreement to the effect
that such person will not offer or sell or otherwise dispose of any of the
shares of New Protection One common stock issued to such persons in or pursuant
to the mergers in violation of the Securities Act or the rules and regulations
promulgated by the SEC thereunder.
FINANCING THE MERGERS
It is expected that the total cash to be paid to stockholders of Lifeline
will be funded through the use of cash or cash equivalents and short-term
investments of Protection One and Lifeline available at the time such cash is
paid and through new borrowings. The amount of cash to be paid to each
stockholder of Lifeline will depend on the stated preferences of the Lifeline
stockholders on the stock election form and letter of transmittal, cash paid in
lieu of fractional shares of New Protection One common stock and cash paid in
respect of any shares of Lifeline held by stockholders who exercise appraisal
rights under Massachusetts law. Therefore, the amount of cash to be funded
cannot now be determined. See "The Merger Agreement -- Conversion of Lifeline
common stock" beginning on page 63. It is currently expected that any new
borrowings to fund the cash to be paid to stockholders of Lifeline will be made
through borrowings in the bank borrowings, borrowings from private or public
lenders, or through a combination of the foregoing.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Amended and
Restated Agreement and Plan of Contribution and Merger, dated as of October 28,
1998, between Lifeline, Protection One, New Protection One, P-1 Merger Sub,
Inc., a Massachusetts corporation and wholly owned subsidiary of New Protection
One, and P-1 Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of New Protection One, a copy of which is attached hereto as Appendix
A, and incorporated herein by reference. The following summary is qualified in
its entirety by reference to the text of the merger agreement.
THE MERGERS
The Delaware and Massachusetts subsidiaries of New Protection One will be
merged into Protection One and Lifeline, respectively, pursuant to the terms and
conditions of the merger agreement. Each of Protection One and Lifeline will
become a wholly owned subsidiary of New Protection One following the mergers.
The parties chose a holding company structure to effect the mergers to provide
flexibility with respect to future financings and acquisitions, as well as to
provide the parties a tax efficient structure for consummating the mergers.
The closing of the mergers will take place within three business days
following the Lifeline special meeting or on such other date that the parties
agree upon subject to the conditions set forth in the merger agreement. The
mergers will become effective at the time specified in the certificate of merger
filed with the Secretary of State of the State of Delaware with respect to the
Protection One merger and at the time specified in the articles of merger filed
with the Secretary of State of the Commonwealth of Massachusetts with respect to
the Lifeline merger.
CONVERSION OF PROTECTION ONE COMMON STOCK
At the effective time of the mergers, pursuant to the terms of the merger
agreement:
- each issued and outstanding share of Protection One common stock, other
than shares held by New Protection One, Protection One or the Delaware
merger subsidiary, will be converted into one share of New Protection One
common stock, and upon such conversion all such shares of Protection One
common stock will be canceled and retired and will cease to exist and
- all shares of Protection One common stock held by New Protection One,
Protection One or the Delaware merger subsidiary will be canceled and
retired and will cease to exist without payment of any consideration
therefor.
CONVERSION OF LIFELINE COMMON STOCK
At the effective time of the mergers, each share of Lifeline common stock,
other than shares held or owned by New Protection One, its merger subsidiaries
or Lifeline and shares with respect to which dissenters' rights are properly
exercised, together with the associated rights issued or issuable pursuant to
the Rights Agreement dated as of July 24, 1998 between Lifeline and State Street
Bank and Trust Company, as amended, shall be cancelled and extinguished and
shall be converted into and become a right to receive, without interest:
- (subject to the proviso set forth below) $14.50 in cash
- the number of shares of New Protection One common stock equal to the
merger exchange ratios and
- cash in lieu of fractional shares.
However, each holder of Lifeline common stock shall be entitled to elect to
receive, in lieu of all or any part of the cash consideration, additional shares
of New Protection One common
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stock in an amount equal to the portion of the cash consideration with respect
to which the election is made divided by the greater of the Average Closing
Price and $9.50.
The merger exchange ratio is calculated as follows:
- 1.7857 if the Average Closing Price is less than $7.00
- the quotient obtained by dividing (x) $12.50 by (y) the Average Closing
Price, if the Average Closing Price is equal to or greater than $7.00 but
less than $8.19
- 1.5263 if the Average Closing Price is equal to or greater than $8.19 but
less than $9.50
- the quotient obtained by dividing (x) $14.50 by (y) the Average Closing
Price, if the Average Closing Price is equal to or greater than $9.50 but
less than $11.00 and
- 1.3182 if the Average Closing Price is equal to or greater than $11.00.
The term "Average Closing Price" means the average of the closing prices of
Protection One common stock on the New York Stock Exchange (as reported in The
Wall Street Journal or, if not reported thereby, any other authoritative source)
during the ten most recent trading days on which shares of Protection One common
stock actually traded ending three trading days prior to the date on which
stockholders of Lifeline approve the Lifeline merger.
IN ORDER TO RECEIVE STOCK IN LIEU OF ANY OR ALL OF THE CASH CONSIDERATION,
EACH LIFELINE STOCKHOLDER MUST MAKE AN ELECTION ON THE FORM INCLUDED WITH THIS
PROSPECTUS TO RECEIVE SUCH ADDITIONAL SHARES OF NEW PROTECTION ONE COMMON STOCK.
YOU DO NOT NEED TO COMPLETE THE ELECTION FORM, UNLESS YOU ARE MAKING A STOCK
ELECTION. UNLESS YOU ARE MAKING A STOCK ELECTION, DO NOT SEND YOUR LIFELINE
STOCK CERTIFICATES AT THIS TIME.
EXCHANGE OF CERTIFICATES
As of the effective time of the mergers, a bank or trust company shall act
as exchange agent in effecting the exchange, for the Lifeline merger
consideration, of certificates that, prior to the effective time of the mergers,
represented Lifeline common stock entitled to be exchanged. Promptly after the
effective time of the mergers (but in any event within three business days
thereof), New Protection One shall cause to be mailed to each record holder of
such certificates a form of letter of transmittal and instructions for use in
surrendering such certificates and receiving the Lifeline merger consideration
therefor. Subject to any applicable withholding tax requirements, upon the
surrender of each such certificate, together with a duly completed and executed
letter of transmittal, the exchange agent shall (x) pay to the holder of such
certificate cash equal to the amount of cash due such holder after giving effect
to any election made by such holder and (y) issue to such holder a certificate
for that number of shares of New Protection One common stock equal to the number
of shares of New Protection One common stock due to such holder; such
certificate representing Lifeline common stock shall forthwith be cancelled.
Each such certificate (other than certificates representing Lifeline common
stock held by New Protection One) shall represent solely the right to receive
the Lifeline merger consideration therefor until so surrendered and exchanged.
Protection One stockholders are not required to exchange their certificates
representing shares of Protection One common stock. Under the merger agreement,
such certificates shall automatically represent the same number of shares of New
Protection One common stock.
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REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by each of
Protection One, New Protection One, its merger subsidiaries and Lifeline as to,
among other things:
- their respective corporate organizations and qualification to do business
- their respective capitalizations
- their respective abilities to enter into and consummate the transactions
under the merger agreement
- their respective compliance with contracts, corporate documents and laws
- their respective filings of reports with the SEC
- the lack of significant litigation
- the lack of any material adverse changes in their respective businesses
- the lack of any material environmental issues
- the lack of any undisclosed liabilities
- the absence of brokers in the transaction.
REPRESENTATIONS AND WARRANTIES OF PROTECTION ONE, NEW PROTECTION ONE AND NEW
PROTECTION ONE'S MERGER SUBSIDIARIES
In the merger agreement, each of Protection One, New Protection One, P-1
Merger Sub (Delaware) and P-1 Merger Sub (Massachusetts) also made
representations and warranties as to the interim operation of P-1 Merger Sub
(Delaware) and Merger Sub (Massachusetts), and the ability to finance the
transactions contemplated by the merger agreement.
REPRESENTATIONS AND WARRANTIES OF LIFELINE
In the merger agreement, Lifeline also made representations and warranties
as to:
- its subsidiaries
- any transactions involving its affiliates
- its employee benefits and contracts
- liens on its assets
- the Rights Agreement
- the payment of its taxes
- its ownership of intellectual property
- the ability to prepay its indebtedness
- the inapplicability of Massachusetts antitakeover laws with respect to
the voting agreements and the stock option agreement (referred to below)
- the termination of any discussions with third parties.
CERTAIN COVENANTS
Conduct of Business Pending the Mergers
Pursuant to the merger agreement, Lifeline has agreed that, with some
exceptions, prior to the effective time of the mergers, the business of Lifeline
and its subsidiaries shall be conducted only in, and Lifeline and its
subsidiaries shall not take any action except in, the ordinary course of
business consistent with past practices of Lifeline and its subsidiaries.
Lifeline shall use all reasonable efforts to maintain and to preserve its and
each of its
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subsidiary's business organization, assets, employees and advantageous business
relationships. More particularly, Lifeline has agreed that neither it, nor any
of its subsidiaries, shall directly or indirectly do, among other things, any of
the following:
- with some exceptions, issue any capital stock or rights to acquire
capital stock
- pledge or encumber any of its assets or the assets of any of its
subsidiaries
- sell or dispose of any of its assets, except the sale of products in the
ordinary course of business
- amend its charter, by-laws or similar organizational documents or amend
the Rights Agreement in a manner inconsistent with the merger agreement
- split, combine or reclassify any shares of its capital stock or declare,
set aside for payment or pay any dividend or distribution
- redeem, purchase or otherwise acquire any of its capital stock or rights
to acquire capital stock
- with some exceptions, enter into an agreement with respect to any merger,
consolidation, liquidation or business combination, or any acquisition or
disposition of assets or securities of Lifeline, or acquire or make an
investment in any other entity
- transfer the stock of any of its subsidiaries to any of its other
subsidiaries or any assets or liabilities to any new or existing
subsidiary of Lifeline
- enter into an agreement with respect to the release or the relinquishment
of any material contract right or any comparable event
- with some exceptions, incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other
individual or entity or make any loans or advances
- make or commit to make any capital expenditures which, individually or in
the aggregate, exceed $0.5 million
- except as may be required by a change in law or by generally accepted
accounting principles, change any accounting principles or practices
- pay, discharge, satisfy or settle any material litigation, claims,
liabilities or obligations, other than required payments, discharges or
satisfactions of accounts payable and other similar liabilities in the
ordinary course of business consistent with past practices
- waive, release, grant or transfer any material rights of value or modify
or change in any material respect any existing license, lease, contract
or other document
- with certain exceptions, adopt or amend any bonus, profit sharing,
compensation, stock option, stock purchase, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement for the benefit or welfare of any
employee or former employee or, except in the ordinary course of business
consistent with past practices, increase the compensation or fringe
benefits of any employee or former employee or pay any benefit not
required by any existing plan, arrangement, or agreement
- take any action with respect to any severance or termination pay benefits
or with respect to any increase of benefits payable under its severance
or termination pay policies in effect on the date of the merger agreement
- make or revoke any tax election or settle or compromise any tax liability
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- take certain actions with respect to its employee stock purchase plan.
Lifeline has also agreed not to take any action with respect to an
Acquisition Proposal (as defined below) unless it is a Qualified Acquisition
Proposal.
The term "Acquisition Proposal" means:
- any tender offer or exchange offer for more than 20% of the Lifeline
common stock on a fully-diluted basis
- any merger, consolidation, sale of 20% or more of the assets of Lifeline
and its subsidiaries, taken as a whole, recapitalization, accumulation of
shares or proxy solicitation or other business combination involving
Lifeline or any of its subsidiaries or
- any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
As used herein, "Qualified Acquisition Proposal" means a bona fide,
unsolicited, written Acquisition Proposal at a price per share of Lifeline
common stock and on terms and conditions that the Lifeline board of directors
(after consultation with a financial advisor) determines to be superior to the
Lifeline merger and to be in the best interests of Lifeline and its stockholders
including, as part of the board of directors' determination, that as to any cash
consideration to be paid pursuant to the Qualified Acquisition Proposal, the
third party making the Qualified Acquisition Proposal has all requisite funds on
hand or is reasonably capable of obtaining any requisite funds.
Pursuant to the merger agreement, Protection One has agreed that neither it
nor any of its subsidiaries will, directly or indirectly, take or knowingly
permit any act or omission that is reasonably likely to materially hinder,
delay, impair or inhibit the consummation of the transactions contemplated by
the merger agreement.
Employee Stock Options and Benefit Plans
Pursuant to the merger agreement, as of the effective time of the mergers,
options to receive shares of Lifeline common stock shall be converted into
options to receive shares of New Protection One common stock, or, at the option
of the holders of such options, cash in an amount up to 25% of such options,
each as determined by a conversion ratio established in the merger agreement.
Access to Information
Pursuant to the merger agreement, Lifeline has agreed, except as prohibited
under applicable law, that it shall afford to Protection One complete access, at
all reasonable times, from the date of the merger agreement to the effective
time of the mergers, to its officers, employees, agents, properties, books,
records and contracts, and shall furnish Protection One all financial, operating
and other data and information as Protection One may reasonably request.
Pursuant to the merger agreement, Lifeline and Protection One have agreed
to give each other prompt notice of the occurrence, or the failure to occur, of
any event which occurrence or failure to occur causes any representation or
warranty made by such party in the merger agreement to be untrue or inaccurate
in any material respect, or any material failure of such party to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under the merger agreement.
Fees and Expenses
Pursuant to the merger agreement, with certain exceptions, each party to
the merger agreement agreed that it shall bear all of the fees and expenses
incurred by it in connection with the negotiation and performance of the merger
agreement, and no party may recover any
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such fees and expenses from any other party upon any termination of the merger
agreement. Lifeline has agreed to immediately pay to Protection One $5.5 million
in cash if:
(1)
- there shall have been publicly announced or proposed or commenced
prior to the termination of the merger agreement any Acquisition
Proposal which is not publicly withdrawn prior to the Lifeline
special meeting,
- the merger agreement is terminated, and
- within 12 months after such termination, Lifeline consummates an
Acquisition Proposal;
(2) Lifeline shall have elected to terminate the merger agreement to enter
into an agreement with a third party to consummate a Qualified
Acquisition Proposal;
(3) Lifeline shall have elected to terminate the merger agreement because
its board of directors
- failed to recommend the Lifeline merger and an Acquisition Proposal
has been made prior to such failure to recommend the Lifeline merger
or
- took any action with respect to an Acquisition Proposal; or
(4) Lifeline amends the Rights Plan in a way which adversely effects the
parties' ability to perform under the merger agreement.
Furthermore, Lifeline has agreed to immediately pay Protection One $1.0
million in cash if Lifeline shall have elected to terminate the merger agreement
because the Lifeline board of directors failed to recommend the Lifeline merger
and no Acquisition Proposal has been made prior to such failure to recommend the
Lifeline merger.
Certain Other Covenants
The merger agreement also contains customary covenants applicable to
transactions like the mergers, including, among others, covenants relating to:
- the taking of all actions and the doing of all things necessary, proper
or advisable to consummate the transactions contemplated by the merger
agreement
- Acquisition Proposals and
- indemnification and insurance.
CONDITIONS TO THE MERGERS
The obligations of Protection One and Lifeline to consummate the mergers
are subject to certain conditions, including the following:
- the proposal to Lifeline's stockholders regarding the Lifeline merger
shall have been approved
- the registration statement of the New Protection One common stock shall
have been declared effective and shall remain in effect and no stop order
suspending such effectiveness shall have been issued
- the shares of New Protection One common stock issuable pursuant to the
merger agreement shall have been approved for listing on the Nasdaq Stock
Market or the New York Stock Exchange
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- the waiting periods (and any extensions thereof) applicable to the
transactions contemplated by the merger agreement under the HSR Act shall
have been terminated or shall have expired
- no preliminary or permanent injunction or other order issued by any court
of competent jurisdiction preventing the consummation of the mergers
shall be in effect.
The obligation of Lifeline to consummate the Lifeline merger is subject to
certain additional conditions, including:
- the accuracy of the representations and warranties of Protection One, New
Protection One and Protection One's merger subsidiaries set forth in the
merger agreement
- the receipt by Lifeline of an opinion of its tax counsel that satisfies
its board of directors that the tax treatment will be as described in
this prospectus
- the Protection One merger shall have been approved by the stockholders of
Protection One.
The obligation of Protection One to consummate the Protection One merger is
subject to additional conditions, including the accuracy of the representations
and warranties of Lifeline set forth in the merger agreement and the receipt by
Protection One of an opinion of its tax counsel that satisfies its board of
directors that the tax treatment will be as described in this prospectus.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the mergers by mutual written consent of the Protection One and Lifeline
boards of directors. The merger agreement also may be terminated by Lifeline:
- if the effective time of the mergers has not occurred on or before April
30, 1999 due to a failure of any of the conditions of Lifeline required
to effect the Lifeline merger as set forth in the merger agreement
- if, prior to the effective time of the mergers, Protection One, New
Protection One or Protection One's merger subsidiaries fail to perform
any material obligation under the merger agreement
- in order for Lifeline to enter into an agreement with a third party to
consummate a Qualified Acquisition Proposal
- if the mergers are enjoined by a court of competent jurisdiction.
Furthermore, the merger agreement also may be terminated by Protection One:
- if the effective time of the mergers shall not have occurred on or before
April 30, 1999 due to the failure of any of the conditions of Protection
One required to consummate the Protection One merger, as set forth in the
merger agreement
- if the Lifeline board of directors fails to recommend the Lifeline merger
or takes any action with regard to any Acquisition Proposal
- if Lifeline fails to perform any material obligation under the merger
agreement
- if, prior to the effective time of the mergers, Lifeline alters or amends
the Rights Agreement in a manner that adversely affects the parties'
ability to consummate the transactions contemplated by the merger
agreement
- if Lifeline's stockholders shall have voted against the merger agreement
and the Lifeline merger
- the mergers are enjoined by a court of competent jurisdiction.
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AMENDMENTS AND WAIVERS
The merger agreement may not be amended except by action of the Protection
One or Lifeline boards of directors; provided, however, that after approval of
the mergers by the stockholders of Lifeline or Protection One, no amendment may
be made without the further approval of the stockholders of Lifeline or
Protection One to the extent such further approval would be required under
Massachusetts law, with respect to the Lifeline merger, or Delaware law, with
respect to the Protection One merger. At any time prior to the effective time of
the mergers, whether before or after the Lifeline special meeting, any party to
the merger agreement by action taken by its board of directors, may extend the
time for the performance of any of the obligations or acts of any other party
thereto. By action of the board of directors, either party may waive compliance
with any of the agreements of any other party or with any conditions to its own
obligations, as set forth in the text under the heading "Conditions to the
Mergers." In the event the board of directors of Protection One or Lifeline
determine to waive compliance with any of the agreements or conditions, they
will seek the advice of counsel with respect to whether this prospectus should
be revised and recirculated to stockholders to reflect the waiver.
RELATED AGREEMENTS AND TRANSACTIONS
LIFELINE VOTING AGREEMENTS
The following description of certain terms of the Lifeline voting
agreements is only a summary of the material provisions of the described
agreements and does not purport to be complete. A form of the Lifeline voting
agreements has been filed as an exhibit to the registration statement of which
this prospectus is a part and is incorporated herein by reference.
Voting and Proxies
In order to induce Protection One to enter into the merger agreement, each
of Everett N. Baldwin, Heather E. Edelman, Ronald Feinstein, John D. Gugliotta,
Dennis M. Hurley, Joseph E. Kasputys, Ph.D., Thomas E. Loper, Richard M. Reich,
Carolyn C. Roberts, L. Dennis Shapiro, Donald G. Strange, Gordon C. Vineyard,
M.D. and Susan Bailis entered into a voting agreement with Protection One on
October 18, 1998. Those Lifeline directors and officers who signed the Lifeline
voting agreements have agreed to vote an aggregate of 991,884 shares of Lifeline
common stock, representing approximately 17% of the total outstanding shares of
Lifeline common stock as of December 31, 1998, along with any additional shares
of Lifeline common stock held by them, in favor of the Lifeline merger, the
merger agreement and the transactions contemplated by the merger agreement, and
against any Acquisition Proposal and any other action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of Lifeline under the merger agreement or which would
result in any of the conditions to Lifeline's obligations under the merger
agreement not being fulfilled. In order to effect the intentions of the parties
under the Lifeline voting agreements, each Lifeline director or officer who
signed the voting agreements appointed John E. Mack and John W. Hesse as their
true and lawful proxies and attorneys-in-fact to vote any and all of the shares
of Lifeline common stock owned by them.
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Prohibited Actions
With certain exceptions, during the term of the Lifeline voting agreements
each has agreed, among other things, not to:
- sell, transfer, pledge, encumber, assign or otherwise dispose of his or
her shares of Lifeline
- grant any other proxies or enter into any other voting agreements with
regard to the Lifeline shares
- take any action that would make any of his or her representations or
warranties untrue or that would prevent him or her from performing his or
her obligations under the applicable Lifeline voting agreement
- exercise any dissenter's rights under Massachusetts law. Furthermore,
each Lifeline director or officer who signed the voting agreements has
agreed to notify Protection One of any additional shares of Lifeline
common stock that he or she acquires.
Other Provisions
Each Lifeline voting agreement also contains provisions relating to, among
other things, representations and warranties by the signers and specific
performance of the Lifeline voting agreements. Each Lifeline voting agreement
terminates upon the earlier to occur of:
- the effective time of the mergers
- the termination of the merger agreement in accordance with its terms
- April 30, 1999.
WESTAR CAPITAL VOTING AGREEMENT
The following description of certain terms of the Westar Capital voting
agreement is only a summary of the material provisions of that agreement and
does not purport to be complete. A form of the Westar Capital voting agreement
has been filed as an exhibit to the registration statement of which this
prospectus is a part and is incorporated herein by reference.
Voting and Proxies
In order to induce Lifeline to enter into the merger agreement, Westar
Capital entered into a voting agreement with Lifeline on October 18, 1998.
Pursuant to the Westar Capital voting agreement, Westar Capital has agreed to
vote the shares of Protection One common stock owned by it in favor of the
Protection One merger, the merger agreement and the transactions contemplated by
the merger agreement and against any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of Protection One under the merger agreement or which would result in
any of the conditions to Protection One's obligations under the merger agreement
not being fulfilled. In the event Westar Capital fails to approve the Protection
One merger on or before the date of the Lifeline special meeting, in order to
effect the intentions of the parties under the merger agreement, Westar Capital
constituted and appointed Ronald Feinstein and Dennis M. Hurley as its true and
lawful proxies and attorneys-in-fact to vote any and all of the shares of
Protection One common stock owned by Westar Capital to approve the Protection
One merger.
Prohibited Actions
During the term of the Westar Capital voting agreement, Westar Capital has
agreed, with certain exceptions, not to:
- sell, transfer, pledge, encumber, assign or otherwise dispose of any of
the shares of Protection One common stock owned by Westar Capital
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<PAGE> 80
- grant any other proxies or enter into any other voting agreement with
regard to the Westar Capital
- take any action that would make any representation or warranty of shares
of Protection One common stock owned by Westar Capital under the Westar
Capital voting agreement untrue or incorrect or that would have the
effect of preventing or disabling Westar Capital from performing its
obligations under the Westar Capital voting agreement.
Other Provisions
The Westar Capital voting agreement also contains provisions relating to,
among other things, representations and warranties by Westar Capital and
specific performance of the Westar Capital voting agreement. The Westar Capital
voting agreement terminates upon the earlier to occur of:
- the effective time of the mergers
- the termination of the merger agreement in accordance with its terms
- April 30, 1999, if the effective time of the mergers has not occurred by
April 30, 1999 due to the failure of any of the conditions to the
obligations of Protection One, New Protection One or Protection One's
merger subsidiaries to effect the mergers set forth in the merger
agreement.
STOCK OPTION AGREEMENT
The following description of certain terms of the stock option agreement is
only a summary of the material provisions of the agreement described and does
not purport to be complete. The stock option agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part and is
incorporated herein by reference.
As an inducement and as a condition to enter into the merger agreement,
Lifeline and Protection One entered into a stock option agreement, whereby
Lifeline granted Protection One an option entitling it to purchase up to
1,159,410 shares of Lifeline common stock (representing approximately 19.9% of
the outstanding shares of Lifeline common stock) at an exercise price per share
equal to $29.00. The option granted may be exercised by Protection One in whole
or in part, at any time from time to time after
(1)
- the termination of the merger agreement, and
- the occurrence of any circumstance that would entitle Protection One
to receive the $5.5 million fee described in "The Merger
Agreement -- Certain Covenants -- Fees and Expenses" on page 67 or
(2) the commencement of any Acquisition Proposal.
If at any time the option is then exercisable, Protection One may elect, in
lieu of exercising its option to purchase the Lifeline common stock to receive a
cash amount of the excess of
(1) the exercise price of the option, over
(2) the higher of
- the highest price per share of the Lifeline common stock paid by any
person pursuant to an Acquisition Proposal or
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<PAGE> 81
- the closing price of the Lifeline common stock on the Nasdaq Stock
Market on the last trading day immediately prior to the date of such
election.
