<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1998
REGISTRATION NO. 333-64021
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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<TABLE>
<S> <C> <C> <C>
PROTECTION ONE, INC.(1) PROTECTION ONE ALARM MONITORING, INC.
(Exact Name of Registrant as Specified in Its Charter) (Exact Name of Registrant as Specified in Its Charter)
DELAWARE 92-1063818 DELAWARE 93-1064579
(State or Other (I.R.S. Employer (State or Other (I.R.S. Employer
Jurisdiction of Identification No.) Jurisdiction of Identification No.)
Incorporation or Incorporation or
Organization) Organization)
</TABLE>
7382
(Primary Standard Industrial Classification Code Number)
<TABLE>
<S> <C>
JAMES M. MACKENZIE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROTECTION ONE, INC.
6011 BRISTOL PARKWAY 6011 BRISTOL PARKWAY
CULVER CITY, CALIFORNIA 90230 CULVER CITY, CALIFORNIA 90230
(310) 342-6300 (310) 342-6300
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Number,
Including Area Code, of Registrants' Principal Including Area Code, of Agent For Service)
Executive Office)
</TABLE>
Copies to:
JEREMY W. DICKENS
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201
(214) 746-7700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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(1) Prior Co-Registrants Westar Security, Inc. and WestSec, Inc. have merged
with and into Protection One Alarm Monitoring, Inc. ("Monitoring") with
Monitoring being the surviving entity. Prior Co-Registrants Network
Holdings, Inc. and Network Multi-Family Security Corporation ("NMFSC")
merged with NMFSC surviving. Prior Co-Registrants NMFSC, DSC Enterprises,
Inc. and Comsec/Narragansett Security, Inc. are wholly owned subsidiaries of
Monitoring and are not currently required under the terms of the Indenture
governing the Notes under this Registration Statement and, therefore, have
been omitted from this Amendment as Co-Registrants.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is a compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to the Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
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THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
7 3/8% SENIOR NOTES DUE 2005
FOR
7 3/8% SENIOR NOTES DUE 2005
OF
PROTECTION ONE ALARM MONITORING, INC.,
AS ISSUER
AND
PROTECTION ONE, INC.,
AS GUARANTOR
Protection One Alarm Monitoring, Inc., a Delaware corporation
("Monitoring"), and Protection One, Inc., a Delaware corporation (together with
any subsequent subsidiary guarantors, the "Guarantors"), hereby offer, upon the
terms and subject to the conditions set forth in this Prospectus and the letter
of transmittal accompanying this Prospectus (the "Letter of Transmittal," which
together constitute the "Exchange Offer"), to exchange $1,000 principal amount
of 7 3/8% Senior Notes due 2005 (the "New Notes") issued by Monitoring for each
$1,000 principal amount of 7 3/8% Senior Notes due 2005 (the "Old Notes") issued
by Monitoring (the "Original Offering"), of which an aggregate principal amount
of $250.0 million is outstanding. The form and terms of the New Notes are
identical to the form and terms of the Old Notes except that the New Notes have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, except for certain transfer restrictions, registration rights and
terms providing for an increase in the interest rate on the Old Notes under
certain events relating to registration of the New Notes. The New Notes will
evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the same benefits of, the Senior Debt Indenture (as defined)
governing the Old Notes. The Exchange Offer is being made in order to satisfy
certain contractual obligations of Monitoring and the Guarantors (as defined).
See "The Exchange Offer" and "Description of the New Notes." The New Notes and
the Old Notes are sometimes collectively referred to herein as the "Notes".
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SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES.
------------------------------
The New Notes will bear interest at the rate of 7 3/8% per annum, payable
semi-annually in arrears on February 15 and August 15 of each year, commencing
on February 15, 1999, and will mature on August 15, 2005. The New Notes will be
redeemable, in whole or in part, at the option of Monitoring at any time and
from time to time at a redemption price equal to the Make-Whole Price (as
defined). See "Description of the New Notes -- Optional Redemption." In
addition, in the event of a Change of Control Triggering Event (as defined),
each holder of the New Notes will have the right to require Monitoring to
repurchase all or any part of such holder's Notes at a repurchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase.