The stock option agreement also contains provisions relating to, among
other things, representations and warranties of Lifeline and Protection One,
registration rights of Protection One, and specific performance of the stock
option agreement.
Notwithstanding the foregoing, Protection One's profit on the exercise of
such option shall not exceed $9.0 million after taking into account the exercise
price of the options and the $5.5 million and $1.0 million amounts payable by
Lifeline described in "The Merger Agreement -- Certain Covenants -- Fees and
Expenses" on page 67.
No party to the stock option agreement may assign any of its rights or
obligations under the stock option agreement without the prior written consent
of the other party except that Protection One may assign its rights and
obligations thereunder to any of its direct or indirect wholly owned
subsidiaries. The right to exercise the option granted under the stock option
agreement shall terminate upon the earlier of
(3)
- the effective time of the mergers
- the termination of the merger agreement pursuant to the circumstances
under which Protection One is not entitled to receive the $5.5
million fee described in "The Merger Agreement -- Certain
Covenants -- Fees and Expenses"
- the date on which Protection One receives a profit from the stock
option agreement and the merger agreement of $9.0 million and
- one year after the date on which the merger agreement is terminated.
AMENDMENT TO LIFELINE'S RIGHTS AGREEMENT
The following description of certain terms of the amendment to the
Lifeline's rights agreement is only a summary and does not purport to be
complete. The amendment has been filed as an exhibit to the Schedule 14A of
Lifeline Systems of which this prospectus is a part and is incorporated herein
by reference.
As an inducement and as a condition to enter into the merger agreement, the
Lifeline board of directors amended the terms of Lifeline's rights agreement so
that the transactions contemplated by the merger agreement would not trigger the
exercisability of the rights to purchase Lifeline common stock under the rights
agreement by an amendment to rights agreement dated October 18, 1998 between
Lifeline and State Street Bank and Trust Company.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the respective recommendations of the Protection One board
of directors and the Lifeline board of directors with respect to the merger
agreement and the transactions contemplated thereby, stockholders of Protection
One and stockholders of Lifeline should be aware that certain members of the
management of Protection One and Lifeline and the Protection One board of
directors and the Lifeline board of directors have certain interests in the
mergers that are different from, or in addition to, the interests of
stockholders of Protection One and stockholders of Lifeline generally.
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<PAGE> 82
PROTECTION ONE
Directors and Officers of New Protection One. All of the current directors
and executive officers of Protection One will be the directors and executive
officers of New Protection One. See "Management Of New Protection One" beginning
on page 79.
Employee/Non-Employee Director Stock Option Programs. At the effective time
of the mergers, each outstanding option or right to purchase shares of
Protection One common stock will be assumed by New Protection One in such manner
that it is converted into an option to purchase the same number of shares of New
Protection One common stock at the same exercise price. Each Protection One
stock option assumed by New Protection One will have the same terms and
conditions as then are applicable to such Protection One stock option. As of
December 31, 1998, directors and executive officers of Protection One held
outstanding Protection One Options to purchase 1,424,500 shares of Protection
One common stock at exercise prices ranging from $6.50 to $15 per share.
LIFELINE
Employee Stock Option Programs. The merger agreement provides that, at the
effective time of the mergers, each outstanding option or right to purchase
shares of Lifeline common stock will be assumed by New Protection One in such
manner that it is converted into an option to purchase shares of New Protection
One common stock, as provided below. Following the effective time of the
mergers, each such Lifeline stock option will be exercisable upon the same terms
and conditions as are in effect for such Lifeline stock option at the effective
time of the mergers, except that:
(1) each such Lifeline stock option will be exercisable for that number of
shares of New Protection One common stock, rounded upward to the nearest whole
share, equal to the product of
- an exchange ratio, as described below, and
- the number of shares of Lifeline common stock which could have been
obtained by exercising those options immediately prior to the effective
time of the mergers, after giving effect to any election made to receive
cash in lieu of options, as described below, and
(2) the exercise price of each Lifeline stock option will be equal to the
exercise price of that option immediately prior to the effective time of the
mergers divided by an option exchange ratio, rounded downward to the nearest
whole cent. The merger agreement also provides that holders of Lifeline stock
options who have not elected to exercise their options during the period between
the date of the merger agreement and the effective time of the mergers may elect
to receive a cash payment with respect to up to 25% of the number of shares of
Lifeline common stock subject to such options in lieu of receiving options to
acquire shares of New Protection One common stock. This election must be made at
least 30 days prior to the effective time of the mergers. The amount of the cash
payment shall equal:
(1) the sum of
- $14.50 plus
- the product of the exchange ratio and the average closing price, less
(2) the exercise price per share payable immediately prior to the effective
time of the mergers under the Lifeline Options.
In connection with the Lifeline merger, the vesting period for all
outstanding stock options under Lifeline's stock option plans accelerates in
full upon the consummation of the Lifeline merger. As of December 31, 1998,
directors and executive officers of Lifeline held outstanding Lifeline stock
options to purchase, 720,434 shares of Lifeline common stock under the Lifeline
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<PAGE> 83
stock option plans at exercise prices ranging from $3.00 to $24.00 per share.
The aggregate value of Lifeline options accelerating at the effective time is
approximately $16.9 million.
The following table sets forth information with respect to the number of
vested Lifeline stock options, and the acceleration of exercisability of
Lifeline stock options, held by the persons set forth below.
LIFELINE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NUMBER OF VESTED NUMBER OF OPTIONS
NAME OPTIONS AT DEC. 31, 1998 ACCELERATING AT EFFECTIVE TIME
---- ------------------------ ------------------------------
<S> <C> <C>
Bailis, Susan.................. 1,000 2,000
Baldwin, Everett............... 10,500 3,000
Edelman, Heather............... 17,711 20,121
Feinstein, Ronald.............. 248,404 43,206
Gugliotta, John................ 19,574 21,846
Hurley, Dennis................. 24,193 45,285
Kasputys, Joseph............... 22,500 3,000
Loper, Thomas.................. 34,418 37,134
Reich, Richard................. 19,704 30,207
Roberts, Carolyn............... 11,000 3,000
Shapiro, L. Dennis............. 22,500 3,000
Strange, Donald................ 20,577 31,054
Tritman, Steven................ -- --
Vineyard, Gordon............... 22,500 3,000
Vizzini, Paul.................. -- --
------- -------
Totals............... 474,581 245,853
======= =======
</TABLE>
Directors' and Officers' Liability Insurance. The merger agreement provides
that, for a period of six years after the effective time of the mergers,
directors' and officers' liability insurance will be maintained covering the
directors and officers who are currently covered, in their capacities as
directors and officers, by Lifeline's existing directors' and officers'
liability insurance policies on terms substantially no less advantageous to such
persons than the existing insurance to the extent such coverage can be
maintained or procured by the payment of an annual premium not exceeding 200% of
the current annual premium paid by Lifeline for its existing coverage (which
current annual premium is approximately $127,000).
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<PAGE> 84
BUSINESS OF PROTECTION ONE
Protection One is a leading provider of security alarm monitoring and
related services in North America and Europe, with approximately 1.5 million
subscribers as of September 30, 1998. Protection One has grown rapidly by
participating in both the expansion and the consolidation of the security alarm
monitoring industry.
Protection One's revenues consist primarily of recurring payments for
monitoring and related services. Protection One monitors digital signals
communicated by security systems installed at subscribers' premises. Security
systems are designed to detect burglaries, fires and other events. Through a
network of approximately 60 service branches in North America and 44 service
branches in Europe, Protection One provides repair of security systems and, in
select markets, armed response to verify that an actual emergency has occurred.
Protection One provides its services to the residential, commercial and
wholesale segments of the alarm monitoring market. Protection One believes the
residential alarm monitoring segment, which represents in excess of 80% of its
customer base, is the most attractive because of its stronger growth prospects,
higher gross margins and larger potential size. Of Protection One's customer
base, approximately 52% reside in single-family households and approximately 21%
reside in multi-family complexes such as apartments and condominiums. Commercial
subscribers represent 17% of the customer base and subscribers served by
independent alarm dealers that subcontract monitoring services to Protection One
represent 10% of the customer base. Protection One intends to grow its presence
in each of these key market segments, although the residential market remains
the most important for Protection One's growth strategy.
RECENT DEVELOPMENTS
Since November 1997, Protection One has transformed itself from a regional
company into a nationwide provider of security alarm services through a series
of significant acquisitions. The most important of these acquisitions was the
November 1997 combination with the security business of Western Resources, a
transaction that increased Protection One's size by approximately 440,000
subscribers.
Subsequent to the November 1997 business combination consummated on
November 24, 1997 in which Protection One combined with WestSec, Inc., a Kansas
corporation and wholly owned subsidiary of Monitoring, and Westar Security,
Inc., a Kansas corporation and direct, wholly owned subsidiary of Protection One
and through June 1998, Protection One used its strengthened financial position
and national infrastructure to acquire more than 500,000 subscribers, obtain a
leading position in the multi-family market segment and enter new markets in the
United Kingdom and Canada. Beginning in August 1998, Protection One acquired CET
in a multi-step process for an aggregate purchase price of approximately $140.0
million. CET is a leading European security alarm company with approximately
60,000 subscribers and 36 branch offices, located primarily in France, as well
as Belgium, Germany, the Netherlands and Switzerland. This acquisition
established a significant platform for Protection One in Europe, which
Protection One believes will allow it to participate in the additional
consolidation Protection One expects to take place in Europe. As a result of
these latest acquisitions, Protection One has further expanded its geographic
reach, increased its customer density in key markets and expects to realize
operating efficiencies through the integration of these acquisitions.
In June 1998, Protection One issued approximately $400.0 million of its
common stock in a concurrent public offering and private placement, using the
proceeds to repay borrowings under its senior credit facility and to repurchase
a portion of the discount notes of Protection One Alarm Monitoring.
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<PAGE> 85
In August 1998, Protection One Alarm Monitoring issued $250.0 million
aggregate principal amount of 7 3/8% Senior Notes due 2005, using the proceeds
to repay borrowings under its senior credit facility and in connection with
certain acquisitions. In December 1998, Protection One Alarm Monitoring issued
$350.0 million aggregate principal amount of 8 1/8% Senior Subordinated Notes
due 2005, using the proceeds to repay borrowings under its senior credit
facility. In December 1998, Protection One Alarm Monitoring refinanced the
senior credit facility it had with Westar Capital with a new senior credit
facility involving a syndicate of lenders, with NationsBank, N.A. as the lending
agent.
BUSINESS OF LIFELINE
Lifeline provides 24-hour personal response monitoring services to its
subscribers, primarily elderly individuals with medical or age-related
conditions as well as physically challenged individuals throughout the United
States and Canada. These subscribers communicate with Lifeline through products
designed, manufactured and marketed by Lifeline consisting principally of a
communicator that connects to the telephone line in the subscriber's home and a
personal help button, which is worn or carried by the individual subscriber and
which, when activated, initiates a telephone call from the subscriber's
communicator to Lifeline's central monitoring facilities or to community
hospitals in the United States and Canada that perform their own monitoring
locally using equipment manufactured or software written by Lifeline. Lifeline's
primary monitoring center is in Cambridge, Massachusetts. Lifeline's principal
service, called LIFELINE(R), consists of a monitoring service utilizing
equipment manufactured by Lifeline.
Through use of the LIFELINE(R) service, individuals in need of help are
able to signal monitoring personnel in one of Lifeline's response centers. These
monitors identify the nature and extent of the subscriber's particular need and
manage the situation by notifying the subscriber's friends, neighbors, and/or
emergency personnel, as set forth in a predetermined protocol established by the
subscriber. In many cases, Lifeline employees are in daily contact with
subscribers, who are often elderly people living alone. This daily contact can
be an important social connection for these subscribers.
The equipment used for the LIFELINE(R) service includes a communicator,
which connects to the telephone line in the subscriber's home and a personal
help button, which is worn or carried by the individual subscriber. When
pressed, the personal help button sends a radio signal to the communicator; the
communicator automatically dials a response center where monitoring personnel
answer the call and dispatch the designated responders, typically a friend or
relative of the subscriber and/or emergency service, when help is needed. Most
of the time, however, subscribers' calls require reassurance and support as a
result of their isolation or loneliness.
Lifeline primarily markets its services and products to hospitals,
institutions, and other service providers in a variety of health care related
fields. Hospitals, however, have historically been Lifeline's primary market.
Lifeline believes that hospitals offer Lifeline's services and products to
capture revenues from the sale of the service, improve healthcare for the
communities they serve, enhance community relations, market other hospital
services to the subscriber base, and/or contain healthcare costs by facilitating
early discharge from the hospital and allowing the subscriber to remain in his
or her own home.
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<PAGE> 86
BUSINESS OF NEW PROTECTION ONE
New Protection One, a direct wholly owned subsidiary of Protection One, has
not conducted any substantial business activities to date, other than those
incident to its formation, its execution of the merger agreement and related
agreements and its participation in the preparation of this prospectus.
Immediately following the consummation of the mergers, New Protection One will
become a holding company for Protection One and Lifeline and their respective
subsidiaries. Accordingly, the business of New Protection One, through its
wholly owned subsidiaries Protection One and Lifeline and their respective
subsidiaries, will be the businesses currently conducted by Protection One and
Lifeline and their respective subsidiaries. See "Business of Protection One"
beginning on page 76 and "Business of Lifeline" beginning on page 77.
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<PAGE> 87
MANAGEMENT OF NEW PROTECTION ONE
The board of directors of New Protection One presently consists of the same
11 persons who serve on the board of directors of Protection One, all of whom
are elected annually. The board of directors of Protection One was elected at
the most recent stockholders meeting on April 23, 1998. The directors nominated
by Western Resources and elected at the stockholders meeting are Peter C. Brown,
Howard A. Christensen, Joseph J. Gardner, William J. Gremp, Steven L. Kitchen,
Carl M. Koupal, Jr., and John C. Nettels, Jr.
Certain information concerning the current directors of Protection One is
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James M. Mackenzie, Jr................ 51 President, Chief Executive Officer and
Director
Robert M. Chefitz..................... 39 Director
Ben M. Enis........................... 56 Director
James Q. Wilson....................... 67 Director
Peter C. Brown........................ 40 Director
Howard A. Christensen................. 65 Director
Joseph J. Gardner..................... 61 Director
William J. Gremp...................... 56 Director
Steven L. Kitchen..................... 53 Director
Carl M. Koupal, Jr.................... 45 Director
John C. Nettels, Jr................... 42 Director
</TABLE>
James M. Mackenzie, Jr. has been President, Chief Executive Officer and a
director of Protection One since 1991.
Robert M. Chefitz has been a director of Protection One since September
1991. Mr. Chefitz joined Patricof & Co. Ventures, Inc., an investment management
firm ("Patricof"), in 1987, where he currently serves as a Managing Director.
Mr. Chefitz also serves as a general partner to various venture capital
partnerships managed by Patricof. Mr. Chefitz currently serves on the board of
directors of Xpedite Systems, Inc. and is also a director of several private
companies.
Ben M. Enis has been a director of Protection One since October 1994. He
has been a Professor of Marketing at the University of Southern California since
1982. Mr. Enis currently serves on the board of directors of Countrywide Credit
Industries, Inc.
James Q. Wilson has been a director of Protection One since June 1996. Mr.
Wilson has recently retired from his position as a Professor of Management at
the University of California at Los Angeles. Mr. Wilson is currently a director
of New England Electric System and State Farm Mutual Life Insurance Company.
Peter C. Brown has been a director of Protection One since November 1997.
He has served as Co-Chairman of AMC Entertainment, Inc., an entertainment
company ("AMCE"), since May 1998 and as President of AMCE since January 1997. He
served as Executive Vice President of AMCE from August 1994 to January 1997, and
has served as AMCE's Chief Financial Officer since November 1991. Mr. Brown
currently serves as director of AMCE and is Chairman of the Board of Trustees of
Entertainment Properties Trust, a recently formed real estate investment trust.
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<PAGE> 88
Howard A. Christensen has been a director of Protection One since November
1997. During the past five years, he has served as President and Chief Executive
Officer of Christensen & Associates, an investor relations and strategic
planning firm.
Joseph J. Gardner has been a director of Protection One since November
1997. During the past five years, he has served as the President of Condev
Properties, a real estate development company.
William A. Gremp has been a director of Protection One since November 1997.
He has been Senior Vice President and Managing Director of the Utilities and
Strategic Finance Group of First Union Capital Markets Group, a banking firm,
since April 1996. From 1989 to April 1996, he was a Managing Director in the
Global Power Group at Chase Manhattan Bank. Mr. Gremp is also a director of St.
Joseph Light & Power Company.
Steven L. Kitchen has been a director of Protection One since November
1997. During the past five years, he served as an Executive Vice President and
Chief Financial Officer of Western Resources until his retirement in November
1998. He is also a director of Central National Bank.
Carl M. Koupal, Jr. has been a director since November 1997 and has been
Executive Vice President and the Chief Administrative Officer for Western
Resources since July 1995. From January 1995 to July 1995, Mr. Koupal was
Executive Vice President of Corporate Communications, Marketing and Economic
Development for Western Resources. Prior to that time, he served as Western
Resources' Vice President, Corporate Marketing and Economic Development. Mr.
Koupal also currently serves as a director of Hanover Compressor Co.
John C. Nettels, Jr. has been a director of Protection One since November
1997. During the last five years, he has been a partner in the law firm of
Morrison & Hecker L.L.P.
EXECUTIVE OFFICERS
The executive officers of New Protection One will be the same as those
executive officers of Protection One. The name, age and current position(s) with
Protection One of each executive officer of Protection One are as set forth
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James M. Mackenzie, Jr................. 51 President, Chief Executive Officer and
Director
John E. Mack, III...................... 39 Executive Vice President, Chief
Strategic Officer and Acting Chief
Financial Officer
Thomas K. Rankin....................... 41 President -- Protection One Alarm
Monitoring
George A. Weinstock.................... 61 Executive Vice President
Steven A. Millstein.................... 46 President -- Protection One Mobile
Services
</TABLE>
For information with respect to the business experience of Mr. Mackenzie,
see "-- Directors."
John E. Mack, III was Vice President -- Business Development of Protection
One from 1991 until August 1996, and was Executive Vice President -- Business
Development from August 1996 to October 1998, when he was named Executive Vice
President and Chief Strategic Officer. Mr. Mack was named Acting Chief Financial
Officer and Secretary in January 1999. Mr. Mack has also been an Assistant
Secretary of Protection One since October 1994.
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<PAGE> 89
Thomas K. Rankin was Vice President -- Branch Management of Protection One
from September 1991 to August 1996, and was Executive Vice President -- Branch
Management from August 1996 to October 1998, when he was named
President -- Protection One Alarm Monitoring. Mr. Rankin has also been an
Assistant Secretary of Protection One since October 1994.
George A. Weinstock has been Executive Vice President of Monitoring since
November 1993 and Executive Vice President of Protection One since June 1994,
and was a director of Protection One from November 1993 to May 1994. Prior to
November 1993, Mr. Weinstock served as President of American Home Security, Inc.
Steven A. Millstein was Executive Vice President -- New Market Development
of the Protection One from November 1997 to October 1998, when he was named
President -- Protection One Mobile Services. Prior to November 1997, Mr.
Millstein served as President of WestSec since its formation in December 1996
and President of Westar Security since May 1995. Prior to that time, he was Vice
President, Marketing and Sales for Acoustics Development Corporation, a
manufacturer of telephone booths and interactive media enclosures.
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<PAGE> 90
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of Protection One common stock as of November 30, 1998 by each
executive officer, director and person known to Protection One to beneficially
own more than 5% of its outstanding common stock and what ownership is expected
to be following the mergers.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO MERGERS
-------------------------
NAME AND ADDRESS NUMBER PERCENT(1)
- ---------------- ----------- ----------
<S> <C> <C>
Western Resources, Inc.(2).................................. 114,505,372 85.4%
818 S. Kansas Avenue
Topeka, KS 66612
James M. Mackenzie, Jr.(3).................................. 431,381 *
John E. Mack, III(3)........................................ 271,840 *
Thomas K. Rankin(3)......................................... 274,589 *
Steven A. Millstein......................................... 100 *
George M. Weinstock(3)...................................... 45,752 *
Peter C. Brown.............................................. -- *
Robert M. Chefitz(3)(4)..................................... 46,452 *
Howard A. Christensen....................................... -- *
Ben Enis(3)................................................. 30,000 *
Joseph J. Gardner........................................... -- *
William J. Gremp............................................ -- *
Steven L. Kitchen........................................... 300 *
Carl M. Koupal, Jr.......................................... -- *
John C. Nettels, Jr......................................... 1,500 *
James Q. Wilson(3).......................................... 20,100 *
All directors and executive officers of Protection One as a
group (17 persons)........................................ 1,472,687 1.2
</TABLE>
- ---------------
* Represents less than one percent.
(1) Based upon 126,839,941 shares of Protection One common stock outstanding at
November 30, 1998, plus shares underlying options that are currently
exercisable or that become exercisable within 60 days after December 31,
1998.
(2) Western Resources, through its wholly owned subsidiary, Westar Capital, has
sole voting power and sole investment power with respect to these
114,505,372 shares. Includes 2,750,238 shares issuable upon the exercise of
an option to purchase additional shares of common stock at a price of $15.50
per share and 4,426,232 shares issuable upon conversion of approximately
$49.6 million aggregate principal amount of the convertible notes held by
Westar Capital.
(3) Includes shares subject to options that are exercisable within 60 days of
December 31, 1998 as follows: Mr. Mackenzie, 143,000 shares; Mr. Mack,
161,000 shares; Mr. Rankin, 161,000 shares; Mr. Weinstock, 12,000 shares;
Mr. Chefitz, 30,000 shares; Mr. Enis, 30,000 shares and Mr. Wilson, 20,000
shares.
(4) Mr. Chefitz disclaims beneficial ownership to all but 16,452 shares listed
in the table as owned by him. The remaining 30,000 shares are subject to an
option held by Patricof.
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<PAGE> 91
DESCRIPTION OF NEW PROTECTION ONE CAPITAL STOCK
GENERAL
The authorized capital stock of New Protection One consists of 250,000,000
shares of common stock, $.01 par value per share, and 5,000,000 shares of
preferred stock, $.10 par value per share. As of November 30, 1998, there were
1,000 shares of New Protection One common stock issued to Protection One and no
shares of New Protection One preferred stock outstanding.
On July 30, 1997, Protection One and Western Resources entered into a
Contribution Agreement (as amended, the "Contribution Agreement"). Pursuant to
the Contribution Agreement, on November 24, 1997, Protection One issued to
Western Resources an aggregate of 68,673,402 shares of Protection One common
stock, which shares represented 82.4% of the shares of Protection One common
stock outstanding immediately after such issuance. In consideration for the
issuance of such shares to Western Resources, Western Resources transferred to
Protection One all of the outstanding stock of WestSec and Westar, which
companies conducted the security alarm monitoring business of Western Resources,
and an aggregate of $367.4 million in cash and securities. Subsequently,
Protection One contributed the capital stock of WestSec to Protection One
Monitoring. The Contribution Agreement will apply to and be binding on New
Protection One as a result of the Protection One merger.
Pursuant to the Contribution Agreement, Protection One also granted to
Western Resources the option to purchase up to 2,750,238 additional shares of
Protection One common stock at a price of $15.50 per share. The Western
Resources option will allow Western Resources to acquire up to 2,750,238 shares
of New Protection One common stock following the mergers. Western Resources'
right to exercise the Western Option will terminate on the earlier of October
31, 1999 or the 45th day after the last day on which any of the 6 3/4%
Convertible Senior Subordinated Notes due 2003 issued by Protection One Alarm
Monitoring remain outstanding.
As of November 30, 1998, Western Resources through its wholly owned
subsidiary, Westar Capital, Inc., beneficially owned 114,505,372 shares of
Protection One common stock, which represented approximately 85.4% of the issued
and outstanding shares of Protection One common stock as of that date, as
adjusted for the exercise of the Western option and the conversion of the
convertible notes held by Western Resources. The 114,505,372 shares include
2,750,238 shares issuable upon exercise of the Western Option and 4,426,232
shares issuable upon conversion of approximately $49.6 million aggregate
principal amount of convertible notes held by Western Resources.
New Protection One is a Delaware corporation and as such is subject to
Section 203 of the Delaware General Corporation Law. Section 203 of the Delaware
General Corporation Law prohibits certain persons, which it calls "Interested
Stockholders" from engaging in a "business combination" with a Delaware
corporation for three years following the date such persons become Interested
Stockholders. Interested Stockholders generally include: persons who are the
beneficial owners of 15% or more of the outstanding voting stock of the
corporation and persons who are affiliates or associates of the corporation and
who hold 15% or more of the corporation's outstanding voting stock at any time
within three years before the date on which such person's status as an
Interested Stockholder is determined. Subject to certain exceptions, a "business
combination" includes, among other things:
- mergers and consolidations,
- the sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets having an aggregate market value equal to 10% or
more of either the aggregate market value of
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all assets of the corporation determined on a consolidated basis or the
aggregate market value of all the outstanding stock of the corporation,
- transactions that result in the issuance or transfer by the corporation
of any stock of the corporation to the Interested Stockholder, except
pursuant to certain exercises, exchanges, conversions, distributions, or
offers to purchase with respect to securities outstanding prior to the
time that the Interested Stockholder became such and that generally, do
not increase the Interested Stockholder's proportionate share of the
stock of any class or series of the corporation,
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series,
or securities convertible into the stock of any class or series, of the
corporation that is owned directly or indirectly by the Interested
Stockholder, or
- any receipt by the Interested Stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the
corporation.
The Contribution Agreement governing the November 1997 transaction,
however, provides that during the 10-year period following the consummation of
the transaction, a merger or a sale of all or substantially all of the assets of
Protection One involving Western Resources or any affiliate of Western Resources
generally will, under the terms of the Contribution Agreement, require the prior
approval of a majority of the independent directors of Protection One, and
Western Resources may acquire more than 85% of the outstanding shares of common
stock or other voting securities of Protection One only under specified
circumstances and subject to specified limitations. In addition, certain
fiduciary obligations are imposed under Delaware law on Western Resources in its
capacity as majority stockholder of Protection One.
The foregoing could have the effect of discouraging others from attempting
takeovers of New Protection One and, as a consequence, they may also inhibit
temporary fluctuations in the market price of the New Protection One common
stock that often result from actual or rumored takeover attempts. Western
Resources' controlling ownership position may also have the effect of preventing
changes in the management of New Protection One. It is possible that such
controlling ownership position could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
Western Resources has indicated that in connection with the mergers and in
the event of any offering of Protection One common stock or securities
convertible into New Protection One common stock offered by New Protection One,
Protection One or Protection One Alarm Monitoring from time to time, it may
purchase a sufficient number of securities such that Western Resources, through
Westar Capital, continues to beneficially own in excess of 80% of New Protection
One's common stock, although Western Resources has no obligation to do so.
Western Resources is contractually prohibited under the Contribution Agreement
from acquiring more than 88.5% of the outstanding common stock of Protection One
at any given time as long as at least approximately $51.8 million aggregate
principle amount of the convertible notes is outstanding and no more than 85% if
the aggregate principle amount of the convertible notes falls below $51.8
million.
COMMON STOCK
The holders of New Protection One common stock are entitled to one vote for
each share held of record on all matters to be voted on by the stockholders. The
holders of New Protection One common stock do not possess cumulative voting
rights, and members of the board of directors of New Protection One are elected
by a plurality vote. The holders of New Protection One common stock are entitled
to receive ratably such dividends as may be declared
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from time to time by the board of directors of New Protection One out of funds
legally available therefor, subject to the rights of the holders of any series
of Preferred Stock then outstanding. In the event of the liquidation,
dissolution or winding up of New Protection One, the holders of New Protection
One common stock are entitled to share ratably in all assets remaining after
payment of liabilities to creditors, subject to prior liquidation rights of New
Protection One preferred stock, if any, then outstanding. The New Protection One
common stock has no preemptive rights, conversion rights or other subscription
rights. There are no redemption or sinking funds provisions applicable to the
New Protection One common stock. All outstanding shares of New Protection One
common stock are duly authorized, validly issued, fully paid and non-assessable.
As a result of Western Resources' ownership of a majority of New Protection
One's common stock, it has the ability to elect directors and otherwise approve
matters to be presented to stockholders.
The transfer agent and registrar for the New Protection One common stock is
ChaseMellon Stockholder Services.
PREFERRED STOCK
The certificate of incorporation of New Protection One authorizes 5,000,000
shares of New Protection One preferred stock. The board of directors of New
Protection One has the authority to issue the New Protection One preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders of New
Protection One. Although the issuance of New Protection One preferred stock may,
in certain circumstances, have the effect of delaying, deferring or preventing a
change in control of New Protection One without further action by the
stockholders of New Protection One and may adversely affect the voting and other
rights of the holders of common stock, including the loss of voting control to
others, any change of control will require the approval of Western Resources,
which controls New Protection One through its ownership of in excess of 80% of
the issued and outstanding shares of New Protection One common stock.
COMPARISON OF RIGHTS OF LIFELINE STOCKHOLDERS,
PROTECTION ONE STOCKHOLDERS AND
NEW PROTECTION ONE STOCKHOLDERS
DIFFERENCES IN THE RIGHTS OF THE STOCKHOLDERS OF PROTECTION ONE AND NEW
PROTECTION ONE
The rights of the stockholders of Protection One and New Protection One
will be identical except that Protection One has 150,000,000 shares of
Protection One common stock authorized and New Protection One has 250,000,000
shares of New Protection One common stock authorized.
DIFFERENCES IN THE RIGHTS OF THE STOCKHOLDERS OF LIFELINE AND NEW PROTECTION ONE
Lifeline is governed by Massachusetts law, and New Protection One will be
governed by Delaware law. The corporation laws of Massachusetts and Delaware
differ in many respects. Furthermore, the articles of organization of Lifeline,
the certificate of incorporation of New Protection One, and bylaws of each
differ in many respects. The principal differences which could materially affect
the rights of stockholders are summarized below. This summary does not purport
to be a complete statement of the changes in the rights of stockholders which
may
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occur as a result of the Lifeline merger or a complete enumeration of the
differences between the corporations laws of Massachusetts and Delaware.
Voting Requirements and Quorums for Stockholders Meetings
Lifeline. The Lifeline bylaws and articles of organization provide, in
accordance with Massachusetts law, that the holders of a majority of the shares
of the corporation then outstanding and entitled to vote constitutes a quorum,
and that when a quorum is present any matter properly brought before a
stockholders meeting generally requires, and may be effected by, a majority
stockholder vote. However, any election by stockholders requires a plurality of
votes and any proposal to merge or consolidate with another corporation requires
a two-thirds vote.
New Protection One. Consistent with Delaware law, the New Protection One
certificate of incorporation and bylaws provide that the holders of a majority
of the shares entitled to vote constitute a quorum, and that, when a quorum is
present, a majority vote is required to effect any matter, except that any
election by stockholders requires a plurality vote.
Dissenters' Rights
Lifeline. Under Massachusetts law, dissenting stockholders who follow
prescribed statutory procedures are entitled to dissenters' rights in connection
with any merger or sale of a corporation's assets and in connection with certain
mergers, reclassifications and other transactions which may adversely affect the
rights or preferences of stockholders. The complete text of the applicable
sections of the Massachusetts business corporation law statute are set forth in
Annex B hereto.
New Protection One. Consistent with Delaware law, New Protection One
stockholders do not have dissenters' rights in the case of mergers or
consolidations where they are required to accept in such a merger only:
- shares of the surviving or resulting corporation;
- shares of a corporation listed on a national securities exchange or held
of record by more than 2,000 holders;
- cash in lieu of a fraction of shares; or
- any combination thereof.
Also consistent with Delaware law, the New Protection One certificate of
incorporation does not provide dissenters' rights in connection with sales of
substantially all of the assets of a corporation, reclassifications of stock or
other amendments to the certificate of incorporation which adversely affect a
class of stock.
Shareholder Rights Agreement
Lifeline. Under its shareholder rights agreement, for each share of
Lifeline common stock owned, each Lifeline stockholder has the right to acquire
another share of Lifeline common stock for a certain price if someone attempts
to acquire Lifeline without the approval of Lifeline's board of directors.
New Protection One. The New Protection One common stock does not have such
a right.
Cumulative Voting
Lifeline. Massachusetts law does not authorize or provide for cumulative
voting rights by stockholders in elections of directors (i.e., each stockholder
casts as many votes for directors as
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he, she or it has shares of stock multiplied by the number of directors to be
elected). Neither the Lifeline articles of organization nor the Lifeline bylaws
provide for cumulative voting.
New Protection One. Under Delaware law, a corporation may provide in its
certificate of incorporation for cumulative voting. The New Protection One
certificate of incorporation does not provide for cumulative voting rights.
Action by Consent of Stockholders
Lifeline. The Lifeline bylaws provide that any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing.
New Protection One. Delaware law provides that any action to be taken by
the stockholders may be taken without a meeting, without prior notice and
without a vote, if the stockholders having the number of votes that would be
necessary to take such action at a meeting at which all of the stockholders were
present and voted consent to the action in writing.
Proxies
Lifeline. In accordance with Massachusetts law, the Lifeline bylaws
generally permit a stockholder's proxy to be valid for no more than six months.
New Protection One. Delaware law permits a proxy to be valid for up to
three years unless the proxy provides for a longer period.
Approval of Business Combinations and Asset Sales
Lifeline. Under Massachusetts law, the affirmative vote of two-thirds of
the shares of each class of stock outstanding and entitled to vote (or which
would be adversely affected by a merger or asset sale) is generally necessary to
approve a merger or asset sale.
New Protection One. Under Delaware law, the affirmative vote of only a
majority of the shares of stock outstanding and entitled to vote are necessary
to approve a merger or asset sale. Recent amendments to Delaware law permit a
company to merge with a direct or indirect wholly owned subsidiary without
stockholder approval under certain circumstances so as to cause the corporation
to become a holding company.
Anti-Takeover Legislation
Lifeline. Massachusetts law contains a three year moratorium on business
combinations between a corporation and interested stockholders, unless certain
conditions are met. However, this moratorium does not apply to Lifeline because
Lifeline's bylaws contain a provision expressly electing not to be governed by
this chapter of Massachusetts law.
New Protection One. Delaware law provides that certain business
combinations with interested stockholders of Delaware corporations are subject
to a three year moratorium unless specified conditions are met.
Classified Board
Lifeline. Massachusetts law requires that, unless a corporation chooses
otherwise, its board of directors shall be divided into classes, and that the
term of directors on a classified board cannot exceed five years. The Lifeline
bylaws provide for three classes of directors, with each director to serve until
the third annual meeting following the annual meeting at which the director was
elected.
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New Protection One. Delaware law permits, but does not require, a board of
directors to be divided into classes with each class having a term of office
longer than one year. New Protection One does not currently have classes of
directors.
Inspection Rights
Lifeline. Under Massachusetts law, a corporation's stockholders are
entitled to inspect and copy its articles of organization, by-laws, records of
stockholders meetings, and stock and transfer records. These documents must be
kept either at the corporation's principal office, the transfer agent's office,
or at the office of the corporation's clerk or resident agent. If access to
these documents is refused, the corporation will be liable to the requesting
stockholder for any actual damages which result from such refusal. However, the
corporation is not obligated to produce such documents if the inspection is
being sought to secure a list of stockholders (or other information) to be sold
or used for a purpose unrelated to that person's interest as a stockholder.
New Protection One. Delaware law entitles any stockholder of record of a
corporation, in person or by an agent, upon written demand under oath stating
the purpose thereof, to inspect during usual business hours, for any proper
purpose, the corporation's stock ledger, a list of its stockholders and its
other books and records, and to make copies or extracts therefrom. A proper
purpose means a purpose reasonably related to that person's interest as a
stockholder.
Annual Meeting of Stockholders
Lifeline. Under Massachusetts law, the notice of a corporation's annual
meeting must state the purpose of the meeting. The Lifeline bylaws allow the
board of directors or the president to determine (in addition to any purposes
other than those required by law, the Lifeline articles of organization, or the
Lifeline bylaws) the matters to be addressed at the annual meeting.
New Protection One. Under Delaware law, the purpose of the annual meeting
need not be included in the notice of the annual meeting. The New Protection One
bylaws provide that directors shall be elected at the annual meeting, and any
other business may be transacted which is within the power of the stockholders
and allowed by law. However, under the New Protection One bylaws, in order to be
approved at an annual meeting, a proposal must first be described in the notice
to stockholders if its purpose is to:
- approve or ratify a contract or transaction with a director or with a
corporation, firm or association in which the director has an interest;
- amend the New Protection One certificate of incorporation,
- approve a reorganization or merger involving New Protection One;
- elect to wind up or dissolve the corporation; or
- effect a plan of distribution upon liquidation otherwise than in
accordance with liquidation preferences of outstanding shares with
liquidation preferences, no such proposal may be approved at an annual
meeting.
Special Meetings of Stockholders
Lifeline. In accordance with Massachusetts law, the Lifeline bylaws provide
that special meetings of stockholders may be called by the president, by the
board of directors of Lifeline or upon written application of stockholders who
hold at least 10% of the capital stock of Lifeline entitled to vote at the
proposed meeting. Upon the written application of stockholders who hold at least
10% of the capital stock of Lifeline entitled to vote, a special meeting must be
called by the clerk.
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New Protection One. Delaware law allows special meetings of a corporation's
stockholders to be called by its board of directors or by any person so
authorized in the corporation's certificate of incorporation or by-laws. The New
Protection One bylaws provide that a special meeting of the stockholders may be
called by the chairman of the board, by the president, by the board of
directors, by any two directors, or by one or more stockholders holding not less
than 10% of the voting power of the corporation.
Notice of Stockholder Meetings
Lifeline. In accordance with Massachusetts law, the Lifeline bylaws provide
that notice of stockholder meetings be given at least seven days before such
meeting.
New Protection One. In accordance with Delaware law, the New Protection One
bylaws require that notice of any meeting of stockholders shall be sent to each
stockholder at least ten, but not more than 60 days before the meeting.
Removal of Directors
Lifeline. Massachusetts law provides that any director or the entire board
of directors may be removed, except as otherwise provided in the articles or
organization or bylaws, with or without cause, by a majority stockholder vote,
except that directors of a class elected by a particular class of stockholders
may be removed only by the majority vote of those stockholders. In addition, the
Lifeline bylaws also permit the removal of a director with cause by a vote of
the majority of the directors then in office.
New Protection One. Delaware law provides that a director serving on a
board which is not classified, such as New Protection One's board, may be
removed with or without cause by a majority stockholder vote. In the case of a
classified board, stockholders may effect such removal only for cause unless the
certificate of incorporation provides otherwise.
Change in Number of Directors
Lifeline. Massachusetts law provides that the number of directors shall be
set in a corporation's bylaws, but shall not be less than three. In accordance
with Massachusetts law, the Lifeline bylaws allow the stockholders or a majority
of the directors to increase the number of directors. Lifeline currently has
seven directors.
New Protection One. Delaware law provides that the number of directors may
be fixed in a corporation's bylaws unless it is fixed in the corporation's
certificate of incorporation, in which case a change in the number of directors
shall be made only by amendment to the certificate. The New Protection One
bylaws currently provide for twelve directors.
Indemnification and Limitation of Liability
Lifeline. In accordance with Massachusetts law, the Lifeline bylaws provide
for indemnification of Lifeline's officers, directors and employees for expenses
in a derivative or third party action, except that no indemnification shall be
provided for any person if he or she has been adjudicated not to have acted in
good faith and in the reasonable belief that his or her action was in the best
interests of the corporation. Massachusetts law contains provisions similar to
those Delaware law provisions described below which allow for advancement of
expenses, the purchase of indemnity insurance, and the elimination or limitation
of liability.
New Protection One. Delaware law generally permits indemnification of
officers, directors, employees and agents of a Delaware corporation against
expenses incurred in connection with a derivative action and against expenses,
judgments, fines and amounts paid in settlements related to a third party
action, provided that he or she acted in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the corporation
(and, with respect to
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any third party criminal action or proceeding, had no reasonable cause to
believe his conduct as unlawful). Delaware law requires indemnification where a
current or former director has successfully defended such an action, but without
court approval, no indemnification may be made in respect of any derivative
action in which such person is adjudged liable to the corporation.
A corporation may pay these types of expenses in advance if the officer or
director agrees to repay such amounts if it is ultimately determined that he or
she is not entitled to indemnification. Delaware law allows a corporation to
purchase indemnity insurance for the benefit of its officers, directors,
employees or agents. Delaware law also allows a corporation, in certain
circumstances, to eliminate or limit a director's liability to the corporation
or its stockholders for certain breaches of fiduciary duty. The New Protection
One certificate of incorporation provides for indemnification and limitation of
liability of directors and officers substantially as described here.
The SEC has expressed its position that the indemnification of directors,
officers and controlling person against liabilities arising under the Securities
Act of 1933, (the "Securities Act"), is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
Interested Director Transactions
Lifeline. Massachusetts law provides that directors who vote for and
officers who knowingly participate in loans to officers or directors are jointly
and severally liable to the corporation for any part of the loan which is not
repaid, unless a majority of the directors who are not direct or indirect
recipients of such loans or a majority of the stockholders, have approved or
ratified the loan as one which in their judgment may reasonably be expected to
benefit the corporation.
New Protection One. Delaware law provides that no transaction between a
corporation and a director or officer or any entity in which any of them have an
interest, is void or voidable solely for this reason or solely because the
director or officer is present at or participates in the meeting of the board or
committee which authorized the contract or transaction. A transaction is also
not void or voidable solely because a director's votes are counted for such
purpose if, after full disclosure the transaction is approved by the
disinterested directors or by the stockholders or the transaction is fair to the
corporation at the time it is approved.
Filling Vacancies on the Board of Directors
Lifeline. Massachusetts law provides that any vacancy in a classified board
of directors including a vacancy resulting from enlargement of the board shall
be filled solely by the affirmative vote of a majority of the directors then in
office, even though less than a quorum.
New Protection One. Delaware law provides that vacancies and newly created
directorships may be filled by a majority of directors then in office, unless
the certificate of incorporation or bylaws provide otherwise. If, at the time of
filling any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the entire board as constituted immediately
prior to any increase, the Delaware Court of Chancery may, upon application of
any stockholder or stockholders holding at least 10% of the total number of
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships or to replace the directors chosen by the directors at any
time to fill a vacancy not filled by the directors.
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Dividends and Repurchases
Lifeline. Except with regard to a distribution of stock of the corporation,
Massachusetts law provides that the directors of a corporation voting in favor
of the action will be jointly and severally liable if a distribution to
stockholders:
- is made when the corporation is insolvent
- renders the corporation insolvent or
- violates the corporation's articles of organization.
Stockholders to whom a corporation makes any distribution (except a
distribution of stock of the corporation) may be liable to the corporation for
all or part of such distribution if such distribution is made while the
corporation is insolvent or renders the corporation insolvent.
New Protection One. Delaware law provides that the directors of a
corporation will be jointly and severally liable, to the full amount unlawfully
paid, to the corporation and its creditors in the event of a dissolution or
insolvency if they pay a dividend that is not out of the corporation's surplus
or net profits in the fiscal year the dividend.
Classes of Stock
Lifeline. Lifeline's common stock is currently its only class of stock,
each share of which shall participate equally in dividends and distributions
upon dissolution of the corporation. Under Massachusetts law, if a corporation's
articles of organization so provide, its directors may determine the
preferences, voting powers, qualifications, and special or relative rights or
privileges or any class of stock before the issuance of any share of that class.
New Protection One. Delaware law also allows the directors of a Delaware
corporation to determine the voting powers, designations, preferences, rights
and qualifications, limitations or restrictions of a class of stock if the
certificate of corporation so provides. The New Protection One certificate of
incorporation permits the board of directors to make such a designation for
preferred stock. Such preferred stock may have dividend and distribution rights
superior to those of the New Protection One common stock.
LEGAL MATTERS
The validity of the shares of New Protection One common stock to be issued
in the mergers will be passed upon by, and an opinion with respect to material
federal income tax consequences of the Protection One merger will be rendered to
Protection One and New Protection One by, Weil, Gotshal & Manges LLP, Dallas,
Texas and New York, New York.
An opinion with respect to material federal income tax consequences of the
Lifeline merger on holders of shares of Lifeline common stock will be rendered
to Lifeline by Hale and Dorr LLP, Boston, Massachusetts.
INDEPENDENT AUDITORS
The consolidated financial statements and schedules of Protection One, Inc.
and its accounting predecessor, Westinghouse Security, appearing in its annual
report on Form 10-K for the year ended December 31, 1997, have been audited by
Arthur Andersen LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein. The consolidated financial statements
and schedules of Lifeline Systems, Inc. appearing in its annual report on Form
10-K for the year ended December 31, 1997, have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein.
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STOCKHOLDER PROPOSALS FOR NEW PROTECTION ONE 1999 ANNUAL MEETING
No proposals to be presented at the annual meeting of stockholders of
Protection One to be held in 1999 were received by Protection One by December 8,
1998, the deadline in order to be considered for inclusion in Protection One's
proxy statement and form of proxy relating to the annual meeting.
In accordance with the rules and regulations of the SEC, Protection One's
management will have discretionary authority to vote on any proposal raised by a
stockholder at the 1999 annual meeting if the proponent of such proposal fails
to notify Protection One of such proposal on or before February 22, 1999.
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ANNEX A
AMENDED AND RESTATED AGREEMENT
AND PLAN OF CONTRIBUTION AND MERGER
DATED AS OF OCTOBER 28, 1998
BY AND AMONG
PROTECTION ONE, INC.
(A DELAWARE CORPORATION)
PROTECTION ONE ACQUISITION HOLDING CORPORATION
(A DELAWARE CORPORATION)
P-1 MERGER SUB, INC.
(A MASSACHUSETTS CORPORATION)
P-1 MERGER SUB, INC.
(A DELAWARE CORPORATION)
AND
LIFELINE SYSTEMS, INC.
(A MASSACHUSETTS CORPORATION)
<PAGE> 102
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1
THE MERGERS...................................................... A-2
1.1 The Mergers................................................. A-2
1.2 Effective Time.............................................. A-2
1.3 Effect of the Merger........................................ A-2
1.4 Further Actions............................................. A-2
1.5 Articles of Organization; By-Laws; Directors and Officers... A-2
1.6 Corporate Identity.......................................... A-3
ARTICLE 2
CONVERSION OF SECURITIES......................................... A-3
2.1 Conversion of Securities.................................... A-3
2.2 Conversion of Securities -- The Parent Merger............... A-5
2.3 Cancellation of Certain New Parent Stock; Other Matters A-6
Affecting New Parent Common Stock...........................
2.4 Exchange of Certificates.................................... A-6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES................................... A-8
3.1 Organization and Qualification.............................. A-8
3.2 Capitalization.............................................. A-9
3.3 Authority................................................... A-9
3.4 Compliance.................................................. A-10
3.5 Commission Filings.......................................... A-10
3.6 Litigation.................................................. A-11
3.7 Changes..................................................... A-11
3.8 Environmental Matters....................................... A-11
3.9 Compliance with Laws; Permits............................... A-12
3.10 No Undisclosed Material Liabilities......................... A-13
3.11 Interim Operations of Merger Subs........................... A-13
3.12 Broker's Fees............................................... A-13
3.13 Financing................................................... A-13
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... A-13
4.1 Organization and Qualification.............................. A-13
4.2 Subsidiaries................................................ A-13
4.3 Capitalization.............................................. A-14
4.4 Authority................................................... A-15
4.5 Compliance.................................................. A-15
4.6 Commission Filings.......................................... A-15
4.7 Litigation.................................................. A-16
4.8 Changes..................................................... A-16
4.9 Transactions with Affiliates................................ A-17
4.10 Environmental Matters....................................... A-17
4.11 Employee Benefits and Contracts............................. A-18
4.12 Liens on Assets............................................. A-19
4.13 Rights Agreement............................................ A-19
4.14 Taxes....................................................... A-19
4.15 Compliance with Laws; Permits............................... A-20
4.16 Intellectual Property....................................... A-20
4.17 No Undisclosed Material Liabilities......................... A-20
</TABLE>
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4.18 Brokers..................................................... A-20
4.19 Prepayment of Indebtedness.................................. A-21
4.20 Provisions Inapplicable..................................... A-21
4.21 No Existing Discussions..................................... A-21
ARTICLE 5
CONDUCT OF BUSINESS.............................................. A-21
5.1 Company Conduct Prior to Effective Time..................... A-21
5.2 Parent Conduct Prior to Effective Time...................... A-23
5.3 Commission Filings.......................................... A-23
5.4 Joint Proxy Statement/Information Statement; Registration A-23
Statement...................................................
5.5 Employee Stock Options and Benefit Plans.................... A-24
5.6 Further Assurances.......................................... A-25
5.7 Accountants' "Comfort" Letters.............................. A-25
ARTICLE 6
ADDITIONAL AGREEMENTS............................................ A-25
6.1 Access to Information....................................... A-25
6.2 Notification of Certain Matters............................. A-26
6.3 Fees and Expenses........................................... A-26
6.4 Additional Agreements....................................... A-26
6.5 No Solicitation............................................. A-27
6.6 Employee Stock Purchase Plan................................ A-28
6.7 Indemnification and Insurance............................... A-28
6.8 Fair Price Structure........................................ A-29
6.9 Guaranty.................................................... A-29
6.10 Certain Tax Related Representations......................... A-29
ARTICLE 7
CONDITIONS....................................................... A-29
7.1 Conditions to Obligation of Each Party to Effect the A-29
Mergers.....................................................