The New Notes will be general unsecured obligations of Monitoring and will
rank pari passu in right of payment with all senior indebtedness, whenever
incurred, of Monitoring, including the Company's Senior Credit Facility (as
defined), and senior in right of payment to all subordinated indebtedness,
whenever incurred, of Monitoring, including Monitoring's 13 5/8% Senior
Subordinated Discount Notes due 2005 (the "Discount Notes") and the 6 3/4%
Convertible Senior Subordinated Notes due 2003 (the "Convertible Notes"). See
"Description of the New Notes." The Notes will be fully and unconditionally
guaranteed (the "Guarantees") on a senior unsecured basis by the Guarantors. The
Guarantees will be unsecured and will rank pari passu with all other unsecured
and unsubordinated indebtedness of the respective Guarantors. See "Description
of the New Notes -- General" and "-- Certain Covenants -- Subsidiary
Guarantees."
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MONITORING WILL ACCEPT FOR EXCHANGE ANY AND ALL OLD NOTES VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 15, 1999,
UNLESS EXTENDED (AS SO EXTENDED, SUCH TIME AND DATE BEING THE "EXPIRATION
DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS.
SEE "THE EXCHANGE OFFER."
In order for a holder of Old Notes to participate in an Exchange Offer, such
holder must represent to Monitoring that, among other things, (i) the New Notes
acquired pursuant to such Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the holder of the Old Notes, (ii) neither the holder nor any such
other person is engaging or intends to engage in a distribution of such New
Notes, (iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes within the meaning of the Securities Act, (iv) neither the holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated under
the Securities Act, of Monitoring or any Guarantor, and (v) if such holder or
other person is a broker-dealer, that it will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of marketmaking
activities or other trading activities. See "The Exchange Offer -- Purpose and
Effect."
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes pursuant to the Exchange Offer, where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities.
No public market existed for the Old Notes before the Exchange Offer.
Monitoring currently does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the New Notes is currently anticipated.
Monitoring will pay all the expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 15, 1998.
<PAGE> 3
AVAILABLE INFORMATION
POI and Monitoring are, and the other Guarantors will be, subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith file reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the offices of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549, as well as at the
following regional offices of the Commission: The Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a World Wide Web site on the Internet at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy statements and other information concerning Monitoring are also
filed with the National Association of Securities Dealers, Inc., as a result of
the listing of Common Stock of POI on the Nasdaq Stock Market, and may be
inspected at its offices at 1735 K Street, N.W., Washington, D.C. 20006.
Whether or not the Company is obligated under the Exchange Act to file such
reports, information and documents in the future, Monitoring, while any of the
Notes remain outstanding, will furnish to the holders of the Notes and file with
the Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports. In addition, while any Notes remain outstanding, Monitoring will make
available to any holder or prospective purchaser of the Notes the information
required pursuant to Rule 144A(d)(4) promulgated under the Securities Act,
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT THE COMPANY THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. SUCH
INFORMATION IS AVAILABLE WITHOUT CHARGE TO SECURITY HOLDERS UPON WRITTEN OR ORAL
REQUEST. SUCH REQUEST MUST BE MADE TO MONTGOMERY W. CORNELL, TREASURER AND
DIRECTOR OF INVESTOR RELATIONS, PROTECTION ONE, INC., 4221 WEST JOHN CARPENTER
FREEWAY, IRVING, TEXAS 75063, TELEPHONE NUMBER (972) 916-6044. TO OBTAIN TIMELY
DELIVERY, SECURITY HOLDERS MUST REQUEST THE INFORMATION NO LATER THAN FIVE
BUSINESS DAYS BEFORE THE DATE THEY MUST MAKE THEIR INVESTMENT DECISION. SUCH
INFORMATION MUST BE REQUESTED BY JANUARY 8, 1999.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(a) The Annual Report on Form 10-K of POI and Monitoring for the
fiscal year ended December 31, 1997;
(b) The Quarterly Reports on Form 10-Q of POI and Monitoring for the
fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998;
and
(c) The Current Reports on Form 8-K of POI filed on November 2, 1998
and December 9, 1998.
All documents filed by POI and Monitoring pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the consummation of the transaction
contemplated by this Prospectus are a part of and shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such document.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. Subject to the
foregoing, all information appearing in this Prospectus is qualified in its
entirety by the information appearing in the documents incorporated by
reference.
POI and Monitoring will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
the documents incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such documents should be directed to Montgomery W.
Cornell, Vice President and Treasurer, Protection One, Inc., 6225 N. Hwy. 161,
Suite 400, Irving, Texas 75038, telephone number (972) 916-6044.