7.2 Conditions to Obligation of the Company to Effect the A-30
Company Merger..............................................
7.3 Conditions to Obligation of the Parent, New Parent and the A-30
Merger Subsidiaries to Effect the Mergers...................
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER................................ A-31
8.1 Termination................................................. A-31
8.2 Effect of Termination....................................... A-32
8.3 Amendment................................................... A-32
8.4 Waiver...................................................... A-32
ARTICLE 9
GENERAL PROVISIONS............................................... A-32
9.1 Closing..................................................... A-32
9.2 Publicity................................................... A-32
9.3 Notices..................................................... A-32
9.4 Interpretation.............................................. A-33
9.5 Representations and Warranties; etc......................... A-33
9.6 Miscellaneous............................................... A-33
9.7 Validity.................................................... A-34
9.8 Descriptive Headings........................................ A-34
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TABLE OF DEFINED TERMS
<TABLE>
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Acquiring Person............................................ 4.13
Acquisition Proposal........................................ 6.5(a)
Affiliates.................................................. 9.4
Agreement................................................... Recital
Average Closing Price....................................... 2.1(a)(i)
Cash Consideration.......................................... 2.1(a)
Certificate of Merger....................................... 1.2
Certificates................................................ 2.4(a)
Closing..................................................... 9.1
Closing Date................................................ 9.1
Code........................................................ Recital
Company..................................................... Recital
Commission.................................................. 3.5(a)
Company 1998 Commission Filings............................. 4.6(a)
Company 1997 10-K........................................... 4.2
Company 1997 Balance Sheet.................................. 4.12
Company Applicable Laws..................................... 4.15
Company Assets.............................................. 4.12
Company Commission Filings.................................. 4.6(a)
Company Disclosure Schedule................................. Article 4 Introduction
Company Material Adverse Effect............................. 4.1
Company Merger.............................................. Recital
Company Merger Consideration................................ 2.1(a)
Company Option.............................................. 4.3
Company Option Plan......................................... 4.3
Company Shares.............................................. 2.1(a)(i)
Company Subsidiary.......................................... 4.2
Delaware Law................................................ 1.1
Dissenting Shares........................................... 2.1(b)
Effective Time.............................................. 1.2
Election Form............................................... 2.1(c)
Election Deadline........................................... 2.1(d)
ESPP........................................................ 4.3(vi)
Environmental Law........................................... 3.8(a)
Environmental Reports....................................... 4.10(c)
ERISA....................................................... 4.11(b)
Exchange Act................................................ 3.4(b)
Exchange Agent.............................................. 2.4(a)
Exchange Fund............................................... 2.4(a)
Exchange Ratio.............................................. 2.1(a)(i)
Financial Advisor........................................... 6.5(a)
Governmental Entity......................................... 4.10(a)
Hart-Scott-Rodino Act....................................... 3.4(b)
Hazardous Materials......................................... 3.8(a)
Indemnified Parties......................................... 6.7
Information Statement....................................... 5.4(a)(i)
Joint Proxy/Information Statement........................... 5.4(a)(i)
Massachusetts Law........................................... 1.1
Merger...................................................... 1.1
Merger Sub I................................................ Recital
Merger Sub II............................................... Recital
</TABLE>
(iii)
<PAGE> 105
<TABLE>
<S> <C>
Merger Subsidiary........................................... 1.1
New Parent.................................................. Recital
New Parent Common Stock..................................... 2.1(a)(i)
Notice of Qualified Acquisition Proposal.................... 6.5(c)
Option Exchange Ratio....................................... 5.5(a)
Parent...................................................... Recital
Parent Applicable Laws...................................... 3.9
Parent Commission Filings................................... 3.5(a)
Parent Common Stock......................................... 2.1(a)(i)
Parent Disclosure Schedule.................................. Article 3 Introduction
Parent Material Adverse Effect.............................. 3.1
Parent Merger............................................... Recital
Parent Merger Consideration................................. 2.2
Parent Option............................................... 3.2(a)
Parent Option Plan.......................................... 3.2(a)
Parent Preferred Shares..................................... 3.2(a)
Parent Shares............................................... 2.2
Parent Subsidiaries......................................... 3.1
Party....................................................... 1.1
Proxy Statement............................................. 5.4(a)(i)
Qualified Acquisition Proposal.............................. 6.5(a)
Qualified Commercial Bank................................... 2.4(d)
Registration Statement...................................... 5.4(a)(i)
Rights Agreement............................................ 4.13
Securities Act.............................................. 3.4(b)
Special Meeting............................................. 2.1(b)
Stock Election.............................................. 2.1(a)
Stock Option Agreement...................................... Recital
Substitute Option........................................... 5.5(a)
Surviving Corporation....................................... 1.1
Tax......................................................... 4.14
Tax Returns................................................. 4.14
Third Party................................................. 6.5(a)
Trigger Event............................................... 6.3(d)
Voting Agreement............................................ 4.13
Western Resources Voting Agreement.......................... Recital
1994 Plan................................................... 3.2
1991 Directors Plan......................................... 4.3
1991 Plan................................................... 4.3
</TABLE>
(iv)
<PAGE> 106
AMENDED AND RESTATED AGREEMENT
AND PLAN OF CONTRIBUTION AND MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF CONTRIBUTION AND MERGER
(this "Agreement"), dated as of October 28, 1998, is by and among Protection
One, Inc., a corporation organized under the laws of the State of Delaware (the
"Parent"), Protection One Acquisition Holding Corporation, a corporation
organized under the laws of the State of Delaware and a wholly owned subsidiary
of Parent (the "New Parent"), P-1 Merger Sub, Inc., a corporation organized
under the laws of the Commonwealth of Massachusetts and a wholly owned
subsidiary of New Parent (the "Merger Sub I"), P-1 Merger Sub, Inc., a
corporation organized under the laws of the State of Delaware and a wholly owned
subsidiary of New Parent (the "Merger Sub II"), and Lifeline Systems, Inc., a
corporation organized under the laws of the Commonwealth of Massachusetts (the
"Company").
BACKGROUND
A. The Parent, New Parent, Merger Sub I, Merger Sub II and the Company are
parties to an Agreement and Plan of Contribution and Merger dated as of October
18, 1998 (the "Initial Merger Agreement") and wish to amend and restate the
Initial Merger Agreement in its entirety by executing this Agreement to permit
holders of Company Shares (as defined below) to make the Stock Election (as
defined below).
B. The respective Boards of Directors of the Company and Merger Sub I have
each duly approved the merger of Merger Sub I and the Company on the terms and
subject to the conditions of this Agreement (the "Company Merger"), as a result
of which the Company will become a wholly owned subsidiary of New Parent. New
Parent, as the sole stockholder of Merger Sub I has duly approved the Company
Merger and the board of directors of the Company has duly resolved to recommend
approval of the Company Merger by its stockholders.
C. The respective boards of directors of Parent and Merger Sub II have each
duly approved the merger of Merger Sub II and Parent on the terms and subject to
the conditions of this Agreement (the "Parent Merger"), as a result of which
Parent will become a wholly owned subsidiary of New Parent. New Parent, as the
sole stockholder of Merger Sub II has duly approved the Parent Merger and the
Board of Directors of Parent has duly resolved to recommend approval of the
Parent Merger by its stockholders.
D. Concurrently with the execution and delivery of the Initial Merger
Agreement and as a condition to Parent's willingness to enter into the Initial
Merger Agreement and this Agreement, Parent and the Company entered into a Stock
Option Agreement (the "Stock Option Agreement") attached as Annex A hereto.
E. Concurrently with the execution and delivery of the Initial Merger
Agreement, and as a condition to Parent's willingness to enter into the Initial
Merger Agreement and this Agreement, Parent and each director and executive
officer of the Company entered into a Voting Agreement (the "Voting Agreement")
in the form attached as Annex B hereto.
F. Concurrently with the execution and delivery of the Initial Merger
Agreement, and as a condition to the Company's willingness to enter into the
Initial Merger Agreement and this Agreement, the Company and Westar Capital,
Inc., the controlling stockholder of Parent, entered into a Voting Agreement
(the "Western Resources Voting Agreement") attached as Annex C hereto.
G. For United States federal income tax purposes, it is intended that the
formation of New Parent and the Mergers to effectuate the contribution of all of
the outstanding shares of Common Stock of the Company and Parent to New Parent
constitute an exchange under Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code"), and that the Parent Merger also constitute a
reorganization within the meaning of Section 368 of the Code.
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<PAGE> 107
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, Parent, New Parent, Merger Sub I,
Merger Sub II and the Company hereby agree as follows:
ARTICLE 1
THE MERGERS
1.1 The Mergers. Subject to and upon the terms and conditions of this
Agreement, at the Effective Time (as hereinafter defined) (i) Merger Sub I shall
be merged with and into the Company in accordance with this Agreement and the
applicable provisions of the Massachusetts Business Corporation Law (the
"Massachusetts Law"), the separate corporate existence of Merger Sub I shall
cease and the Company shall continue as the surviving corporation and as a
wholly owned subsidiary of New Parent, and (ii) Merger Sub II shall be merged
with and into Parent in accordance with this Agreement and the applicable
provisions of the General Corporation Law of the State of Delaware (the
"Delaware Law"), the separate corporate existence of Merger Sub II shall cease
and Parent shall continue as the surviving corporation and as a wholly owned
subsidiary of New Parent. The Company Merger and the Parent Merger are herein
collectively referred to as the "Mergers" and each individually as a "Merger".
The Company and Parent, as the surviving corporations after the Mergers, are
herein sometimes collectively referred to as the "Surviving Corporations" and
each individually as a "Surviving Corporation". Merger Sub I and Merger Sub II
are herein sometimes collectively referred to as the "Merger Subsidiaries" and
each individually as a "Merger Subsidiary". Parent, New Parent, the Company,
Merger Sub I and Merger Sub II are herein referred to collectively as the
"Parties" and each individually as a "Party."
1.2 Effective Time. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in Article 7 hereof, the Parties shall cause
the Mergers to be consummated concurrently by (a) delivering to the Secretary of
State of the Commonwealth of Massachusetts Articles of Merger with respect to
the Company Merger, in such form as required by, and executed and acknowledged
in accordance with, the relevant provisions of Massachusetts Law and (b) filing
a Certificate of Merger with the Secretary of State of the State of Delaware
with respect to the Parent Merger, in such form as required by, and executed in
accordance with, the relevant provisions of Delaware Law (the time of the later
of such filings to occur being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, (i) the Company shall
continue its corporate existence under the laws of the Commonwealth of
Massachusetts and the Company Merger shall have the effects set forth in Section
80 of Chapter 156B of the Massachusetts Law and (ii) Parent shall continue its
corporate existence under the laws of the State of Delaware and the Parent
Merger shall have the effects set forth in Section 259 of the Delaware Law.
1.4 Further Actions. If, at any time after the Effective Time, either of
the Surviving Corporations shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in
such Surviving Corporation its right, title or interest in, to or under any of
the rights, properties, privileges, franchises or assets of either of its
constituent corporations or otherwise to carry out this Agreement, the officers
and directors of such Surviving Corporation shall be directed and authorized to
execute and deliver, in the name and on behalf of any of such constituent
corporations or the Merger Subsidiaries, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such
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rights, properties, privileges, franchises or assets in such Surviving
Corporation or otherwise to carry out this Agreement.
1.5 Articles of Organization; By-Laws; Directors and Officers. Unless
otherwise agreed by Parent and Company before the Effective Time, at the
Effective Time:
(i) The Articles of Organization of the Company as in effect
immediately prior to the Effective Time (including the purposes of the
Surviving Corporation and the total number of shares and the
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<PAGE> 108
par value, if any, of each class of stock which the Surviving Corporation
is authorized to issue) shall be the Articles of Organization of the
Company as a Surviving Corporation, and the Certificate of Incorporation of
Parent as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of Parent as a Surviving Corporation (except
that the Certificate of Incorporation of Parent shall be amended by virtue
of the Parent Merger to change the name of Parent to "Protection One
Holding Corporation"), in each case until thereafter amended as provided by
law and such Articles of Organization or Certificate of Incorporation, as
the case may be.
(ii) The respective Bylaws of each of Company and Parent in each case
as in effect immediately prior to the Effective Time, shall be the Bylaws
of Company and Parent, respectively, as a Surviving Corporation in each
case until thereafter amended as provided by law and the Articles of
Organization or Certificate of Incorporation, as the case may be, of such
Surviving Corporation and such Bylaws; and
(iii) (x) The directors of Merger Sub I and Merger Sub II immediately
prior to the Effective Time shall be the directors of Company and Parent,
respectively, as the respective Surviving Corporations from and after the
Effective Time, in each case until their successors are elected or
appointed and qualified or until their resignation or removal; and (y) the
officers of Parent and Company immediately prior to the Effective Time
shall be the officers of Parent and Company, respectively, as the
respective Surviving Corporations from and after the Effective Time, in
each case until their successors are elected or appointed and qualified or
until their resignation or removal.
1.6 Corporate Identity. The Company and Parent agree that immediately
after the Effective Time, the corporate name of New Parent shall be changed to
"Protection One, Inc." (and the Company and Parent agree that they shall take
such actions in connection with the consummation of the transactions
contemplated by this Agreement as may be necessary to ensure that such name
change may be effected without further action by the stockholders of New Parent
immediately following the consummation of the Mergers).
ARTICLE 2
CONVERSION OF SECURITIES
2.1 Conversion of Securities -- The Company Merger
(a) At the Effective Time, by virtue of the Company Merger and without any
action on the part of Merger Sub I, the Company, the Surviving Corporation of
the Company Merger or the holder of any of the following securities:
(i) subject to Section 2.1(b), each share of Common Stock, $0.02 par
value per share, of the Company (the "Company Shares") issued and
outstanding immediately prior to the Effective Time (other than Company
Shares to be cancelled pursuant to clause (ii) below and any Dissenting
Shares (as defined below)) together with the associated Right (hereafter
defined) issued or issuable pursuant to the Rights Agreement (hereafter
defined) shall be cancelled and extinguished and be converted into and
become a right to receive (without interest thereon) (x) (subject to the
proviso set forth below) $14.50 in cash (the "Cash Consideration"), (y) the
number of shares of New Parent Common Stock, $.01 par value per share ("New
Parent Common Stock") equal to the Exchange Ratio (as defined below) and
(z) cash in lieu of fractional shares as contemplated by Section 2.4(b);
provided, however, that each holder of Company Shares shall be entitled to
elect (the "Stock Election") to receive, in lieu of all or any portion of
the Cash Consideration, additional shares of New Parent Common Stock in an
amount equal to the portion of the Cash Consideration with respect to which
the Stock Election is made divided by the greater of (1) the Average
Closing Price (as defined below) and (2) $9.50 (the consideration referred
to in clauses (x), (y) and (z) being collectively referred to as the
"Company Merger Consideration").
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<PAGE> 109
The term "Exchange Ratio" means:
(A) 1.7857 if the Average Closing Price is less than $7.00;
(B) the quotient obtained by dividing (x) $12.50 by (y) the Average
Closing Price, if the Average Closing Price is equal to or greater than
$7.00 but less than $8.19;
(C) 1.5263 if the Average Closing Price is equal to or greater than
$8.19 but less than $9.50;
(D) the quotient obtained by dividing (x) $14.50 by (y) the Average
Closing Price, if the Average Closing Price is equal to or greater than
$9.50 but less than $11.00; and
(E) 1.3182 if the Average Closing Price is equal to or greater than
$11.00.
The term "Average Closing Price" means the average of the closing prices of
the Parent Common Stock, par value $.01 per share (the "Parent Common
Stock") on the Nasdaq National Market or the New York Stock Exchange (as
reported in The Wall Street Journal or, if not reported thereby, any other
authoritative source) during the ten most recent trading days on which
shares of Parent Common Stock actually traded ending three trading days
prior to the date on which stockholders of the Company approve the Merger;
(ii) each Company Share that is issued and outstanding immediately
prior to the Effective Time and owned by New Parent, the Merger
Subsidiaries or the Company shall be cancelled and retired, and no payment
shall be made with respect thereto; and
(iii) each share of Merger Sub I's capital stock issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation of the Company Merger.
(b) Notwithstanding Section 2.1(a), Company Shares outstanding immediately
prior to the Effective Time and held by a holder who, acting in accordance with
Sections 86 to 98 of Chapter 156B of the Massachusetts Law, (i) prior to the
special meeting at which the Company's stockholders vote to approve the Company
Merger (the "Special Meeting") has delivered to the Company written notice of
such holder's intention to demand payment for his Company Shares if the Company
Merger is effectuated and (ii) has not voted in favor of the Merger ("Dissenting
Shares"), shall not be converted into a right to receive the Company Merger
Consideration, unless such holder withdraws or otherwise loses his right to
demand payment for his Company Shares. If after the Effective Time such holder
withdraws or loses his right to demand payment for his Company Shares, such
Company Shares shall be treated as if they had been converted as of the
Effective Time into the right to receive the Company Merger Consideration
payable in respect of such Company Shares pursuant to Section 2.1(a)(i).
(c) Subject to paragraph (d) below, each person who is a record holder of
Company Shares (other than holders of shares of Company Shares to be cancelled
as set forth in Section 2.1(a)(ii) or Dissenting Shares) shall have the right to
submit an election form (the "Election Form") specifying the portion of the Cash
Consideration, if any, that such person desires to have converted into the right
to receive New Parent Common Stock pursuant to the proviso set forth in Section
2.1(a)(i) above.
(d) Stock Elections shall be made by record holders of Company Shares by
mailing to the Exchange Agent an Election Form. Parent, New Parent and the
Company shall each use its reasonable best efforts to mail the Election Form
(which shall be part of an appropriate letter of transmittal), with a Proxy
Statement (as defined in Section 5.4), to the record holders of
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the Company Shares for the Special Meeting, and to all persons who become record
holders of Company Shares during the period between the record date for the
Special Meeting and 10:00 a.m. New York City time, on the date five calendar
days prior to the Special Meeting. The Election Form will be available upon
request to any person who becomes a record holder of Company Shares after such
date and prior to the close of business on the business day prior to the Special
Meeting. Any Stock Election shall have been validly made only if the Exchange
Agent shall have received by 5:00 p.m. New York City time on the date of the
Special Meeting
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<PAGE> 110
(the "Election Deadline"), an Election Form properly completed and signed (with
the signature or signatures thereof guaranteed to the extent required by the
Election Form) by such holder accompanied by such holder's Certificates
representing Company Shares, or by an appropriate guarantee of delivery of such
Certificates representing Company Shares from a member of any registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company in the United States or such
other person acceptable to New Parent, as set forth in such Election Form. Any
holder of Company Shares who has made an election by submitting an Election Form
to the Exchange Agent may at any time prior to the Election Deadline change such
holder's election by submitting a revised Election Form, properly completed and
signed that is received by the Exchange Agent prior to the Election Deadline.
Any holder of Company Shares may at any time prior to the Election Deadline
revoke his election and withdraw his Company Certificates deposited with the
Exchange Agent by written notice to the Exchange Agent received prior to the
Election Deadline. New Parent will have the discretion, which it may delegate in
whole or in part to the Exchange Agent, to determine whether Election Forms have
been properly completed, signed and submitted or revoked and to disregard
immaterial defects in the Election Forms. The decision of New Parent (or the
Exchange Agent) in such matters shall be conclusive and binding. Neither New
Parent or the Exchange Agent will be under any obligation to notify any person
of any defect in an Election Form submitted to the Exchange Agent. The Exchange
Agent shall also make all computations contemplated by this Section 2.1 and all
such computations shall be conclusive and binding on the holders of Company
Shares. As of the Election Deadline, all holders of Company Shares at the
Election Deadline that shall not have submitted to the Exchange Agent or shall
have properly revoked an effective, properly completed Election Form, shall be
deemed not to have made a Stock Election. If New Parent or the Exchange Agent
shall determine that any purported Stock Election was not properly made, such
purported Stock Election shall be of no force and effect.
(e) Parent (with the consent of the Company which shall not be unreasonably
withheld) shall have the right to make rules, not inconsistent with the terms of
this Agreement, governing the validity of the Election Forms, the issuance and
delivery of certificates for New Parent Common Stock into which shares of
Company Shares are converted in the Company Merger, and the payment of cash for
shares of Company Shares converted into the right to receive cash in the Company
Merger.
(f) The Company shall give the New Parent and Merger Sub I prompt notice of
any demands for payment, or notices of intent to demand payment, received by the
Company with respect to Company Shares, and New Parent and Merger Sub I shall
have the right to participate in (and control) all negotiations and proceedings
with respect to such demands. The Company shall not, except with the prior
written consent of New Parent or as otherwise required by law, make any payment
with respect to, or settle, or offer to settle, any such demands.
2.2 Conversion of Securities -- The Parent Merger
At the Effective Time, by virtue of the Parent Merger and without any
action on the part of Merger Sub II, Parent, the Surviving Corporation of the
Parent Merger or the holder of any of the following securities:
(i) each share of Parent Common Stock ("Parent Shares"), issued and
outstanding immediately prior to the Effective Time (other than Parent
Shares to be cancelled pursuant to clause (ii) below) shall be converted
into and become one fully paid and nonassessable share of New Parent Common
Stock (the "Parent Merger Consideration");
(ii) each Parent Share that is issued and outstanding and owned by
Parent, New Parent, or Merger Sub II shall be cancelled and retired, and no
shares of New Parent Common Stock shall be issued with respect thereto; and
A-7
(iii) each share of Merger Sub II's capital stock issued and
outstanding immediately prior to the Effective Time shall be converted into
and become one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation of the Parent Merger.
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<PAGE> 111
2.3 Cancellation of Certain New Parent Stock; Other Matters Affecting New
Parent Common Stock.
(a) At the Effective Time, the shares of New Parent Common Stock held by
Parent shall be cancelled and retired and all consideration paid by Parent in
respect thereof shall be returned. No shares of stock or other securities of New
Parent or any other corporation shall be issuable, and no other payment or
consideration shall be made, with respect to such shares of New Parent Common
Stock.
(b) At the Effective Time, New Parent shall assume all stock options and
warrants of Parent issued and outstanding immediately prior to the Effective
Time and such assumed options and warrants will be exercisable for the same
exercise price and for the same number of shares of New Parent Common Stock as
previously applied to Parent Common Stock. The adjustments provided herein with
respect to any options which are "incentive stock options" (as defined in
Section 422 of the Code) shall be effected in a manner consistent with Section
424(a) of the Code.
2.4 Exchange of Certificates.
(a) As of the Effective Time, a bank or trust company to be designated by
the Parent or the New Parent prior to the record date for the Special Meeting
and consented to by the Company (such consent not to be unreasonably withheld or
delayed) (the "Exchange Agent") shall act as exchange agent in effecting the
exchange, for the Company Merger Consideration, of certificates (the
"Certificates") that, prior to the Effective Time, represented Company Shares
entitled to exchange pursuant to Section 2.1(a)(i). The New Parent shall deposit
with the Exchange Agent in trust for the benefit of the holders of Certificates
formerly representing Company Shares, cash together with certificates for such
number of shares of New Parent Common Stock into which the Company Shares are
converted pursuant to Section 2.1(a)(i)(together with any dividends or
distributions with respect thereto with a record date after the Effective Time,
the "Exchange Fund"). Promptly after the Effective Time (but in any event within
three business days thereof), the New Parent shall cause to be mailed to each
record holder of Certificates that immediately prior to the Effective Time
represented Company Shares (and which shall not previously have been surrendered
in connection with a Stock Election) a form of letter of transmittal and
instructions for use in surrendering such Certificates and receiving the Company
Merger Consideration therefor. Subject to any applicable withholding tax
requirements, upon the surrender of each such Certificate together with a duly
completed and executed letter of transmittal, the Exchange Agent shall (x) pay
to the holder of such Certificate formerly representing Company Shares cash
equal to the amount of cash due such holder after giving effect to any Stock
Election made by such holder and (y) issue to the holder of such Certificate a
certificate for that number of shares of the New Parent Common Stock equal to
the number of shares of New Parent Common Stock due under the Company Merger
Consideration elected by such holder, and such Certificate shall forthwith be
cancelled. Only certificates for whole shares of New Parent Common Stock shall
be issued, with cash paid in lieu of fractional shares as provided in Section
2.4(b) below. Until so surrendered and exchanged, each such Certificate (other
than Certificates representing Company Shares held by New Parent or the Company
or Dissenting Shares) shall represent solely the right to receive the Company
Merger Consideration therefor. If any certificates for New Parent Common Stock
are to be issued to a person other than the holder in whose name the Certificate
formerly representing Company Shares surrendered in exchange therefor is
registered, it shall be a condition to such issuance that the person requesting
such issuance shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of such certificates for New Parent Common
Stock to a person other than the registered holder of the Certificate
surrendered, or such person shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of Company Shares for any
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Company Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat and similar laws.
(b) No fractional shares of New Parent Common Stock shall be issued upon
the surrender for exchange of Certificates, no dividend or distribution of the
New Parent shall relate to such fractional share interests and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
stockholder of the New Parent. As promptly as practicable following the
Effective Time, the New Parent
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<PAGE> 112
shall pay to each record holder of Company Shares an amount in cash, if any,
equal to the product obtained by multiplying (i) the fractional share interest
to which such holder (after taking into account all Company Shares held at the
Effective Time by such holder) would otherwise be entitled by (ii) the Average
Closing Price. As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Company Shares with respect to any
fractional share interests, the Exchange Agent will make available such amounts
to such holders subject to the terms of Section 2.4(c).
(c) No dividends or other distributions with respect to New Parent Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate formerly representing Company Shares with respect
to the shares of New Parent Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.4(b), and all such dividends, other distributions and cash in lieu
of fractional shares of New Parent Common Stock shall be paid by New Parent to
the Exchange Agent and shall be included in the Exchange Fund, in each case
until the due and valid surrender of such Certificate in accordance with this
Article 2. Subject to the effect of applicable abandoned property, escheat or
similar laws and laws with respect to the withholding of taxes, following the
due and valid surrender of any such Certificate there shall be paid to the
holder of the Certificate representing whole shares of New Parent Common Stock
issued in the exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
New Parent Common Stock and the amount of any cash payable in lieu of a
fractional share of New Parent Common Stock to which such holder is entitled
pursuant to Section 2.4(b) and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of New Parent Common Stock. The New
Parent shall make available to the Exchange Agent cash (or the other property so
distributed) for these purposes.
(d) To the extent not immediately required for payment for fractional
shares or dividends, the Exchange Fund (excluding shares of New Parent Common
Stock) shall be invested by the Exchange Agent, as directed by the New Parent
(so long as such directions do not impair the rights of holders of Company
Shares), in direct obligations of the United States of America, obligations for
which the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, commercial paper rated of the
highest quality by Moody's Investors Services, Inc. or Standard & Poor's
Corporation, or certificates of deposit issued by a commercial bank having at
least $300,000,000 in assets (a "Qualified Commercial Bank"); and any net
earnings with respect thereto shall be paid to the New Parent as and when
requested by the New Parent.
(e) Promptly following the date that is one year after the Effective Time,
the Exchange Agent shall deliver to the New Parent all shares of New Parent
Common Stock, cash, certificates and other documents in its possession relating
to the transactions described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate formerly representing
a Company Share may surrender such Certificate to the New Parent and receive
(subject to applicable abandoned property, escheat and similar laws) in exchange
therefor (subject to any applicable withholding tax requirements) the Company
Merger Consideration therefor, together with payment for any fractional shares
or dividends pursuant to Sections 2.4(b) and (c) without any interest thereon
but such holders shall have no greater rights against any Surviving Corporation
or the New Parent than may be accorded to general creditors of any Surviving
Corporation or the New Parent under applicable law.
(f) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company, the Parent or the Surviving Corporations of any
Company Shares or Parent Shares. If, after the Effective Time, Certificates
formerly representing Company Shares are presented to the Surviving Corporation
of the Company Merger or the Exchange Agent, they shall be cancelled and
exchanged (subject to any applicable withholding tax requirements) for the
Company Merger Consideration, as provided in this Article 2, subject to
applicable law in the case of Dissenting Shares.
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(g) From and after the Effective Time, holders of Certificates theretofore
evidencing Company Shares shall cease to have any rights as stockholders of the
Company, except as provided herein or by law. From and after the Effective Time,
holders of Certificates theretofore evidencing Parent Shares shall cease to have
any rights as stockholders of the Parent except as provided herein or by law,
but shall have all rights as stockholders of New Parent with respect to the
number of shares of New Parent Common Stock into which such Parent Shares were
converted in the Parent Merger. After the Effective Time, Certificates formerly
representing Parent Shares automatically shall be deemed to represent an
equivalent number of shares of New Parent Common Stock.
(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation, the
posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the Company Merger Consideration
or the Parent Merger Consideration, as appropriate, and, if applicable, any cash
in lieu of fractional shares, and unpaid dividends and distributions on shares
of New Parent Common Stock deliverable in respect thereof, pursuant to this
Agreement.
(i) If at any time during the period between the date of this Agreement and
the Effective Time, (A) any change in the outstanding shares of capital stock of
Parent shall occur as a result of any reclassification, recapitalization, stock
split (including a reverse stock split) or combination, exchange or readjustment
of shares, or any stock dividend or stock distribution with a record date during
such period, (B) Parent pays or declares an extraordinary dividend with a record
date prior to the Effective Time, or (C) Parent issues Parent Common Stock at
prices below the current market price thereof (as reasonably determined by
Parent and excluding issuance of shares upon exercise of existing options or
warrants or upon conversion of outstanding securities convertible into shares of
Parent Common Stock), the Exchange Ratio shall be equitably adjusted.
(j) If the New Parent or the Exchange Agent is required by applicable
withholding tax requirements to withhold amounts from the Company Merger
Consideration, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Company Shares in respect of
which such deductions and holdings were made by New Parent or the Exchange
Agent.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE PARENT, NEW PARENT AND THE MERGER SUBSIDIARIES
The Parent, New Parent, Merger Sub I and Merger Sub II each represents and
warrants to the Company, except as set forth on a Disclosure Schedule previously
delivered to the Company the ("Parent Disclosure Schedule") with respect to any
representation or warranty set forth below, as follows:
3.1 Organization and Qualification. Each of the Parent, New Parent, Merger
Sub I and Merger Sub II is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and has all requisite
corporate power and authority to carry on its business as it is now being
conducted. Each of the Parent, New Parent, Merger Sub I and Merger Sub II is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities makes such qualification necessary, except for
failures to be so qualified or in good standing which would not, in the
aggregate, have or reasonably be expected to have a material adverse effect on
the business, properties, assets, financial condition or results of operations
of the Parent and its subsidiaries ("the Parent Subsidiaries") taken as a whole
(but excluding any change, effect, condition, event or circumstance arising out
of or attributable to (i) changes, effects, conditions, events or circumstances
that generally affect the industries in which the Parent or Parent Subsidiaries
operate (including legal and regulatory changes) or (ii) changes arising from
the consummation of the transactions contemplated hereby or the announcement of
the execution of this
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Agreement) (a "Parent Material Adverse Effect"). Copies of the charter documents
and by-laws of the Parent, New Parent, Merger Sub I and Merger Sub II have
heretofore been delivered to the Company and such copies are accurate and
complete as of the date hereof.
3.2 Capitalization.
(a) The authorized capital stock of the Parent consists of (a) 150,000,000
Parent Shares and (b) 5,000,000 shares of preferred stock, $0.10 par value per
share (the "Parent Preferred Shares"). As of the date of this Agreement:
(i) 126,825,441 Parent Shares were validly issued and outstanding,
fully paid and nonassessable and no Parent Preferred Shares were issued or
outstanding;
(ii) No Parent Shares and no Parent Preferred Shares were held in the
treasury of the Parent;
(iii) 9,245,529 Parent Shares are reserved for issuance pursuant to
the Convertible Notes.
(iv) 4,200,000 Parent Shares are reserved for issuance pursuant to the
Parent's 1997 Long-Term Incentive Plan (the "1997 LTIP");
(v) 2,750,238 Parent Shares are reserved for issuance pursuant to an
option issued to Western Resources, Inc., the parent company of Westar
Capital, Inc.;
(vi) 1,214,678 Parent Shares are reserved for issuance pursuant to
certain warrants issued in 1993 and 1995;
(vii) 973,165 Parent Shares are reserved for issuance pursuant to the
Parent's 1994 Stock Option Plan (the "1994 Plan");
(viii) 560,134 Parent Shares are reserved for issuance pursuant to the
Parent's employee stock purchase plan;
(ix) 347,800 Parent Shares are reserved for issuance pursuant to the
Parent's 401(k) plan; and
(x) 103,697 Parent Shares are reserved for issuance pursuant to a
warrant held by a bank.
The 1997 LTIP and the 1994 Plan are sometimes hereinafter referred to
collectively as the "Parent Option Plans" and individually as a "Parent Option
Plan," and the options granted thereunder are hereinafter referred to
collectively as the "Parent Options" and individually as a "Parent Option."
Except as set forth above in this Section 3.2, as of the date hereof, there are
no other shares of capital stock or other equity securities of the Parent
outstanding and no other outstanding options, warrants, rights to subscribe to
(including any preemptive rights), calls or commitments of any character
whatsoever to which the Parent or any of the Parent Subsidiaries is a party or
may be bound requiring the issuance, transfer or sale of any shares of capital
stock or other securities of the Parent or any of the Parent Subsidiaries or any
securities or rights convertible into or exchangeable or exercisable for any
such shares or securities, and, as of the date hereof, there are no contracts,
commitments, understandings or arrangements by which the Parent or any of the
Parent Subsidiaries is or may become bound to issue additional shares of their
capital stock or options, warrants or rights to purchase or acquire any
additional shares of their capital stock or securities convertible into or
exchangeable or exercisable for any such shares. All of the outstanding Parent
Shares have been validly issued and are fully paid and non-assessable.
(b) The authorized capital stock of the New Parent consists of (a)
250,000,000 shares of New Parent Common Stock of which 1,000 shares are issued
and outstanding and owned beneficially and of record by Parent and (b)
50,000,000 shares of preferred stock, $0.10 par value per share, none of which
are issued or outstanding. All of the outstanding shares of New Parent Common
Stock have been validly issued and are fully paid and non-assessable.
3.3 Authority. Each of the Parent, New Parent, Merger Sub I and Merger Sub
II has all requisite corporate power and authority to enter into this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
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Parent, New Parent, Merger Sub I and Merger Sub II and the consummation by the
Parent, New Parent, Merger Sub I and Merger Sub II of the transactions
contemplated hereby have been duly authorized by the respective Boards of
Directors of the Parent, New Parent, Merger Sub I and Merger Sub II and by the
Parent as the sole stockholder of New Parent and by New Parent as the sole
stockholder of the Merger Subsidiaries and no other corporate proceedings on the
part of the Parent, New Parent or the Merger Subsidiaries are necessary to
authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby by the Parent, New Parent or the Merger
Subsidiaries except for the approval of the Parent Merger by holders of Parent
Common Stock. This Agreement has been duly executed and delivered by the Parent,
New Parent, Merger Sub I and Merger Sub II and constitutes a valid and binding
obligation of each of them, enforceable against each of them in accordance with
its terms, subject to applicable bankruptcy, insolvency and other laws
pertaining to creditors' rights in general.
3.4 Compliance.
(a) Neither the execution and delivery of this Agreement by the Parent, New
Parent and the Merger Subsidiaries nor the consummation by them of the
transactions contemplated hereby, nor compliance by the Parent, New Parent and
the Merger Subsidiaries with any of the provisions hereof will (i) violate,
conflict with, or result in a breach of any provision of, or constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Parent, New Parent or
the Merger Subsidiaries under, any of the terms, conditions or provisions of (x)
the charter or by-laws of the Parent, New Parent or the Merger Subsidiaries or
(y) any note, bond, mortgage, indenture, deed of trust, license, lease, or any
other agreement or instrument or obligation to which the Parent, New Parent or
the Merger Subsidiaries is a party, or to which any of them, or any of their
respective properties or assets, may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, violate any
Parent Applicable Law (as defined in Section 3.9 below); except, in the case of
each of clauses (i)(y) and (ii) above, for such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security interests,
charges or encumbrances that, would not have a Parent Material Adverse Effect
and would not materially adversely affect the ability of the Parent, New Parent
and the Merger Subsidiaries to perform their obligations under this Agreement.
(b) Other than in connection with or in compliance with the provisions of
the Massachusetts Law, Delaware Law, the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the "blue sky" laws of various states and the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 and the rules and regulations
thereunder (the "Hart-Scott-Rodino Act"), no notice to, filing with, or
authorization, consent or approval of, any Governmental Entity (as defined in
Section 4.10(a)) is necessary for the consummation by the Parent, New Parent or
the Merger Subsidiaries of the transactions contemplated by this Agreement,
unless the failure to give such notices, make such filings, or obtain such
authorizations, consents or approvals would not, in the aggregate, materially
impair the ability of the Parent, New Parent and the Merger Subsidiaries to
perform their obligations hereunder and would not have a Parent Material Adverse
Effect.
3.5 Commission Filings.
(a) The Parent has filed with the Commission all required reports,
schedules, forms, statements and other documents from January 1, 1994 through
the date hereof. All documents filed by the Parent with the Commission pursuant
to the Securities Act or the Exchange Act since January 1, 1994 are referred to
herein as the "Parent Commission Filings." The Parent Commission Filings (i)
were prepared, in all material respects, in accordance with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations thereunder, (ii) did not at the time they were filed (or, if filed
and amended prior to the date of this Agreement, at the time they were amended
prior to the date hereof, or, if first filed after the date of this Agreement
and amended, at the time they were amended) contain any untrue statement of
material fact, and (iii) did not at the time they were filed (or, if filed and
amended
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prior to the date of this Agreement, at the time they were amended prior to the
date hereof, or, if first filed after the date of this Agreement and amended, at
the time they were amended) omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
Each of the audited consolidated financial statements and unaudited interim
consolidated financial statements (including any related notes or schedules)
included in the Parent Commission Filings was prepared in accordance with
generally accepted accounting principles applied on a consistent basis, except
as may be indicated therein or in the notes or schedules thereto, and fairly
presented in all material respects the consolidated financial position of the
Parent and the Parent Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended, subject,
in the case of the unaudited interim financial statements, to normal year-end
audit adjustments and the absence of complete notes.
(b) None of the information supplied or to be supplied by the Parent, New
Parent or the Merger Subsidiaries for inclusion or incorporation by reference in
(i) the Registration Statement (as defined herein) will, at the time the
Registration Statement is filed with the Commission and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Joint Proxy
Statement/Information Statement (as defined herein) will, at the date mailed to
stockholders of the Company and Parent and at the time of the meeting of
stockholders of the Company to be held in connection with the Company Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time, any event with respect
to the Parent, New Parent, the Merger Subsidiaries, their respective officers
and directors or any of their subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the Registration Statement or
the Joint Proxy Statement/Information Statement, Parent shall promptly so advise
the Company and such event shall be so described, and such amendment or
supplement (which the Company shall have a reasonable opportunity to review)
shall be promptly filed with the Commission and, as and to the extent required
by law, disseminated to the stockholders of Parent. The Registration Statement
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder and the Joint Proxy
Statement/Information Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made with respect to
statements made or incorporated by reference therein based on information
supplied by the Company specifically for inclusion or incorporation by reference
in such documents.
3.6 Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best knowledge of the Parent, threatened
against the Parent, New Parent, the Merger Subsidiaries or any of the Parent
Subsidiaries that could reasonably be expected to have a Parent Material Adverse
Effect or to materially adversely affect the Parent's, New Parent's, Merger Sub
I's or Merger Sub II's ability to perform its respective obligations under this
Agreement.
3.7 Changes. Except as contemplated by this Agreement or as disclosed in
the Parent Disclosure Schedule or in the Parent Commission Filings, since June
30, 1998, the Parent and the Parent Subsidiaries, taken as a whole, have
conducted their business only in the ordinary and usual course, and there has
not occurred any change, effect, condition, event or circumstance which has a
Parent Material Adverse Effect.
3.8 Environmental Matters.
(a) The Parent and the Parent Subsidiaries have complied in all respects
with all applicable Environmental Laws (as defined below), except for such
noncompliance which would not have a Parent Material Adverse Effect. For
purposes of this Agreement, "Environmental Law" means any foreign, U.S. federal,
provincial, state or local law, statute, ordinance, rule or regulation or the
common law relating to
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the environment or occupational health and safety, including without limitation,
any statute, ordinance, regulation or order pertaining to (i) release,
manufacture, use, processing, distribution, treatment, storage, disposal,
handling, generation or transportation of Hazardous Materials (as defined
below); (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the environment of
Hazardous Materials, including without limitation emissions, discharges,
injections, spills, escapes or dumping of Hazardous Materials; (v) the
protection of wild life, marine sanctuaries and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels
and containers; (vii) underground and other storage tanks or vessels, abandoned,
disposed or discarded barrels, containers and other closed receptacles; and
(viii) health and safety of employees and other persons. As used herein the term
"Environmental Laws" shall include, without limitation, the Clean Water Act,
also known as the Federal Water Pollution Control Act, 33 U.S.C. sec.sec. 1251,
et seq.; the Clean Air Act, 42 U.S.C. sec.sec. 7401, et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act (FIFRA), 7 U.S.C. sec. 136; the
Surface Mining Control and Reclamation Act of 1977 (SMCRA), 30 U.S.C. sec.sec.
1201, et seq.; the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. sec.sec. 9601, et seq. (CERCLA); the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613;
the Emergency Planning and Community Right-to-Know Act of 1986 (CEPCRA), 42
U.S.C. sec.sec. 11001, et seq.; the Resource Conversation and Recovery Act of
1976 (OSHA) as amended, 29 U.S.C. sec.sec. 655 and 657; the
Carpenter-Presley-Tanner Hazardous Substances Account Act; the California Health
& Safety Code sec.sec. 25300, et seq., the Massachusetts Hazardous Waste
Management Act, M.G.L. c. 21C; the Massachusetts Oil and Hazardous Materials
Release, Prevention and Response Act, M.G.L. c. 21E; the Massachusetts Toxics
Use Reduction Act, M.G.L. c. 211; the Massachusetts Air Pollution Control Act,
M.G.L. c. 111, sec.sec. 142A-142M; and the Massachusetts Water Pollution Control
Act, M.G.L. c. 21, together, in each case, with any amendment thereto, and the
regulations and rules adopted and the official publications promulgated
thereunder and all substitutions thereof. As used herein the term "Hazardous
Materials" shall mean (i) any chemical, compound, material, mixture or substance
that is defined or listed in, or otherwise classified pursuant to, any
Environmental Laws as a "hazardous substance," "hazardous material," "hazardous
waste," "extremely hazardous waste," "infectious waste," "toxic substance,"
"toxic pollutant" or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or
"EP toxicity" and (ii) any petroleum, natural gas, natural gas liquid, liquefied
natural gas, synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas), ash produced by a resource recovery facility utilizing a
governmental solid waste stream, and drilling fluids, produced waters, and other
wastes associated with the exploration, development or production of crude oil,
natural gas, or geothermal resources.
(b) There have been no releases of any Hazardous Materials into the
environment by the Parent or any Parent Subsidiary, or, to the knowledge of the
Parent by any other party at any parcel of real property or any facility
formerly or currently owned, operated or controlled by the Parent or any Parent
Subsidiary which had a Parent Material Adverse Effect.
3.9 Compliance with Laws; Permits. Neither the Parent nor any Parent
Subsidiary (a) is in violation of, or has violated, any Parent Applicable Laws
(as defined below) or (b) has received any notice from any Governmental Entity
or any other person that either the Parent or any Parent Subsidiary is in
violation of, or has violated, any Parent Applicable Laws, except for violations
which, individually or in the aggregate, do not have a Parent Material Adverse
Effect. The Parent or each Parent Subsidiary have all permits, licenses and
franchises from Governmental Entities required to conduct their businesses as
now being conducted, except for such permits, licenses and franchises the
absence of which would not have a Parent Material Adverse Effect. As used herein
the term "Parent Applicable Laws" means all applicable provisions of any laws,
statutes, ordinance, codes, rules, regulations or any agency requirements,
permits, licenses, judgments, orders, injunctions, decrees or arbitration awards
of any Governmental Entities applicable to the Parent or any Parent Subsidiary
and material to the conduct of the businesses of the Parent or any Parent
Subsidiary as those businesses are now being conducted and the ownership and
operation of any of the assets, properties or facilities of the Parent or any
Parent Subsidiary, provided, however, that the term Parent Applicable Laws shall
not include any Environmental Laws.
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3.10 No Undisclosed Material Liabilities. Except as disclosed in the
Parent Commission Filings or on the Parent Disclosure Schedule, and except for
liabilities arising since June 30, 1998 in the ordinary course of business,
there are no liabilities of the Parent or any of its subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, that would have a Parent Material Adverse Effect.
3.11 Interim Operations of Merger Subs. Each of the Merger Subsidiaries
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement, has engaged in no other business activities and has conducted
its operations only as contemplated by this Agreement.
3.12 Broker's Fees. Except for Barnes Associates, Inc., no agent, broker,
person or firm acting on behalf of the Parent, New Parent, Merger Sub I or
Merger Sub II is or will be entitled to any advisory, commission or broker's or
finder's fee from any of the parties hereto in connection with any of the
transactions contemplated herein.
3.13 Financing. The Parent has, and will have at the Effective Time, funds
and financing arrangements available to it sufficient to provide the funds
necessary to pay the cash portion of the Company Merger Consideration and to
consummate the Company Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent, New Parent and the
Merger Subsidiaries, except as set forth on a Disclosure Schedule previously
delivered to the Parent (the "Company Disclosure Schedule") with respect to any
representation or warranty set forth below, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has all requisite corporate power and
authority to carry on its business as it is now being conducted. The Company is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities makes such qualification necessary, except for
failures to be so qualified or in good standing which would not, in the
aggregate, have or reasonably be expected to have a material adverse effect on
the business, properties, assets, financial condition or results of operations
of the Company and the Company Subsidiaries (as defined in Section 4.2) taken as
a whole (but excluding any change, effect, condition, event or circumstance
arising out of or attributable to (i) changes, effects, conditions, events or
circumstances that generally affect the industries in which the Company operates
(including legal and regulatory changes) or (ii) changes arising from the
consummation of the transactions contemplated hereby or the announcement of the
execution of this Agreement) (a "Company Material Adverse Effect"). Copies of
the charter documents and by-laws of the Company and its Subsidiaries have
heretofore been delivered to the Parent and such copies are accurate and
complete as of the date hereof.
4.2 Subsidiaries. The only direct or indirect subsidiaries of the Company
(collectively, the "Company Subsidiaries" and, individually, a "Company
Subsidiary") are those named in Exhibit 21 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1997 as filed with the
Commission (the "Company 1997 10-K") and heretofore delivered to the Parent, as
amended.
The Company is, directly or indirectly, the record and beneficial owner of
all of the outstanding shares of capital stock in each of the Company
Subsidiaries, there are no irrevocable proxies or voting agreements or voting
trusts with respect to such shares, and no securities of any of the Company
Subsidiaries are or may become required to be issued by reason of any options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights, exercisable for, convertible
into or exchangeable for, shares of any capital stock of any Company Subsidiary,
and there are no contracts, commitments, understandings or arrangements by which
any Company Subsidiary is bound to issue or sell additional shares or purchase
shares of its capital stock or securities convertible into or
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exchangeable for such shares. All of such shares so owned by the Company are
validly issued, fully paid and nonassessable and are owned by the Company free
and clear of any security interest, claim, lien, encumbrance or agreement of any
kind with respect thereto.
Each Company Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
the requisite power and authority to carry on its business as it is now being
conducted. Each Company Subsidiary is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing that would not have a Company Material Adverse Effect. Copies of the
charter documents and by-laws of each Company Subsidiary have heretofore been
made available to the Parent and are accurate and complete as of the date
hereof.
Except as disclosed in the Company Disclosure Schedule referred to above or
the Company 1997 10-K, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any other corporation,
partnership, limited liability company, joint venture or other business
association or entity.
4.3 Capitalization. The authorized capital stock of the Company consists
of 20,000,000 shares of Common Stock, $.02 par value. As of the date of this
Agreement:
(i) 5,826,181 Shares were validly issued and outstanding, fully paid
and nonassessable;
(ii) 592,548 Shares were held in the treasury of the Company;
(iii) 473,534 Shares were reserved for issuance pursuant to
outstanding options heretofore granted under the Company's 1994 Stock
Option Plan (the "1994 Plan"), and 106,206 Shares were reserved for future
issuances of Company Options pursuant to the 1994 Plan;
(iv) 344,266 Shares were reserved for issuance pursuant to outstanding
options heretofore granted under the Company's 1991 Stock Option Plan (the
"1991 Plan"), and 109,541 Shares were reserved for future issuances of
Company Options pursuant to the 1991 Plan;
(v) 107,000 Shares were reserved for issuance pursuant to outstanding
options heretofore granted under the Company's 1991 Director Stock Option
Plan (the "1991 Director Plan"), and 26,000 Shares were reserved for future
issuances of Company Options pursuant to the 1991 Director Plan;
(vi) 43,499 Shares were reserved for issuance in connection with the
offering expiring on October 31, 1998 under the Company's Employee Stock
Purchase Plan (the "ESPP"); and
(vii) 7,500,000 shares of Common Stock have been reserved for issuance
under the Rights Agreement (as defined in Section 4.13).