The public may read and copy any materials filed with the Commission by POI
and Monitoring at the Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission at http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This Prospectus and the materials incorporated by reference herein and
therein include "forward-looking statements" intended to qualify for the safe
harbor from liability established by the Private Securities Litigation Reform
Act of 1995. These forward-looking statements generally can be identified by
phrases such as the Company or its management "believes," "expects,"
"anticipates," "foresees" or other words or phrases of similar import.
Similarly, statements herein that describe the Company's business strategy,
objectives, plans, intentions or goals also are forward-looking statements. All
such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those in the forward-
looking statements. Important factors that could cause actual results to differ
materially from the expectations of the Company include, among others: (i) the
Company's leverage and capital structure; (ii) the impact of the Company's
acquisition strategy on its operations; (iii) the Company's need for additional
capital and history of losses; (iv) subscriber account attrition; (v) the risks
and uncertainties related to the Company's dealer program; (vi) the impact of
accounting differences for account purchases and new installations; (vii) the
possible adverse effect of false alarm ordinances and future government
regulations; (viii) risks of liability from operations; and (ix) competition in
the security alarm industry. For information with respect to these and other
factors, see "Risk Factors." Potential investors and other readers are urged to
consider these factors carefully in evaluating the forward-looking statements.
The forward-looking statements included herein are made only as of the date of
this Prospectus and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
CERTAIN DEFINITIONS
As used in this Prospectus, (i) "MRR" means monthly recurring revenue that
the Company is entitled to receive under contracts in effect at the end of the
referenced period, (ii) "POI" means Protection One, Inc., and (iii) "Company"
and "Protection One" means, collectively, POI and its direct and indirect wholly
owned subsidiaries.
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following information does not purport to be complete and is qualified
in its entirety by the detailed information appearing elsewhere in this
Prospectus. Prospective investors should carefully consider the matters
discussed under the caption "Risk Factors."
THE COMPANY
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. The Company 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, the Company provides repair of security systems and, in
select markets, armed response to verify that an actual emergency has occurred.
The Company provides its services to the residential, commercial and
wholesale segments of the alarm monitoring market. The Company 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 the Company'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 the Company
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 the Company'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 the Company's size by approximately 440,000
subscribers.
Subsequent to the transaction consummated on November 24, 1997 in which POI
combined with WestSec, Inc., a Kansas corporation and wholly owned subsidiary of
Monitoring ("WestSec"), and Westar Security, Inc., a Kansas corporation and
direct, wholly owned subsidiary of POI ("Westar"; the "Combination") and through
June 1998, the Company 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 Compagnie
Europeenne de Telesecurite ("CET") in a multi-step process for an aggregate
purchase price of approximately $140 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 the Company believes will allow it to participate in the
additional consolidation the Company expects to take place in Europe. As a
result of these acquisitions, the Company expanded its geographic reach,
increased its customer density in key markets and expects to realize operating
efficiencies through the integration of these acquisitions.
In October 1998, the Company announced that it had entered into an
agreement to acquire Lifeline Systems, Inc. ("Lifeline"), the leading provider
of 24-hour personal emergency response services ("PERS") in North America, for
approximately $174 million in cash and common stock of Protection One, based on
the number of shares of currently outstanding Lifeline shares (the "Lifeline
Merger"). Lifeline shareholders may elect to receive additional shares of common
stock in lieu of all or a portion of the cash consideration. Lifeline provides
24-hour personal response monitoring services to its subscribers who are
primarily elderly individuals
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<PAGE> 6
with medical or age-related conditions as well as physically challenged
individuals throughout the United States and Canada. Lifeline provides life
safety monitoring services utilizing 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. The Company expects to consummate
the Lifeline Merger in early 1999. If the Lifeline Merger closes, the Company
anticipates that Lifeline will become a subsidiary of Monitoring. The Lifeline
acquisition is consistent with Protection One's strategy to broaden the services
it offers to its customers. The Company envisions this acquisition will also
afford it the opportunity to cross-sell Lifeline's services to its alarm
monitoring customers.
In June 1998, POI issued approximately $400 million of its common stock in
a concurrent public offering and private placement (collectively, the "Equity
Offerings"), using the proceeds to repay borrowings under the Senior Credit
Facility (as defined) and repurchase a portion of the Discount Notes.