The 1994 Plan, the 1991 Plan and the 1991 Director Plan are sometimes
hereinafter referred to collectively as the "Company Option Plans" and
individually as a "Company Option Plan," and the options granted thereunder are
hereinafter referred to collectively as the "Company Options" and individually
as a "Company Option." True and complete copies of all of the Company Option
Plans and the ESPP have heretofore been made available to the Parent. The
Disclosure Schedule sets forth, with respect to each Company Option, the number
of Company Shares that may be purchased upon exercise of such Company Option and
the exercise price thereof. Except as set forth above in this Section 4.3, there
are no other shares of capital stock or other securities of the Company
outstanding and no other outstanding options, warrants, rights to subscribe to
(including any preemptive rights), calls or commitments of any character
whatsoever to which the Company or any of the Company Subsidiaries is a party or
may be bound requiring the issuance, transfer or sale of any shares of capital
stock or other securities of the Company or any of the Company Subsidiaries or
any securities or rights convertible into or exchangeable or exercisable for any
such shares or securities, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of the Company
Subsidiaries is or may
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become bound to issue additional shares of their capital stock or options,
warrants or rights to purchase or acquire any additional shares of their capital
stock or securities convertible into or exchangeable or exercisable for any such
shares. Except for the Voting Agreements and as set forth on the Company
Disclosure Schedule, to the best of the Company's knowledge, none of the Company
Shares is subject to any voting trust, transfer restrictions or other similar
arrangements, except for vesting arrangements pursuant to agreements with the
Company or restrictions on transfer imposed by the Securities Act and state
securities laws. All of the outstanding Company Shares have been validly and
legally issued and are fully paid and non-assessable.
4.4 Authority. The Company has all requisite corporate power and authority
to enter into this Agreement and the Stock Option Agreement, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Stock Option Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by the
Company's Directors and, except for the approval of the Company Merger by its
stockholders, no other corporate proceedings on the part of the Company are
necessary to authorize the execution, delivery and performance by the Company of
this Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby. This Agreement and the Stock Option Agreement have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, subject to applicable bankruptcy, insolvency and other
laws pertaining to creditors' rights in general.
4.5 Compliance.
(a) Neither the execution and delivery of this Agreement or the Stock
Option Agreement by the Company, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the provisions hereof or thereof will (i) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
that, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance or payment
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any Company Subsidiaries,
under any of the terms, conditions or provisions of (x) the charter or by-laws
of the Company or any Company Subsidiaries, or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, distribution agreement, joint venture
agreement or any other agreement or instrument or obligation to which the
Company or any Company Subsidiaries is a party, or to which any of them or any
of their respective properties or assets, may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the next paragraph,
violate any Company Applicable Laws (as defined in Section 4.15 below); except,
in the case of each of clauses (i)(y) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not have a Company
Material Adverse Effect and would not materially adversely affect the Company's
ability to perform its obligations under this Agreement and the Stock Option
Agreement.
(b) Other than in connection with or in compliance with the provisions of
the Massachusetts Law, the Securities Act, the Exchange Act, the "takeover" or
"blue sky" laws of various states and the Hart-Scott-Rodino Act, no notice to,
filing with, or authorization, consent or approval of, any Governmental Entity
is necessary for the consummation by the Company of the transactions
contemplated by this Agreement and the Stock Option Agreement, unless the
failure to give such notices, make such filings, or obtain such authorizations,
consents or approvals would not, in the aggregate, materially impair the ability
of the Company to perform its obligations hereunder and thereunder and would not
have a Company Material Adverse Effect.
4.6 Commission Filings.
(a) The Company has filed with the Commission all required reports,
schedules, forms, statements and other documents from January 1, 1994 through
the date hereof. All documents filed by the Company
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with the Commission pursuant to the Securities Act or the Exchange Act since
January 1, 1994 are referred to herein as the "Company Commission Filings;" the
Company 1997 10-K, the Company's Quarterly Reports on Form 10-Q for the periods
ended March 31, 1998 and June 30, 1998 and any Report on Form 8-K filed by the
Company since January 1, 1998 and prior to the date hereof are collectively
referred to as the "Company 1998 Commission Filings." The Company Commission
Filings (i) were prepared, in all material respects, in accordance with the
applicable requirements of the Securities Act and the Exchange Act and the rules
and regulations thereunder, (ii) did not at the time they were filed contain any
untrue statement of material fact, and (iii) did not at the time they were filed
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
Each of the audited consolidated financial statements and unaudited interim
consolidated financial statements (including any related notes or schedules)
included in the Company Commission Filings was prepared in accordance with
generally accepted accounting principles applied on a consistent basis, except
as may be indicated therein or in the notes or schedules thereto, and fairly
presented in all material respects the consolidated financial position of the
Company and the Company Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended, subject, in the case of the unaudited interim financial statements, to
normal year-end audit adjustments and the absence of complete notes.
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the Commission and at the
time it becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii) the
Joint Proxy Statement/Information Statement will, at the date mailed to
stockholders of the Company and Parent and at the time of the meeting of
stockholders of the Company to be held in connection with the Company Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time, any event with respect
to the Company, its officers and directors or any of its subsidiaries should
occur which is required to be described in an amendment of, or a supplement to,
the Registration Statement or the Joint Proxy Statement/Information Statement,
the Company shall promptly so advise Parent and such event shall be so
described, and such amendment or supplement (which Parent shall have a
reasonable opportunity to review) shall be promptly filed with the Commission
and, as and to the extent required by law, disseminated to the stockholders of
the Company. The Joint Proxy Statement/Information Statement, insofar as it
relates to the meeting of the Company's stockholders to vote on the Company
Merger, will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made with respect to statements made or
incorporated by reference therein based on information supplied by Parent
specifically for inclusion or incorporation by reference therein.
4.7 Litigation. There are no actions, suits, proceedings or investigations
pending or, to the best knowledge of the Company, threatened against the Company
or any Company Subsidiary, nor is the Company or any Company Subsidiary subject
to any order, judgment, writ, injunction or decree, except in either case for
matters that could not reasonably be expected to have a Company Material Adverse
Effect or to materially adversely affect the Company's ability to perform its
obligations under this Agreement.
4.8 Changes. Except as contemplated by this Agreement or as disclosed in
the Company Disclosure Schedule or in the 1998 Commission Filings, since June
30, 1998, the Company and the Company Subsidiaries, taken as a whole, have
conducted their business only in the ordinary and usual course, and none of the
following has occurred:
(a) any change, effect, condition, event or circumstance which has a
Company Material Adverse Effect;
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(b) any change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in generally accepted
accounting principles;
(c) any damage, destruction or loss, whether or not covered by
insurance, having a Company Material Adverse Effect;
(d) any declaration, setting aside or payment of dividends or
distributions in respect of the Company Shares, or any redemption, purchase
or other acquisition of any of its securities;
(e) any issuance by the Company of, or commitment of the Company to
issue, any shares of capital stock or securities convertible into or
exchangeable or exercisable for shares of capital stock other than pursuant
to the Company Option Plans, the ESPP or the Stock Option Agreement;
(f) any evaluation by the Company or any Company Subsidiary of any of
its respective assets, including, without limitation, writing down the
value of inventory or writing off notes or accounts receivables other than
in the ordinary course of business and consistent with past practice;
(g) any action taken by the Company or any Company Subsidiary which is
prohibited by Section 5.1; or
(h) any agreement by the Company to do any of the things described in
the preceding clauses (a) through (g) other than as expressly contemplated
or provided for herein.
4.9 Transactions with Affiliates. Except as disclosed in the Company
Commission Filings filed and publicly available prior to the date of this
Agreement or on the Company Disclosure Schedule, since January 1, 1994, neither
the Company nor any Company Subsidiary has entered into any transaction with any
current director or officer of the Company or any Company Subsidiary or any
transaction which would be subject to proxy statement disclosure under the
Exchange Act pursuant to the requirements of Item 404 of Regulation S-K.
4.10 Environmental Matters.
(a) The Company and the Company Subsidiaries have complied in all material
respects with all applicable Environmental Laws. There is no pending or, to the
knowledge of the Company, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding or investigation, inquiry
or information request by any court, arbitration tribunal, administrative agency
or commission, political subdivision or other governmental or regulatory
authority or agency of the United States of America, Canada, any other foreign
country, or any state, province, county or other municipality thereof (a
"Governmental Entity"), relating to any Environmental Law involving the Company
or any Company Subsidiary.
(b) There have been no releases of any Hazardous Materials into the
environment by the Company or any Company Subsidiary, or, to the knowledge of
the Company, by any other party at any parcel of real property or any facility
formerly or currently owned, operated or controlled by the Company or any
Company Subsidiary which would have a Company Material Adverse Effect. With
respect to any such releases of Hazardous Materials, the Company has given all
notices required to be given by the Company or any Company Subsidiaries to
Governmental Entities (copies of which have been provided to the Parent). The
Company is not aware of any releases of Hazardous Materials at parcels of real
property or facilities other than those owned, operated or controlled by the
Company or any Company Subsidiaries that would have a Company Material Adverse
Effect on the real property or facilities owned, operated or controlled by the
Company or the Company Subsidiaries.
(c) The Company Disclosure Schedule describes all environmental reports,
investigations and audits ("Environmental Reports") conducted by or on behalf of
the Company or any Company Subsidiary or, to the knowledge of the Company,
conducted by or on behalf of a third party (whether done at the initiative of
the Company or directed by a Governmental Entity or other third party) issued or
conducted during the past five years relating to premises currently or
previously owned or operated by the Company or any
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Company Subsidiary. Complete and accurate copies of each such Environmental
Report conducted by or on behalf of the Company, has been provided to the Parent
and complete and accurate copies of all other Environmental Reports conducted by
or on behalf of any third party have been provided to the Parent if in the
possession or control of the Company.
4.11 Employee Benefits and Contracts.
(a) The Company Disclosure Schedule lists all employment agreements,
compensation agreements, deferred compensation agreements, severance plans,
stay-bonus plans, and describes all other employee benefit plans, including
without limitation, pension or retirement plans, profit sharing plans, stock
purchase or stock option plans, medical insurance, and bonus plans, to which the
Company or any Company Subsidiary is a party. Neither the Company nor any
Company Subsidiary is a party or otherwise subject to any collective bargaining
agreement governing the wages, hours and terms of employment of its employees,
is subject to any actual, or to the knowledge of the Company, threatened with,
any material labor dispute involving employees of the Company or any Company
Subsidiary, and is not subject to any actual, or, to the knowledge of the
Company, threatened demand by its employees for a collective bargaining
agreement or recognition by any labor organization. None of the key management
employees has indicated to the Company in writing any intention to terminate his
or her employment with the Company.
(b) The Company Disclosure Schedule lists all employee benefit plans (as
defined in Section 3(3) of ERISA maintained by the Company or any affiliate
thereof. Each of such employee benefit plans complies in all material respects
with all applicable requirements of ERISA, and no "reportable event" or
"prohibited transaction" (as such terms are defined in ERISA or any applicable
foreign law, statute, ordinance, code, rule or regulation) has occurred with
respect to any such plan, and no termination, if it has occurred or were to
occur before the Effective Time, would present a risk of liability to any
Governmental Entity or other persons that would have a Company Material Adverse
Effect. The Company has made available to the Parent true and complete copies
of: (i) all plan texts and agreements relating to each employee benefit plan;
and (ii) all summary plan descriptions (whether or not required to be furnished
pursuant to ERISA or any applicable foreign law, statute, ordinance, code, rule
or regulation), the most recent annual report (including all schedules thereto)
and the most recent annual and periodic accounting of related plan assets.
Neither the Company nor any affiliate thereof has ever maintained an
employee benefit plan subject to Section 412 of the Code or Title IV of ERISA.
Each employee benefit plan of the Company or any affiliate intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service confirming such
qualification and nothing has occurred that would cause such qualified status to
be jeopardized. Neither the Company nor any affiliate has ever had an obligation
to contribute to a "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA. There are no unfunded obligations under any employee benefit plan of the
Company or any affiliate providing benefits after termination of employment to
any employee or former employee, including but not limited to retiree health
coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980(B) of the Code. Each
employee benefit plan of the Company or any affiliate may be amended or
terminated by the Company or such affiliate without the consent or approval of
any other person. Except as set forth herein or in the Company Disclosure
Schedule, there is no employee benefit plan, stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, or
severance benefit plan of the Company or any affiliate, any of the benefits of
which will be increased or the vesting of the benefits under which will be
accelerated by the occurrence of any of the transactions contemplated by this
Agreement or the benefits under which will be calculated on the basis of the
transactions contemplated by this Agreement.
(c) Neither the Company nor any Subsidiary is obligated to make any
parachute payment, as defined in Section 280G(b)(2) of the Code, nor will any
parachute payment be deemed to have occurred as a result of or arising out of
any of the transactions contemplated by this Agreement. Except for acceleration
of vesting of Company Options under the Option Plans or as set forth in the
Company Disclosure Schedule, the Company has no contract, agreement, obligation
or arrangement with any employee or other
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person, any of the payments or other benefits of which will be increased or the
vesting of the benefits under which will be accelerated by any change of control
of the Company or the occurrence of any of the transactions contemplated by this
Agreement or the benefits under which will be calculated on the basis of the
transactions contemplated by this Agreement.
4.12 Liens on Assets. The assets, including any real property in which the
Company or any Company Subsidiary has an interest, reflected in the balance
sheet of the Company for the year ended December 31, 1997 included in the
Company 1997 10-K (the "Company 1997 Balance Sheet") or acquired in the ordinary
course of business since December 31, 1997 (the "Company Assets") (except those
Company Assets sold or disposed of in the ordinary course of business for full
and fair consideration), are free and clear of all mortgages, security
interests, pledges, liens and encumbrances (collectively, "Encumbrances") other
than (a) as set forth on the Company Disclosure Schedule, (b) as reflected in
the Company 1997 Balance Sheet, (c) "mechanics" liens or similar statutory liens
on assets which, in the aggregate, are not material to the Company and the
Company Subsidiaries, taken as a whole, and (d) liens for state and local
property taxes not in arrears and liens arising by operation of law.
4.13 Rights Agreement. The Company has amended (the "Rights Agreement
Amendment") its Rights Agreement dated as of July 24, 1998 between the Company
and State Street Bank and Trust Company (the "Rights Agreement"), so that (w)
neither the Parent, New Parent or the Merger Subsidiaries (nor any entity
acquiring of record or beneficially Company Shares as contemplated by this
Agreement, the Stock Option Agreement or the Voting Agreements (as defined
below)) shall constitute an "Acquiring Person" as defined in Section 1(a) of the
Rights Agreement, (x) the acquisition of Company Shares by the Parent or the New
Parent (or any affiliate of the Parent's or the New Parent's) shall not cause
the Parent or the New Parent or any of their respective affiliates to become an
"Acquiring Person" as a result of the Company Merger and/or the entering into of
one or more Voting Agreements, of even date herewith, between the Parent and the
directors and executive officers of the Company (collectively, the "Voting
Agreements") and/or as a result of the entering into or exercise of the Stock
Option Agreement, (y) no Distribution Date (as defined in the Rights Agreement)
shall occur as a result of the Company Merger, and/or the entering into of the
Voting Agreements and/or as a result of the entering into or exercise of the
Stock Option Agreement, and (z) no Stock Acquisition Date (as defined in the
Rights Agreement) shall occur as a result of the Company Merger and/or the
execution and delivery of this Agreement, and/or the consummation of any of the
transactions contemplated hereby, and/or the entering into of the Voting
Agreements and/or as a result of the entering into or exercise of the Stock
Option Agreement.
4.14 Taxes. (a) The Company and each Company Subsidiary have timely filed
all material tax returns, statements, reports and forms required to be filed
with any Tax (as defined below) authority, including without limitation filings
required under ERISA (collectively, "Tax Returns"), and have paid when due all
Taxes owed by the Company and each Company Subsidiary (whether or not shown on
any such Tax Returns). Except as otherwise provided in Clause (d) of Section
4.12 hereof, there are no liens on any of the assets of the Company or any
Company Subsidiary that arose in connection with any failure (or alleged
failure) to pay any Tax except for liens that would in the aggregate not have a
Company Material Adverse Effect. As used herein the term "Tax" and "Taxes" means
all income, gross receipts, franchise, excise, transfer, severance, value added,
sales, use, wage, payroll, workers' compensation, employment, occupation,
intangibles, and real and personal property taxes; taxes measured by or imposed
on capital; levies, imposts, duties, licenses, legislation fees; other taxes
imposed by a U.S. federal, Canadian, other foreign, provincial, state,
municipal, local or other governmental authority or agency, including
assessments in the nature of taxes, including interest, penalties, fines,
assessments and deficiencies relating to any tax or taxes; and including any
transferee or secondary liability for taxes and any liability in respect of
taxes as a result of being a member of any affiliated, consolidated, combined or
unitary group or any liability in respect of taxes under a tax sharing, tax
allocation, tax indemnity or other agreement.
(b) No dispute or claim concerning any Tax liability of the Company or any
Company Subsidiary has been claimed or raised by any authority in writing.
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(c) Neither the Company nor any Company Subsidiary has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(d) Neither the Company nor any Company Subsidiary has filed a consent
under Section 341(f) of the Code concerning collapsible corporations. Neither
the Company nor any Company Subsidiary has any liability for the Taxes of any
person (other than the Company and any Company Subsidiary) under Treas. Reg.
Section 1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
4.15. Compliance with Laws; Permits. Neither the Company nor any Company
Subsidiary (a) is in violation of, or has violated, any Company Applicable Laws
(as defined below) or (b) has received any notice from any Governmental Entity
or any other person that either the Company or any Company Subsidiary is in
violation of, or has violated, any Company Applicable Laws, except for
violations which, individually or in the aggregate, do not have a Company
Material Adverse Effect. The Company and each Company Subsidiary have all
permits, licenses and franchises from Governmental Entities required to conduct
their businesses as now being conducted, except for such permits, licenses and
franchises the absence of which would not have a Company Material Adverse
Effect. As used herein the term "Company Applicable Laws" means all applicable
provisions of any laws, statutes, ordinance, codes, rules, regulations or any
agency requirements, permits, licenses, judgments, orders, injunctions, decrees
or arbitration awards of any Governmental Entities applicable to the Company or
any Company Subsidiary and material to the conduct of the businesses of the
Company or any Company Subsidiary as those businesses are now being conducted
and the ownership and operation of any of the assets, properties or facilities
of the Company or any Company Subsidiary, including, without limitation, the
Medicare/Medicaid "anti-kickback" laws (42 U.S.C. sec.sec. 1320a, et seq.), the
Immigration Reform and Control Act (8 U.S.C. sec.sec. 1324, et seq.), applicable
anti-trust laws, applicable labor laws, including, without limitation,
applicable anti-discrimination laws and laws prohibiting sexual harassment,
applicable consumer protection laws and applicable product liability laws;
provided, however, that the term Company Applicable Laws shall not include any
Environmental Laws.
4.16 Intellectual Property. The Company, together with the Company
Subsidiaries, own or have all necessary rights to use each patent, patent
application, trademark (whether or not registered), trademark application, trade
name, service mark, copyright and other trade secret or proprietary intellectual
property (collectively, "Intellectual Property") used in and material to the
business of the Company and the Company Subsidiaries, taken as a whole, and none
of the previous or current development, manufacture, marketing or distribution
of products or services of or by the Company or any Company Subsidiary infringes
the right of any other person, except for any such infringements that would not,
individually or in the aggregate, have a Company Material Adverse Effect. Except
as disclosed in the Company Disclosure Schedule, to the knowledge of the
Company, no other person is infringing the rights of the Company or any Company
Subsidiary in any such Intellectual Property, except for any such infringements
that would not, individually or in the aggregate, have a Company Material
Adverse Effect.
4.17 No Undisclosed Material Liabilities. Except as disclosed in the
Company 1998 Commission Filings or on the Company Disclosure Schedule, and
except for liabilities arising since June 30, 1998 in the ordinary course of
business, there are no liabilities of the Company or any Company Subsidiary of
any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, that would have a Company Material Adverse Effect.
4.18 Brokers. Except for the Financial Advisor, no agent, broker, person
or firm acting on behalf of the Company is or will be entitled to any advisory
commission or broker's or finder's fee from any of the parties hereto in
connection with any of the transactions contemplated herein. The Company has
made available to Parent a complete and correct copy of the Company's engagement
letter with the Financial Advisor, which has not been amended or modified. The
Financial Advisor has delivered to the Board of Directors of the Company its
opinion, dated the date of this Agreement, to the effect that, on the basis of
and subject to the assumptions set forth therein, the Company Merger
Consideration is fair to the holders of Company Shares, from a financial point
of view.
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4.19 Prepayment of Indebtedness. All of the outstanding indebtedness
(whether secured or unsecured) for borrowed money of the Company and each of the
Company Subsidiaries may be prepaid by the Company or its Subsidiaries without
the consent or approval of, or prior notice to, any other person, and without
payment of any premium or penalty.
4.20 Provisions Inapplicable. The Company's board of directors has taken
all action necessary or advisable to render inapplicable to the Company Merger,
the Voting Agreements and the execution and exercise of the Stock Option
Agreement and the transactions contemplated by this Agreement, the Voting
Agreements and the Stock Option Agreement the provisions of Chapters 110C, 110D
and 110F of the Massachusetts Law. There are no additional "anti-takeover" or
similar provisions of Massachusetts Law applicable to the Company Merger, the
Voting Agreements or the Stock Option Agreement or the consummation of the
transactions contemplated by this Agreement or the Stock Option Agreement and
the consummation of the transactions contemplated hereby or thereby.
4.21 No Existing Discussions. As of the date hereof, the Company has
terminated any and all discussions or negotiations with any Third Party (as
defined below) with respect to any Acquisition Proposal (as defined below).
ARTICLE 5
CONDUCT OF BUSINESS
5.1 Company Conduct Prior to Effective Time. Except as specifically
contemplated hereby or as disclosed in Section 5.1 of the Company Disclosure
Schedule, the Company covenants and agrees that, unless the Parent shall
otherwise consent in writing, prior to the Effective Time, the business of the
Company and the Company Subsidiaries shall be conducted only in, and the Company
and the Company Subsidiaries shall not take any action except in, the ordinary
course of business consistent with past practices of the Company and the Company
Subsidiaries, and the Company shall use all reasonable efforts, to maintain and
preserve its and each Company Subsidiary's business organization, assets,
employees and advantageous business relationships. Notwithstanding the
foregoing, without the Parent's consent, neither the Company nor any of the
Company Subsidiaries shall directly or indirectly do any of the following:
(i) other than upon exercise (provided that any "cashless exercise"
shall be effected only through a broker's transaction in accordance with
Regulation T of the Board of Governors of the Federal Reserve System) of
Company Options outstanding on the date hereof pursuant to the Company
Option Plans or stock purchase rights granted under the ESPP, issue, sell,
pledge, dispose of, grant pursuant to the Company Option Plans or
otherwise, or encumber, or authorize, propose or agree to the issuance,
sale, pledge, disposition, grant pursuant to the Company Option Plans or
otherwise, any shares of, or any options, warrants or rights of any kind to
acquire any shares of, or any securities convertible into or exchangeable
or exercisable for any shares of, capital stock of any class of the Company
or any of the Company Subsidiaries or any other securities in respect of,
in lieu of, or in substitution for Company Shares outstanding as of the
date hereof;
(ii) pledge or encumber any assets of the Company or of any Company
Subsidiaries;
(iii) sell or dispose of any assets (including, without limitation,
any accounts, leases, contracts or intellectual property or any assets or
the stock of any Company Subsidiaries, but excluding the sale of products
in the ordinary course of business consistent with past practices of the
Company and the Company Subsidiaries);
(iv) amend its charter or by-laws or similar organizational documents
or alter or further amend the Rights Agreement or the Rights in a manner
inconsistent with the Rights Agreement Amendment or directly or indirectly
cause the Rights Agreement and the Rights to be applicable to or effective
with respect to the Company Merger and/or the transactions contemplated by
this Agreement, including the execution or exercise of the Stock Option
Agreement and/or the Voting Agreements;
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(v) split, combine or reclassify any shares of its capital stock or
declare, set aside for payment or pay any dividend or distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital
stock other than, with respect to dividends or distributions, cash
dividends and distributions by a wholly owned Company Subsidiary to the
Company or to another wholly owned Company Subsidiary;
(vi) redeem, purchase or otherwise acquire or offer to redeem,
purchase or otherwise acquire any of its capital stock or rights to acquire
capital stock;
(vii) except pursuant to Section 6.5, enter into an agreement with
respect to any merger, consolidation, liquidation or business combination,
or any acquisition or disposition of assets or securities of the Company,
or acquire (by merger, consolidation or acquisition of stock or assets) any
corporation, partnership, limited liability company or other business
organization or division thereof or make any investment either by purchase
of stock or securities, contributions to capital (other than to wholly
owned Company Subsidiaries), property transfer or purchase of any property
or assets of any other individual or entity;
(viii) transfer the stock of any Company Subsidiary to any other
Company Subsidiary or any assets or liabilities to any new or existing
Company Subsidiary;
(ix) enter into an agreement with respect to the release or
relinquishment of any material contract right or any comparable event;
(x) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other individual or entity
(other than as a result of the endorsement of checks for collection in the
ordinary course of business) or make any loans or advances (other than
advances for travel expenses in the ordinary course of business consistent
with past practices of the Company and the Company Subsidiaries;
(xi) make or commit to make any capital expenditures which,
individually or in the aggregate, exceeds $500,000;
(xii) except as may be required by a change in law or generally
accepted accounting principles, change any accounting principles or
practices used by it, including any change in assumptions underlying, or
method of calculating, any bad debt, contingency or other reserve;
(xiii) pay, discharge, satisfy or settle any material litigation,
claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), other than required payments, discharges or satisfactions of
accounts payable and other similar liabilities in the ordinary course of
business consistent with past practices of the Company and the Company
Subsidiaries;
(xiv) waive, release, grant or transfer any material rights of value
or modify or change in any material respect any existing license, lease,
contract or other document;
(xv) adopt or amend (except as may be required by law or under this
Agreement) any bonus, profit sharing, compensation, stock option, stock
purchase, pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any employee or former employee or, except in the
ordinary course of business consistent with past practices of the Company
and the Company Subsidiaries, increase the compensation or fringe benefits
of any employee or former employee or pay any benefit not required by any
existing plan, arrangement, or agreement;
(xvi) take any action with respect to the grant of any severance or
termination pay benefits or with respect to any increase of benefits
payable under its severance or termination pay policies in effect on the
date hereof;
(xvii) make or revoke any tax election or settle or compromise any
U.S. federal, Canadian federal, other foreign, state, provincial, or local
Tax liability;
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(xviii) cause or permit a new Plan Period (as defined in the ESPP) to
commence, for purposes of the ESPP, upon the expiration or termination of
the current Plan Period; or
(xix) authorize or agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any representation or
warranty in Article 4 hereof untrue or incorrect in any material respect,
or would materially impair or prevent the occurrence of any condition in
Article 7 hereof.
The Company will use its reasonable best efforts to maintain (on a consolidated
basis) cash and cash equivalents of at least $8 million at the Effective Time
and the Company will notify the Parent if it believes the cash and cash
equivalents at the Effective Time will be below $8 million.
5.2 Parent Conduct Prior to Effective Time. Except as otherwise
contemplated hereby or as disclosed in the Parent Disclosure Schedule, the
Parent covenants and agrees that, unless the Company shall otherwise consent in
writing prior to the Effective Time, the Parent and the Parent Subsidiaries will
not, directly or indirectly, take or knowingly permit any act or omission that
is reasonably likely to materially hinder, delay, impair or inhibit consummation
of the transactions contemplated by this Agreement.
5.3 Commission Filings. The Company shall promptly provide the Parent (or
its counsel) with copies of all filings made by the Company with the Commission
or any other Governmental Entity in connection with this Agreement and the
transactions contemplated hereby. The Parent, New Parent and the Merger
Subsidiaries shall promptly provide the Company (or its counsel) with copies of
all filings made by the Parent, New Parent or the Merger Subsidiaries with the
Commission or any other Governmental Entity in connection with this Agreement
and the transactions contemplated hereby.
5.4 Joint Proxy Statement/Information Statement; Registration Statement.
(a) The Company and the Parent shall together, or pursuant to an allocation
of responsibility to be agreed upon between them:
(i) prepare and file with the Commission as soon as is reasonably
practicable a proxy statement (the "Proxy Statement") for the Special
Meeting, an information statement relating to the Parent Stockholder
Approval (the "Information Statement" and, together with the Proxy
Statement, the "Joint Proxy Statement/Information Statement") and a
registration statement on Form S-4 under the Securities Act (the
"Registration Statement") with respect to the New Parent Common Stock
issuable in the Mergers, and shall use their reasonable best efforts to
have the Joint Proxy Statement/ Information Statement cleared by the
Commission under the Exchange Act and the Registration Statement declared
effective by the Commission under the Securities Act;
(ii) as soon as is reasonably practicable take all such reasonable
action as may be required under state blue sky or securities laws in
connection with the transactions contemplated by this Agreement;
(iii) promptly prepare and file with the Nasdaq Stock Market, Inc. or
the New York Stock Exchange, as determined by the Parent, listing
applications covering the shares of New Parent Common Stock issuable in the
Mergers and use their reasonable best efforts to obtain, prior to the
Effective Time, approval for the listing of such shares of New Parent
Common Stock, subject only to official notice of issuance;
(iv) subject to Section 6.4, cooperate with one another in order to
lift any injunctions or remove any other impediment to the consummation of
the transactions contemplated herein; and
(v) cooperate with one another in obtaining the opinions of Hale and
Dorr LLP, counsel to the Company, and Weil, Gotshal & Manges LLP, counsel
to the Parent, dated as of the Effective Time, referenced in Sections
7.2(b) and 7.3(b). In connection therewith, each of the Parties and Westar
Capital, Inc. shall deliver to Hale and Dorr LLP and Weil, Gotshal & Manges
LLP, respectively, customary representation letters in form and substance
reasonably satisfactory to such tax counsel.
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(b) The Company shall cause the Joint Proxy Statement/Information Statement
to be mailed to its stockholders, as promptly as practicable after the
Registration Statement is declared effective under the Securities Act; provided,
however, that at the request of Parent, the Company shall defer the mailing of
the Proxy Statement for such period of time (not to exceed ten business days)
specified by Parent to permit Westar Capital, Inc. or an affiliate thereof to
purchase additional shares of Parent Common Stock in open market transactions or
directly from the Parent. Promptly after the Company mails the Joint Proxy
Statement/Information Statement to the Company's stockholders, the Parent shall
(i) take all actions necessary to obtain stockholder approval of the Parent
Merger and (ii) cause the Joint Proxy Statement/Information Statement to be
mailed to its stockholders.
(c) The Company shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold the Special Meeting for
the purpose of obtaining the Company Stockholder Approval and shall, through its
Board of Directors, recommend to its stockholders the adoption of this
Agreement, the Company Merger and the other transactions contemplated hereby;
provided, however, that nothing in this paragraph (c) shall prevent the Board of
Directors of the Company from withdrawing or modifying its recommendation of the
adoption of this Agreement, the Company Merger and the other transactions
contemplated hereby to the extent permitted by Section 6.5; provided further,
however, that, unless this Agreement is terminated pursuant to Section 8.1(a),
8.1(b)(iii), 8.1(b)(iv), 8.1(c)(ii) or 8.1(c)(vi), no such withdrawal or
modification shall relieve the Board of Directors of the Company from its
obligation to call, give notice of, convene and hold the Special Meeting.
(d) Each party agrees to cooperate, as reasonably requested, in connection
with filings by the other party (or any affiliate of the other party) with the
Commission (including registration statements and proxy statements) and shall
use all reasonable efforts to obtain all required financial information and
related accountants' consents for inclusion in the other party's (or any of
their affiliates') Commission filings.
5.5 Employee Stock Options and Benefit Plans.
(a) As of the Effective Time, (i) each outstanding Company Option shall be
converted into an option (a "Substitute Option") to purchase the number of
shares of New Parent Common Stock (rounded upward to the next whole share) equal
to the product of (x) the Option Exchange Ratio and (y) the number of Company
Shares which could have been obtained immediately prior to the Effective Time
upon the exercise of each such Company Option (assuming such Company Option was
exercisable in full but after giving effect to any election made pursuant to
Section 5.5(b)), at an exercise price per share (rounded downward to the next
whole cent) equal to the exercise price per share payable immediately prior to
the Effective Time pursuant to such Company Option divided by the Option
Exchange Ratio, and all references in each such Company Option to the Company
shall be deemed to refer to New Parent, where appropriate, and (ii) New Parent
shall assume the obligations of the Company under the Company Option Plans. The
other terms of each such Substitute Option and the plans under which they were
issued, shall continue to apply in accordance with their terms, it being agreed
and acknowledged that all such Substitute Options shall be immediately
exercisable in full from and after the Effective Time. For purposes of this
Agreement, "Option Exchange Ratio" means the result obtained by dividing (A) the
sum of (x) $14.50 plus (y) the product of (i) the Exchange Ratio and (ii) the
Average Closing Price, by (B) the Average Closing Price.
(b) The holder of any Company Option who has not exercised any Company
Option during the period from the date of this Agreement until the Effective
Time may make an election pursuant to this Section to receive a cash payment
with respect to up to 25% of the number of Company Shares subject to such
Company Option immediately prior to the Effective Time, such cash payment to be
in lieu of receiving a Substitute Option with respect to such Company Shares as
to which an election has been made. Such election shall be made by the holder of
any Company Option by filing an election (in a form to be provided by the Parent
at least 30 days in advance of the Effective Time) with the Company on or before
the Effective Time. As part of such election, the electing holder shall certify
that he or she has not exercised any Company Option during the period from the
date of this Agreement until the date of such
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election and will covenant not to exercise any Company Option during the period
from the date of the election until the Effective Time, unless he or she first
notifies the Company in writing, which notification shall have the effect of
rescinding the election under this Section previously made by such holder.
Promptly after the Effective Time, New Parent shall exchange any Company Option
as to which an election pursuant to this Section has been made (and not
rescinded) for (i) an amount of cash equal to the Option Spread (as defined
below) multiplied by the number of Common Shares subject to such Company Option
immediately prior to the Effective Time as to which such election has been made
(it being understood that such number may not exceed 25% of the number of
Company Shares subject to such Company Option immediately prior to the Effective
Time) and (ii) a Substitute Option in accordance with Section 5.5(a) with
respect to the remaining Company Shares subject to such Company Option
immediately prior to the Effective Time. For purposes of this agreement, "Option
Spread" means (A) the sum of (x) $14.50 plus (y) the product of (i) the Exchange
Ratio and (ii) the Average Closing Price minus (B) the exercise price per share
payable immediately prior to the Effective Time pursuant to the applicable
Company Option.
(c) As soon as practicable after the Effective Time, New Parent shall
deliver to each holder of a Company Option assumed by New Parent in accordance
with Section 5.5(a) and (b), an appropriate notice setting forth such holder's
rights pursuant to such Substitute Option and the agreements evidencing such
Company Options shall continue in effect on the same terms and conditions
(subject to the amendments provided for in this Section 5.5 and such notice).
(d) Prior to the Effective Time, the New Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of New
Parent Common Stock for delivery upon exercise of the Company Options assumed in
accordance with Section 5.5(a) and (b). Prior to the Effective Time, the New
Parent shall, with respect to all shares of New Parent Common Stock subject to
such options (i) either (x) file a Registration Statement on Form S-8 (or any
successor form) under the Securities Act or (y) file any necessary amendments to
the Company's previously filed Registration Statements on Form S-8 in order that
the New Parent will be deemed a "successor registrant" thereunder, and, in
either event, shall use all reasonable efforts to maintain the effectiveness of
such registration statement for so long as the Substitute Options remain
outstanding and (ii) take all actions necessary to have such shares of New
Parent Common Stock approved for listing on The Nasdaq Stock Market or The New
York Stock Exchange, as the case may be, subject to official notice of issuance.
5.6 Further Assurances. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers of the Parties shall take all such necessary
action.
5.7 Accountants' "Comfort" Letters. The Company and the Parent will each
use reasonable best efforts to cause to be delivered to each other letters from
their respective independent accountants, dated as of a date within two business
days before the effective date of the Registration Statement, in form reasonably
satisfactory to the recipient and customary in scope for comfort letters
delivered by independent accountants in connection with registration statements
on Form S-4 under the Securities Act.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access to Information. Except as prohibited under applicable law, the
Company shall, and shall cause its subsidiaries, and its and its subsidiaries'
respective officers, directors, employees and agents to, afford to the Parent
and to the officers, employees and agents of the Parent complete access at all
reasonable times, from the date hereof to the Effective Time, to its and its
subsidiaries, officers, employees, agents, properties, books, records and
contracts, and shall furnish the other party all financial, operating and other
data and information as the Parent, through its officers, employees or agents,
may reasonably request.
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6.2 Notification of Certain Matters.
(a) The Company shall give prompt notice to the Parent, of (i) the
obtaining by it of actual knowledge as to the matters set forth in clauses (x)
and (y) of clause (ii) of this sentence, or (ii) the occurrence, or failure to
occur, of any event which occurrence or failure to occur causes (x) any
representation or warranty made by the Company and contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time, or (y) any material failure of the Company or of
any officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall be deemed to
cure any breach or otherwise affect the representations or warranties of the
Company or the conditions to the obligations of the parties hereunder.
(b) Parent shall give prompt notice to the Company of (i) the obtaining by
it of actual knowledge as to the matters set forth in clauses (x) and (y) of
clause (ii) of this sentence, or (ii) the occurrence, or failure to occur, of
any event which occurrence or failure to occur causes (x) any representation or
warranty made by Parent, New Parent, Merger Sub I or Merger Sub II contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, or (y) any material failure of
Parent, New Parent, Merger Sub I or Merger Sub II, or of any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement; provided,
however, that no such notification shall be deemed to cure any breach or
otherwise affect the representations or warranties of Parent, New Parent, Merger
Sub I or Merger Sub II or the conditions to the obligations of the parties
hereunder.
6.3 Fees and Expenses.
(a) Except as otherwise provided in this Section 6.3 or the proviso in
Section 8.2, each party shall bear all of the fees and expenses incurred by it
in connection with the negotiation and performance of this Agreement, and no
party may recover any such fees and expenses from any other party upon any
termination of this Agreement.
(b) The Company shall immediately pay to the Parent $5,500,000 in cash if:
(i) the Trigger Event specified in Section 6.3(d) shall have occurred;
(ii) the Company shall have elected to terminate this Agreement
pursuant to Section 8.1(b)(iii); or
(iii) the Parent shall have elected to terminate this Agreement
pursuant to subsections (ii) or (iv) of Section 8.1(c) hereof (but if such
termination is pursuant to subsection 8.1(c)(ii)(A), only if an Acquisition
Proposal shall have been made prior to the failure to recommend or
withdrawal giving rise to such termination or if such failure to recommend
or withdrawal is otherwise not in compliance with Section 6.5(c)).
(c) The provisions contained in this Section 6.3 shall survive any
termination of this Agreement.
(d) As used in this Agreement, the term "Trigger Event" shall mean there
shall have been publicly announced or proposed or commenced prior to the
termination of this Agreement any Acquisition Proposal which is not publicly
withdrawn prior to the Special Meeting, this Agreement is terminated (other than
as a result of a material breach of this Agreement by Parent, New Parent, Merger
Sub I or Merger Sub II) and, within 12 months after such termination, the
Company consummates an Acquisition Proposal.
(e) The Company shall immediately pay to the Parent $1,000,000 in cash if
the Parent shall have elected to terminate this Agreement pursuant to subsection
8.1(c)(ii)(A) and no Acquisition Proposal shall have been made prior to the
Company's Directors failure to recommend, or withdraw its approval or the
recommendation of the Company Merger or this Agreement. Any fee paid under this
Section 6.3(e) shall be credited towards any fee payable under Section 6.3(b).
6.4 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause
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to be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, and to cooperate with each of the other parties hereto in connection
with the foregoing, including using its reasonable best efforts: (A) to obtain
all necessary waivers, consents and approvals from other parties to loan
agreements, leases and other contracts; (B) to obtain all necessary consents,
approvals and authorizations as are required to be obtained under any U.S.
federal, foreign, state or provincial laws or regulations; (C) to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby;
(D) to effect all necessary registrations and filings, including, but not
limited to, filings under the Hart-Scott-Rodino Act and submissions of
information requested by Governmental Entities; and (E) to fulfill all
conditions to this Agreement. Each of the Parties further covenants and agrees
that, it shall use its respective reasonable best efforts to prevent, with
respect to a threatened or pending preliminary or permanent injunction or the
entry thereof the effect of which would be to prevent consummation of the Merger
and, if entered, shall use their respective reasonable best efforts to have such
injunction stayed or vacated. The Company will use its reasonable best efforts
to keep available to New Parent and the Surviving Corporation the present key
officers and employees of the Company and the Company Subsidiaries and to
preserve for New Parent and the Surviving Corporation the present relationships
and good will of the Company and the Company Subsidiaries with their respective
lenders, suppliers, customers and other third parties having business relations
with them. For purposes of the foregoing, the obligation of the Parties to use
"reasonable best efforts" to obtain waivers, consents and approvals to loan
agreements, leases and other contracts and by Governmental Entities shall not
include any obligation to agree to a modification of the terms of such
documents, or to dispose of or restrict the operation or ownership of any
portion of the businesses, assets or properties of the Parties, except as
expressly contemplated hereby, or to make any guaranty or monetary payment in
consideration of such waiver, consent or approval.
6.5 No Solicitation.
(a) Neither the Company nor any of the Company Subsidiaries shall, and the
Company shall use its best efforts to cause its affiliates, and each of its and
the Company Subsidiaries' officers, directors, employees, representatives and
agents (including, without limitation, BT Alex. Brown Incorporated (the
"Financial Advisor")) not to, directly or indirectly, solicit, initiate,
knowingly encourage, knowingly facilitate, engage or participate in discussions
or negotiations with, or provide any non-public information to, any corporation,
partnership, limited liability company, person or other entity or group other
than the Parent, New Parent, Merger Subsidiaries or another affiliate of the
Parent (a "Third Party") and other than in connection with this Agreement,
concerning (or concerning the business of the Company or any Subsidiary in
connection with) (i) any tender offer or exchange offer for more than 20% of the
Company Shares on a fully-diluted basis (in calculating the number of
fully-diluted Shares for this purpose, only (A) Company Shares covered by
Company Options, and (B) 43,499 Company Shares reserved for issuance pursuant to
the ESPP, being considered dilutive), (ii) any merger, consolidation, sale of
20% or more of the assets of the Company and the Company Subsidiaries, taken as
a whole, recapitalization, accumulation of Shares or proxy solicitation or other
business combination involving the Company or any Company Subsidiary or (iii)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing (any such proposed
tender offer, exchange offer, merger, consolidation, sale of material assets,
recapitalization, accumulation of Company Shares or proxy solicitation or other
business combination being referred to herein as an "Acquisition Proposal").
Notwithstanding the foregoing, at any time prior to the date on which
stockholders of the Company vote to approve the Company Merger, the Company, its
Subsidiaries, and their respective officers, directors, employees,
representatives and agents (i) may, in the case of a Qualified Acquisition
Proposal (as hereinafter defined), furnish or cause to be furnished information
concerning the Company's business, properties or assets to a Third Party
(subject to such Third Party executing a confidentiality agreement on terms no
more favorable to the Third Party than those applicable to Parent in the
Confidentiality Agreement between the Parent and the Financial Advisor dated
July 13, 1998), (ii) may, in the case of a Qualified Acquisition Proposal only,
enter into, participate in, conduct or engage in discussions or negotiations
with such Third Party, (iii) may take any position with respect to an
Acquisition Proposal in
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accordance with Rules 14a-9 and 14e-2 promulgated under the Exchange Act, and
(iv) may, in the case of a Qualified Acquisition Proposal only and in compliance
with the provisions of this Section 6.5, enter into an agreement to consummate a
Qualified Acquisition Proposal. As used herein, "Qualified Acquisition Proposal"
means a bona fide, unsolicited, written Acquisition Proposal at a price per
Company Share and on terms and conditions that the Board of Directors of the
Company (after consultation with the Financial Advisor or another independent
financial advisor of national reputation) determines to be superior to the
Merger and to be in the best interests of the Company and its stockholders
including, as part of the Board of Director's determination, that as to any cash
consideration to be paid pursuant to the Qualified Acquisition Proposal, the
Third Party making the Qualified Acquisition Proposal has all requisite funds on
hand or is reasonably capable of obtaining any requisite funds.
(b) The Company will promptly notify the Parent if it receives any
Acquisition Proposal and shall promptly provide to the Parent copies of all
written Acquisition Proposals or a written summary of any oral Acquisition
Proposals, and all material amendments or modifications thereto. Nothing in this
paragraph (b) shall be construed as interfering with the Company's obligations
to its stockholders under Rule 14e-1 promulgated under the Exchange Act.
(c) Except as set forth in this Section 6.5(c), the Board of Directors of
the Company shall not (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to Parent, or New Parent, the approval or
recommendation of the Company Merger and this Agreement by the Board of
Directors of the Company, (ii) approve or recommend, or propose publicly to
approve or recommend, any Acquisition Proposal, or (iii) cause the Company to
enter into any agreement (including, without limitation, any letter of intent
but excluding any confidentiality agreement) with respect to any Acquisition
Proposal. Notwithstanding the foregoing, if the Board of Directors of the
Company, after consultation with outside legal counsel, determines in good faith
that it is more likely than not necessary to do so in order to comply with its
fiduciary duties under applicable law, the Company's Board of Directors may (x)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent, or New Parent, the approval and recommendation of the Company
Merger and this Agreement by the Board of Directors of the Company, (y) approve
or recommend, or propose publicly to approve or recommend, a Qualified
Acquisition Proposal, or (z) cause the Company to enter into an agreement with
respect to a Qualified Acquisition Proposal, but in the case of the foregoing
clauses (y) and (z) only after the expiration of three business days after the
date on which the Company provides written notice to Parent (a "Notice of
Qualified Acquisition Proposal") advising Parent that the Company's Board of
Directors has received a Qualifying Acquisition Proposal, specifying the terms
and conditions of such Qualifying Acquisition Proposal and identifying the
person making such Qualifying Acquisition Proposal; provided, that prior to or
concurrently with entering into an agreement (including a letter of intent) with
respect to a Qualifying Acquisition Proposal, the Company shall terminate this
Agreement pursuant to Section 8.1(b)(iii) below and shall pay the fee specified
in Section 6.3(b).
6.6 Employee Stock Purchase Plan. Each participant in the ESPP on the
Effective Time shall have the rights specified in Sections 16 and 17 of the
Plan, after which no further rights to purchase Company Shares under the ESPP
shall exist and the ESPP shall terminate.
6.7 Indemnification and Insurance. The Parent, New Parent and Merger
Subsidiaries agree that all rights to indemnification, advancement of expenses,
exculpation, limitation of liability and any and all similar rights now existing
in favor of the employees, agents, directors or officers of the Company and the
Company Subsidiaries (the "Indemnified Parties") as provided in their respective
charters or by-laws in effect on the date hereof, shall survive the Company
Merger and shall continue in full force and effect for a period of six years
from the Effective Time; provided, however, that in the event any claim or
claims are asserted or made within such six-year period, all rights to
indemnification in respect to any such claim or claims shall continue until the
disposition of any and all such claims. The New Parent agrees to provide each
individual who served as a director or officer of the Company at any time prior
to the date hereof with liability insurance for a period of six years after the
Effective Time no less favorable in coverage and amount than any applicable
insurance in effect immediately prior to the Effective Time; provided, however,
that New Parent shall not be obligated to provide such insurance if it is
generally not available and New
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Parent may reduce the coverage and amount of liability insurance to the extent
that the cost thereof would exceed 200% of the cost of any such insurance in
effect immediately prior to the date hereof. The Indemnified Parties shall be
deemed third party beneficiaries of this provision and shall be entitled to
bring actions to enforce the obligations of the Parent, New Parent and the
Merger Subsidiaries under this Section 6.7 and Section 6.9.
6.8 Fair Price Structure. If any "fair price" or "control share
acquisition" or "anti-takeover" statute, or other similar statute or regulation
or any state "blue sky" statute shall become applicable to the transactions
contemplated hereby, including the execution or exercise of the Stock Option
Agreement, and the Voting Agreements, the Company and the members or the Board
of Directors of the Company shall grant such approvals and take such actions as
are reasonably necessary so that the transactions contemplated hereby including
the execution or exercise of the Stock Option Agreement, and the Voting
Agreements may be consummated as promptly as practicable on the terms
contemplated hereby, or by the Stock Option Agreement and the Voting Agreements
and otherwise act to minimize the effects of such statute or regulation on the
transactions contemplated hereby or thereby.
6.9 Guaranty. The Parent and New Parent hereby unconditionally guarantee
Merger Sub I's obligations under this Agreement and, if the Company Merger is
consummated, the indemnification obligations set forth in Section 6.7, and agree
to be liable for any breach of this Agreement by the Parties hereto (other than
the Company) (or a breach of Section 6.7).
6.10 Certain Tax Related Representations. Each of Parent and New Parent
has no present intention to merge or liquidate the New Parent, Parent or the
Company with or into any other person or transfer any of the assets thereof
other than in the ordinary course of business and, in the case of Parent, other
than pursuant to a transaction described in Section 368(a)(2)(C) of the Code or
Treasury Regulation Section 1.368-1(d)(4) or 1.368-2(k).
ARTICLE 7
CONDITIONS
7.1 Conditions to Obligation of Each Party to Effect the Mergers. The
respective obligations of each party to effect the Mergers shall be subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions:
(a) The Company Stockholder Approval shall have been obtained in
accordance with applicable law and the Company's Articles of Organization
and By-Laws and the applicable rules of The Nasdaq Stock Market, Inc.;
(b) The Registration Statement shall have been declared effective in
accordance with the provisions of the Securities Act and no stop order
suspending such effectiveness shall have been issued and remain in effect;
(c) The shares of New Parent Common Stock to be issued in the Mergers
shall have been approved for listing on the Nasdaq National Market or the
New York Stock Exchange;
(d) any waiting period (and any extension thereof) applicable to the
consummation of the Company Merger under the Hart-Scott-Rodino Act shall
have expired or been terminated; and
(e) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect, which would prevent the consummation of the
Mergers.
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7.2 Conditions to Obligation of the Company to Effect the Company
Merger. The obligation of the Company to effect the Company Merger is further
subject to fulfillment of the following conditions:
(a)(i) The representations and warranties of the Parent, New Parent
and the Merger Subsidiaries contained herein shall be true and correct in
all respects (but without regard to any materiality qualifications or
references to Parent Material Adverse Effect contained in any specific
representation or warranty) as of the Effective Time with the same effect
as though made as of the Effective Time except (x) for changes specifically
permitted by the terms of this Agreement, (y) that the accuracy of
representations and warranties that by their terms speak as of the date of
this Agreement or some other date will be determined as of such date and
(z) where any such failure of the representations and warranties in the
aggregate to be true and correct in all respects would not have a Parent
Material Adverse Effect, (ii) the Parent, New Parent and the Merger
Subsidiaries shall have performed in all material respects all obligations
and complied with all covenants required by this Agreement to be performed
or complied with by any of them prior to the Effective Time and (iii) the
Parent and New Parent shall have delivered to the Company a certificate,
dated the Effective Time and signed by their respective Chief Executive
Officer or Chief Financial Officer certifying to both such effects; and
(b) The Company shall have received an opinion of Hale and Dorr LLP,
tax counsel to the Company, dated as of the Effective Time, substantially
to the effect that the Company Merger will qualify as an exchange within
the meaning of Section 351 of the Code. The issuance of such opinion shall
be conditioned upon the receipt by such tax counsel of reasonable and
customary representation letters from each of the Parties and Westar
Capital, Inc., in each case in form and substance reasonably satisfactory
to such tax counsel. The specific provisions of each such representation
letter shall be in form and substance reasonably satisfactory to such tax
counsel, and each such representation letter shall be dated on or before
the date of such opinion and shall not have been withdrawn or modified in
any material respect; and
(c) The Parent Stockholder Approval shall have been obtained in
accordance with applicable law and Parent's Certificate of Incorporation
and Bylaws and the applicable rules of The Nasdaq Stock Market, Inc. (or,
if Parent shall have become listed on the New York Stock Exchange, the
rules of the New York Stock Exchange);
7.3 Conditions to Obligation of the Parent, New Parent and the Merger
Subsidiaries to Effect the Mergers. The obligation of the Parent, New Parent and
the Merger Subsidiaries to effect the Mergers is further subject to the
fulfillment of the following conditions:
(a)(i) The representations and warranties of the Company contained
herein shall be true and correct in all respects (but without regard to any
materiality qualifications or references to Company Material Adverse Effect
contained in any specific representation or warranty) as of the Effective
Time with the same effect as though made as of the Effective Time except
(x) for changes specifically permitted by the terms of this Agreement, (y)
that the accuracy of representations and warranties that by their terms
speak as of the date of this Agreement or some other date will be
determined as of such date and (z) where any such failure of the
representations and warranties in the aggregate to be true and correct in
all respects would not have a Company Material Adverse Effect; (ii) the
Company shall have performed in all material respects all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Time; and (iii) the Company
shall have delivered to the Parent a certificate, dated the Effective Time
and signed by its Chief Executive Officer certifying to both such effects.
(b) The Parent and New Parent shall have received an opinion of Weil,
Gotshal & Manges LLP, tax counsel to Parent and New Parent, dated as of the
Effective Time, substantially to the effect that the Parent Merger will
qualify as an exchange within the meaning of Section 351 of the Code and a
reorganization within the meaning of Section 368(a) of the Code. The
issuance of such opinion shall be conditioned upon the receipt by such tax
counsel of reasonable and customary
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representation letters from each of the Parties and Westar Capital, Inc.,
in each case in form and substance reasonably satisfactory to such tax
counsel. The specific provisions of each such representation letter shall
be in form and substance reasonably satisfactory to such tax counsel, and
each such representation letter shall be dated on or before the date of
such opinions and shall not have been withdrawn or modified in any material
effect.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval by the stockholders of the
Company or the Parent, as follows:
(a) By mutual written consent of the Boards of Directors of the Parent
and the Company; or
(b) By the Company:
(i) if the Effective Time shall not have occurred on or before
April 30, 1999 due to a failure of any of the conditions to the
obligation of the Company to effect the Merger set forth in Sections 7.1
and 7.2; or
(ii) if, prior to the Effective Time, the Parent, New Parent,
Merger Sub I or Merger Sub II fails to perform in any material respect
any of their respective obligations under this Agreement; or
(iii) in order for the Company to enter into an agreement with a
Third Party to consummate a Qualified Acquisition Proposal (provided
that no such termination shall be effective until the Company has
complied with its obligation to pay the fee specified in Section
6.3(b)); or
(iv) if there shall be a nonappealable order issued by a court of
competent jurisdiction enjoining the consummation of one or both of the
Mergers.
(c) By the Parent:
(i) if the Effective Time shall not have occurred on or before
April 30, 1999 due to a failure of any of the conditions to the
obligations of the Parent, New Parent and the Merger Subsidiaries to
effect the Merger set forth in Sections 7.1 and 7.3; or
(ii) if, prior to the Effective Time, the Company's Directors,
whether or not in the exercise of their fiduciary or other legal duties,
either (A) shall have failed to recommend, or shall have withdrawn its
approval or recommendation of, the Company Merger or this Agreement or
(B) take any action (other than as permitted under clauses (i) and (ii)
of the second sentence of Section 6.5(a)) with respect to any
Acquisition Proposal other than to recommend rejection of the
Acquisition Proposal (including taking a position of neutrality or
failing to take any position within 10 business days after the making or
commencement of a Acquisition Proposal); or
(iii) if, prior to the Effective Time, the Company fails to perform
in any material respect any of its obligations under this Agreement; or
(iv) if, prior to the Effective Time, the Company alters or amends
the Rights Agreement or the Rights in a manner that adversely affects
the Parties' (other than the Company) ability to consummate the
transactions contemplated hereby); or
(v) if the Company's stockholders shall have voted against this
Agreement and the Company Merger at the Special Meeting; or
(vi) if there shall be a nonappealable order issued by a court of
competent jurisdiction enjoining the consummation of one or both of the
Mergers.
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8.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, all obligations and agreements of the
Parties set forth in this Agreement shall forthwith terminate and be of no
further force or effect, and there shall be no liability on the part of the
Parties hereunder, except as set forth in Section 6.3; provided that the
foregoing shall not relieve any Party for liability for damages actually
incurred as a result of any breach of this Agreement.
8.3 Amendment. This Agreement may not be amended except by action of the
Board of Directors of each of the Parties hereto set forth in an instrument in
writing signed on behalf of each of the Parties hereto; provided, however, that
after approval of the Merger by the stockholders of the Company or the Parent,
no amendment may be made without the further approval of the stockholders of the
Company or the Parent to the extent such further approval would be required
under the Massachusetts Law, with respect to the Company Merger, or the Delaware
Law, with respect to the Parent Merger.
8.4 Waiver. At any time prior to the Effective Time, whether before or
after the Company Meeting, any Party hereto by action taken by its Board of
Directors, may (i) extend the time for the performance of any of the obligations
or other acts of any other Party hereto or (ii) subject to the proviso contained
in Section 8.3, waive compliance with any of the agreements of any other Party
or with any conditions to its own obligations. Any agreement on the part of a
Party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such Party by a duly authorized
officer.
ARTICLE 9
GENERAL PROVISIONS
9.1 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to the
provisions of Article 8, and subject to the provisions of Article 7 hereof, the
closing of the Merger pursuant to this Agreement (the "Closing") shall take
place at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, within three business days following the Company Meeting, or at
such other place, time and date as the parties may mutually agree. The date and
time of such Closing are hereinafter referred to as the "Closing Date."
9.2 Publicity. So long as this Agreement is in effect each of Parent, New
Parent, the Company and the Merger Subsidiaries will consult with one another
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, including, without
limitation, the Mergers, and shall not issue any such press release or make any
such public statement prior to such consultation, except to the extent that the
party making such announcement determines that it must do so in order to comply
with applicable law or its obligations pursuant to any listing agreement with
the Nasdaq Stock Market or the NYSE and it is impracticable under the
circumstances to consult with the other parties hereto prior to making such
announcement.
9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been fully given if (i) delivered
personally, (ii) sent by certified or registered mail, return receipt requested,
(iii) sent by overnight courier for delivery on the next business day or (iv)
sent by confirmed telecopy, provided that a hard copy of all such telecopied
materials is thereafter sent within 24 hours in the manner described in clauses
(i), (ii) or (iii), to the Parties at the following addresses or at such other
addresses as shall be specified by the Parties by like notice:
(a) If to the Parent, New Parent, Merger Sub I or Merger Sub II:
Protection One, Inc.
6001 Bristol Parkway
Culver City, California 90230
Attention: John E. Mack, III
Telecopy No.: (310) 649-3855
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with a copy to:
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attention: Jeremy W. Dickens, Esq.
Telecopy No.: (214) 746-7777
with a copy to:
Mitchell, Silberberg & Knupp LLP
Trident Center
11377 West Olympic Boulevard
Los Angeles, California 90084
Attention: Anthony A. Adler, Esq.
Telecopy No.: (310) 312-3785
(b) If to the Company:
Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, Massachusetts 02139-4851
Attention: Ronald Feinstein
Telecopy No.: (617) 679-1386
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Jay E. Bothwick, Esq.
Telecopy No.: (617) 526-5000
Notices provided in accordance with this Section 9.3 shall be deemed
delivered (i) on the date of personal delivery, (ii) four business days after
deposit in the mail, (iii) one business day after delivery to an overnight
courier, or (iv) on the date of confirmation of the telecopy transmission, as
the case may be.
9.4 Interpretation. When a reference is made in this Agreement to
subsidiaries of a Party, the word "subsidiaries" means any corporation more than
50 percent of whose outstanding voting securities, or any partnership, joint
venture, limited liability company or other entity more than 50 percent of whose
total equity interest, is directly or indirectly owned by such Party and the
word "affiliates" shall have the meaning assigned to such term under Rule 405 of
the Securities Act. For purposes of this Agreement, the Company shall not be
deemed to be an affiliate or subsidiary of the Parent, New Parent or the Merger
Subsidiaries. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Inclusion of information in the Company Disclosure Schedule or
the Parent Disclosure Schedule does not constitute an admission or
acknowledgment of the materiality of such information.
9.5 Representations and Warranties; etc. The respective representations
and warranties of the Parties contained herein shall expire with, and be
terminated and extinguished upon, consummation of the Mergers. This Section 9.5
shall have no effect upon any other obligation of the Parties hereto, whether to
be performed before or after the consummation of the Mergers.
9.6 Miscellaneous. This Agreement together with the Confidentiality
Agreement between the Parent and the Financial Advisor dated July 13, 1998, the
Stock Option Agreement and the Voting Agreements constitute the entire agreement
and supersede all other prior agreements and undertakings, both written
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and oral, among the Parties, or any of them, with respect to the subject matter
hereof (including without limitation the Initial Merger Agreement. This
Agreement (i) is not intended to confer upon any other person any rights or
remedies hereunder, create any agreement of employment with any person or
otherwise create any third-party beneficiary hereto; (ii) shall not be assigned,
except that each Merger Subsidiary may assign its rights and obligations to a
direct wholly owned subsidiary of the New Parent which in a written instrument
shall make all the representations and warranties of such Merger Subsidiary set
forth herein and shall agree to assume all of such Merger Subsidiary's
obligations hereunder and be bound by all of the terms and conditions of this
Agreement; provided, however, that no such assignment shall relieve the Parent,
New Parent or the Merger Subsidiaries of their obligations hereunder; and (iii)
shall be governed in all respects, including validity, interpretation and
effect, by the internal laws of the Commonwealth of Massachusetts, without
giving effect to the principles of conflict of laws thereof. This Agreement may
be executed in one or more counterparts which together shall constitute a single
agreement.
9.7 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
9.8 Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, each of the Parent, New Parent, Merger Sub I, Merger
Sub II and the Company have caused this Agreement to be executed and its
corporate seal to be thereto affixed as of the date first written above by its
respective officers thereunto duly authorized.
[SEAL] PROTECTION ONE, INC.
By: /s/ JOHN E. MACK, III
------------------------------------
Name: John E. Mack, III
Title: Executive Vice President
[SEAL] PROTECTION ONE ACQUISITION
HOLDING CORPORATION
By: /s/ JOHN E. MACK, III
------------------------------------
Name: John E. Mack, III
Title: President
[SEAL] P-1 MERGER SUB, INC.
(a Massachusetts corporation)
By: /s/ JOHN E. MACK, III
------------------------------------
Name: John E. Mack, III
Title: President
By: /s/ JOHN HESSE
------------------------------------
Name: John Hesse
Title: Treasurer
[SEAL] P-1 MERGER SUB, INC.
(a Delaware corporation)
By: /s/ JOHN E. MACK, III
------------------------------------
Name: John E. Mack, III
Title: President
[SEAL] LIFELINE SYSTEMS, INC.
By: /s/ RONALD FEINSTEIN
------------------------------------
Name: Ronald Feinstein
Title: President
By: /s/ DENNIS M. HURLEY
------------------------------------
Name: Dennis M. Hurley
Title: Treasurer
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ANNEX B
MASSACHUSETTS GENERAL LAWS, CHAPTER 156B
SECTIONS 85-98
SEC. 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK; EXCEPTION
A stockholder in any corporation organized under the laws of Massachusetts
which shall have duly voted to consolidate or merge with another corporation or
corporations under the provisions of sections seventy-eight or seventy-nine who
objects to such consolidation or merger may demand payment for his stock from
the resulting or surviving corporation and an appraisal in accordance with the
provisions of sections eighty-six to ninety-eight, inclusive, and such
stockholder and the resulting or surviving corporation shall have the rights and
duties and follow the procedure set forth in those sections. This section shall
not apply to the holders of any shares of stock of a constituent corporation
surviving a merger if, as permitted by subsection (c) of section seventy-eight,
the merger did not require for its approval a vote of the stockholders of the
surviving corporation.
SEC. 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SEC. 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
SEC. 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and
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whose shares were not voted in favor of the approval of such action, that the
action approved at the meeting of the corporation of which he is a stockholder
has become effective. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock. The notice shall be sent by registered or certified mail, addressed to
the stockholder at his last known address as it appears in the records of the
corporation.
SEC. 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
SEC. 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SEC. 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SEC. 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
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SEC. 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SEC. 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SEC. 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SEC. 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section
ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his objections
to an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SEC. 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SEC. 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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ANNEX C
October 18, 1998
Board of Directors
Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, MA 02139
Members of the Board:
BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial
advisor to Lifeline Systems, Inc. (the "Company") in connection with the
proposed merger transaction involving the Company and Protection One, Inc. (the
"Parent") pursuant to an Agreement and Plan of Contribution and Merger, dated as
of October 18, 1998 (the "Merger Agreement"), among the Company, the Parent and
Protection One Acquisition Holding Corporation, a wholly owned subsidiary of the
Parent (the "New Parent"), P-1 Merger Sub, Inc., a wholly owned subsidiary of
New Parent incorporated in Massachusetts ("Merger Sub I"), and P-1 Merger Sub,
Inc., a wholly owned subsidiary of New Parent incorporated in Delaware ("Merger
Sub II"), which provides among other things for (i) the merger of Merger Sub I
with and into the Company (the "Company Merger") and (ii) the merger of Merger
Sub II with and into the Parent (the "Parent Merger" and, together with the
Company Merger, the "Transaction"). As set forth more fully in the Merger
Agreement, as a result of the Company Merger, each outstanding share of the
common stock, $0.02 par value per share, of the Company ("Company Common Stock")
shall be converted into the right to receive (i) $14.50 in cash and (ii) the
number of shares of common stock, $0.01 par value per share, of New Parent ("New
Parent Common Stock") equal to the Exchange Ratio (as defined below) (the
consideration referred to in clauses (i) and (ii) being collectively referred to
as the "Company Merger Consideration"). As set forth more fully in the Merger
Agreement, as a result of the Parent Merger, each outstanding share of the
common stock of the Parent, par value $0.01 per share, (the "Parent Common
Stock") shall be converted into one share of New Parent Common Stock. The term
"Exchange Ratio" is defined in the Merger Agreement to mean: (a) 1.7857 if the
Average Closing Price (as defined below) is less than $7.00; (b) the quotient
obtained by dividing $12.50 by the Average Closing Price, if the Average Closing
Price is equal to or greater than $7.00 but less than $8.19; (c) 1.5263 if the
Average Closing Price is equal to or greater than $8.19 but less than $9.50; (d)
the quotient obtained by dividing $14.50 by the Average Closing Price, if the
Average Closing Price is equal to or greater than $9.50 but less than $11.00;
and (e) 1.3182 if the Average Closing Price is equal to or greater than $11.00.
The term "Average Closing Price" is defined in the Merger Agreement to mean the
average of the closing prices of the Parent Common Stock on the NASDAQ National
Market or the New York Stock Exchange during the ten most recent trading days on
which shares of Parent Common Stock actually traded ending three trading days
prior to the date on which stockholders of the Company approve the Transaction.
The terms and conditions of the Transaction are more fully set forth in the
Merger Agreement.
You have requested BT Alex. Brown's opinion as to the fairness, from a
financial point of view, of the Company Merger Consideration to be received in
the Transaction by holders of the Company Common Stock.
BT Alex. Brown, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. BT Alex. Brown will receive
a fee for its services as financial advisor to the Company in connection with
the Transaction, a significant portion of which is contingent upon the
consummation of the Transaction and a portion of which is payable upon the
delivery of this opinion. BT Alex. Brown provides research on Western Resources,
Inc. ("Western Resources"), which owns approximately 85% of the Parent Common
Stock. In the ordinary course of business, BT Alex. Brown and its affiliates may
actively trade or hold the securities of the
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Board of Directors
Lifeline Systems, Inc.
October 18, 1998
Page 2
Company, the Parent or Western Resources for their own accounts and for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities. In addition, BT Alex. Brown has acted as an
underwriter in connection with an offering of debt securities by Western
Resources and, from time to time, has provided Western Resources with certain
other corporate services for which it received customary compensation.
In connection with BT Alex. Brown's role as financial advisor to the
Company, and in arriving at its opinion, BT Alex. Brown has reviewed certain
publicly available financial and other information concerning the Company and
the Parent and certain internal analyses and other information furnished to it
by the Company and the Parent. BT Alex. Brown has also held discussions with
members of the senior management of the Company and the Parent regarding the
business and prospects of their respective companies and the joint prospects of
a combined company. In addition, BT Alex. Brown has (i) reviewed the reported
prices and trading activity for the Company Common Stock and the Parent Common
Stock; (ii) compared certain financial and stock market information for the
Company and the Parent with similar information for certain other companies
whose securities are publicly traded; (iii) reviewed the financial terms of
certain recent business combinations which it deemed comparable in whole or in
part; (iv) reviewed the terms of the Merger Agreement; and (v) performed such
other studies and analyses and considered such other factors as it deemed
appropriate. No limitations were imposed by the Company on BT Alex. Brown with
respect to the investigations made or procedures followed in its role as
financial advisor to the Company.
BT Alex. Brown has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company, the Parent or the combined
company, including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, BT Alex. Brown has assumed and relied
upon the accuracy, completeness and fairness of all such information and BT
Alex. Brown has not conducted a physical inspection of any of the properties or
assets and has not prepared or obtained an independent evaluation or appraisal
of any of the assets or liabilities of the Company or the Parent. With respect
to the financial forecasts and projections made available to BT Alex. Brown and
used in its analyses, BT Alex. Brown has assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company or the Parent, as the case may be, as
to the matters covered thereby. In rendering its opinion, BT Alex. Brown
expresses no view as to the reasonableness of such forecasts and projections or
the assumptions on which they are based. BT Alex. Brown's opinion is necessarily
based upon economic, market and other conditions as in effect on, and the
information made available to it as of, the date hereof.
For purposes of rendering its opinion, BT Alex. Brown has assumed that, in
all respects material to its analysis, the representations and warranties of the
Company, the Parent, New Parent, Merger Sub I and Merger Sub II contained in the
Merger Agreement are true and correct, the Company, the Parent, New Parent,
Merger Sub I and Merger Sub II will each perform all of the covenants and
agreements to be performed by it under the Merger Agreement and all conditions
to the obligations of each of the Company, the Parent, New Parent, Merger Sub I
and Merger Sub II to consummate the Transaction will be satisfied without any
waiver thereof. In addition, you have informed BT Alex. Brown, and accordingly
for purposes of rendering its opinion BT Alex. Brown has assumed, that the
Company Merger will qualify as a tax-free exchange under Section 351 of the
Internal Revenue Code of 1986, as amended.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of the Company and is not a recommendation to any stockholder as to
how such stockholder should vote on the proposed Merger. This opinion is limited
to the fairness, from a financial point of view, of the Company Merger
C-2
<PAGE> 146
Board of Directors
Lifeline Systems, Inc.
October 18, 1998
Page 3
Consideration to be received in the Transaction by the holders of Company Common
Stock, and BT Alex. Brown expresses no opinion as to the merits of the
underlying decision by the Company to engage in the Transaction. Furthermore, BT
Alex. Brown expresses no opinion as to (i) the price at which Parent Common
Stock will trade following the announcement of the Transaction or (ii) the price
at which New Parent Common Stock will trade following the consummation of the
Transaction.
Based upon and subject to the foregoing, it is BT Alex. Brown's opinion
that, as of the date of this letter, the Company Merger Consideration to be
received in the Transaction by the holders of Company Common Stock is fair, from
a financial point of view, to such holders.
Very truly yours,
BT ALEX. BROWN INCORPORATED
/s/ HARRIS HYMAN IV
------------------------------------
Harris Hyman IV
Managing Director
C-3
<PAGE> 147
[INTENTIONALLY LEFT BLANK]
<PAGE> 148
If you have any questions or need assistance in voting your shares or
changing your vote, please contact:
McKenzie Partners, Inc. LOGO
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
<PAGE> 149
FORM OF PROXY
LIFELINE SYSTEMS, INC.
640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139
SPECIAL MEETING OF STOCKHOLDERS
MARCH __, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Those signing on the reverse side, revoking all prior proxies, hereby appoint
Ronald Feinstein and Norman B. Asher, and each of them, with full power of
substitution, as proxies, to represent and to vote as designated hereon, all
shares of stock of Lifeline Systems, Inc. which those signing on the reverse
side would be entitled to vote if personally present at the Special Meeting of
Stockholders of the Company to be held at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts 02109, on March ___, 1999 at 10:00 a.m.,
Boston time, and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDERS.
- ------------------------------------------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE-PAID ENVELOPE.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person
and state title.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
<S> <C>
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
</TABLE>
<PAGE> 150
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
---------------------------------------------
LIFELINE SYSTEMS, INC.
---------------------------------------------
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED IN FAVOR
OF THE PROPOSAL SET FORTH HEREON.
A VOTE "FOR" THE PROPOSAL IS RECOMMENDED BY THE BOARD OF DIRECTORS.
RECORD DATE SHARES:
1. To approve and to adopt the Agreement and Plan of Contribution and Merger
dated as of October 18, 1998 and as amended and restated on October 28, 1998
(the "Merger Agreement") among Protection One, Inc., a Delaware corporation,
Protection One Acquisition Holding Corporation, a Delaware corporation and a
wholly owned subsidiary of Protection One, P-1 Merger Sub, Inc., a Massachusetts
corporation and a wholly owned subsidiary of New Protection One, P-1 Merger Sub,
Inc., a Delaware corporation and a wholly owned subsidiary of New Protection
One, and Lifeline Systems, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To transact such other business as may properly come before the meeting or
any adjournments of the meeting.
Mark box at right if an address change or comment has been noted on the reverse
side of this card. [ ]
<TABLE>
<S> <C> <C>
Please be sure to sign and date this Proxy Date
-------------------------------------- ---------------------
Stockholder sign here Co-owner sign here
---------------------------------- --------------------------
</TABLE>
DETACH CARD DETACH CARD
<PAGE> 151
LIFELINE SYSTEMS, INC.
Dear Stockholder,
Please take note of the important information enclosed with this Proxy, which
requires your immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted, then sign the card, detach it and return it in the enclosed postage paid
envelope.
Your vote must be received prior to the Special Meeting of Stockholders to be
held on March ___, 1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Lifeline Systems, Inc.