The Company is also negotiating a new credit agreement (the "New Senior
Credit Facility") to repay borrowings under its existing Senior Credit Facility
as defined. The New Senior Credit Facility will provide for revolving borrowings
of up to $500 million compared to a maximum of $472.8 million under its existing
Senior Credit Facility. Once the New Senior Credit Facility is finalized, it is
expected that the amounts available under the existing Senior Credit Facility
will be reduced. Although the Company has received firm commitments from certain
financial institutions, the availability of borrowing is subject to definitive
documentation. The Company expects to execute definitive documentation for the
New Senior Credit Facility by the end of December 1998.
The Company's principal executive offices are located at 6011 Bristol
Parkway, Culver City, California 90230, telephone (310) 342-6300.
2
<PAGE> 7
THE EXCHANGE OFFER
THE EXCHANGE OFFER......... Monitoring hereby offers, upon the terms and
subject to the conditions set forth in this
Prospectus and the Letter of Transmittal to
exchange $1,000 principal amount of New Notes
issued by Monitoring for each $1,000 principal
amount the Old Notes issued by Monitoring, of which
an aggregate principal amount of $250.0 million is
outstanding. The form and terms of the New Notes
are identical to the form and terms of the Old
Notes except that the New Notes have been
registered under the Securities Act, and will not
bear any legends restricting their transfer. The
New Notes will evidence the same debt as the Old
Notes and will be issued pursuant to, and entitled
to the benefits of, the Senior Debt Indenture
governing the Old Notes. The Exchange Offer is
being made in order to satisfy certain contractual
obligations of Monitoring. See "The Exchange Offer"
and "Description of the New Notes."
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to Monitoring and the
Guarantors, Monitoring and the Guarantors believe
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale, sold and otherwise transferred by any
registered person receiving the New Notes, whether
or not that person is the registered holder (other
than any such holder or such other person that is
(i) an "affiliate" of Monitoring or the Guarantors
within the meaning of Rule 405 under the Securities
Act or (ii) a broker-dealer who purchased Old Notes
directly from Monitoring to resell pursuant to Rule
144A or any other available exception under the
Securities Act or (iii) a person participating in
the distribution of the New Notes), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that (i) the New Notes are acquired in the ordinary
course of business of that holder or such other
person, (ii) neither the holder nor such other
person is engaging in or intends to engage in a
distribution of the New Notes, and (iii) neither
the holder nor such other person has an arrangement
or understanding with any person to participate in
the distribution of the New Notes. See "The
Exchange Offer -- Purpose and Effect." Each
broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where those Old
Notes were acquired by the broker-dealer as a
result of its market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale
of these New Notes. See "Plan of Distribution."
REGISTRATION RIGHTS
AGREEMENT.................. The Old Notes were sold by Monitoring on August 17,
1998, in a private placement in reliance on Section
4(2) of the Securities Act and immediately resold
by the initial purchasers thereof in reliance on
Rule 144A under the Securities Act. In connection
with the sale, Monitoring, Protection One and
former guarantors, which have been merged into
Monitoring, entered into a Registration Rights
Agreement with the initial purchasers of the Old
Notes (the "Registration Rights Agreement")
requiring Monitoring and Protection One to make the
Exchange Offer. The Registration Rights Agreement
further provides that Monitoring and Protection One
must use their reasonable best efforts to (i) cause
the Registration Statement with respect to the
Exchange Offer to be declared effective on or
before December 15, 1998 and (ii) consummate the
Exchange Offer on or before the 45th business
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<PAGE> 8
day following the date on which the Registration
Statement is declared effective. See "The Exchange
Offer -- Purpose and Effect." If such registration
requirements are not complied with by the
applicable deadlines, Monitoring and the Guarantors
must pay liquidated damages ("Liquidated damages")
to the holders of Transfer Restricted Securities
(as defined) as set forth in the Registration
Rights Agreement.
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, January 15, 1999 or such later date
and time to which it is extended by Monitoring and
the Guarantors.
WITHDRAWAL................. The tender of the Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
INTEREST ON THE NEW NOTES
AND THE OLD NOTES.......... Interest on each New Note will accrue from the date
of issuance of the Old Note for which the New Note
is exchanged or from the date of the last periodic
payment of interest on such Old Note, whichever is
later. No additional interest will be paid on Old
Notes tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by
Monitoring. See "The Exchange Offer -- Conditions
to Exchange Offer."
PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of the Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the Exchange Agent (as defined) at the address
set forth herein. Persons holding the Old Notes
through the Depository Trust Company ("DTC") and
wishing to accept the Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program ("ATOP"), by which each tendering
participant will agree to be bound by the Letter of
Transmittal. By executing or agreeing to be bound
by the Letter of Transmittal, each holder will
represent to Monitoring and the Guarantors that,
among other things, (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such New Notes, whether or not such
person is the registered holder of the Old Notes,
(ii) neither the holder nor any such other person
is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the
holder nor any such other person has an arrangement
or understanding with any person to participate in
the distribution of such New Notes, and (iv)
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of Monitoring or the
Guarantors. Pursuant to the Registration Rights
Agreement if (i) Monitoring determines that it
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<PAGE> 9
is not permitted to effect the Exchange Offer as
contemplated hereby because of any applicable law
or Commission policy, or (ii) any holder of
Transfer Restricted Securities (as defined)
notifies Monitoring prior to the 20th day following
consummation of the Exchange Offer (a) that it is
prohibited by law or Commission policy from
participating in the Exchange Offer (b) that it may
not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a
prospectus and that this Prospectus is not
appropriate or available for such resales or (c)
that it is a broker-dealer and owns Old Notes
acquired directly from Monitoring or an affiliate
of Monitoring, Monitoring is required to file a
"shelf" registration statement for a continuous
offering pursuant to Rule 415 under the Securities
Act in respect of the Old Notes.
Monitoring will accept for exchange any and all Old
Notes which are properly tendered (and not
withdrawn) in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
EXCHANGE AGENT............. The Bank of New York is serving as Exchange Agent
(the "Exchange Agent") in connection with the
Exchange Offer.
FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
EFFECT OF NOT TENDERING.... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer
thereof. Monitoring and the Guarantors will have no
further obligation to provide for the registration
under the Securities Act of such Old Notes.
THE NEW NOTES
ISSUER............................. Protection One Alarm Monitoring, Inc.
SECURITIES OFFERED................. $250,000,000 aggregate principal amount
of 7 3/8% Senior Notes due 2005.
MATURITY........................... August 15, 2005.
INTEREST PAYMENT DATES............. February 15 and August 15 of each year,
commencing on February 15, 1999.
GUARANTEES......................... The New Notes will be fully and
unconditionally guaranteed on a senior
unsecured basis by the Guarantors. The
Guarantees will be unsecured and will
rank pari passu with all other unsecured
and unsubordinated indebtedness of the
respective Guarantors. See "Description
of the New Notes -- General" and
"-- Certain Covenants -- Subsidiary
Guarantees."
RANKING............................ The New Notes will be general unsecured
obligations of Monitoring and will rank
pari passu in right of payment with all
senior indebtedness, whenever incurred,
of Moni-
5
<PAGE> 10
toring, including that certain credit
agreement, as amended to date, between
the Company and Westar Capital (the
"Senior Credit Facility"), and senior in
right of payment to all subordinated
indebtedness, whenever incurred, of
Monitoring, including the Discount Notes
and the Convertible Notes. See
"Description of the New
Notes -- General."
OPTIONAL REDEMPTION................ The New Notes will be redeemable, in
whole or in part, at the option of
Monitoring at any time and from time to
time at a redemption price equal to the
Make-Whole Price. See "Description of the
New Notes -- Optional Redemption."
SINKING FUND....................... None.
CHANGE OF CONTROL.................. Upon the occurrence of a Change of
Control Triggering Event, each holder of
the New Notes will have the right to
require Monitoring to repurchase such
holders' New Notes, in whole or in part,
at a price equal to 101% of the aggregate
principal amount thereof, plus accrued
and unpaid interest to the date of
purchase. In the event that at any time
(i) both Rating Agencies (as defined)
assign the New Notes an Investment Grade
Rating (as defined) and (ii) no Default
(as defined) or Event of Default (as
defined) has occurred and is continuing
under the indenture governing the Notes
(the "Senior Debt Indenture"), the
provisions of the Senior Debt Indenture
with respect to a Change of Control Offer
(as defined) will be permanently
terminated.
COVENANTS.......................... The Senior Debt Indenture contains
certain covenants, including but not
limited to, (i) restrictions on the
creation of liens securing indebtedness
and (ii) limitations on sale and
leaseback transactions.
RISK FACTORS
The risk factors that holders of Old Notes should consider in connection
with the Exchange Offer and that prospective investors in the New Notes should
consider include, but are not limited to: (i) consequences of the failure to
exchange the Old Notes, (ii) the Company's leverage, (iii) the impact of the
Company's acquisition strategy on operations, (iv) the Company's international
operations and currency fluctuations, (v) the attrition of subscriber accounts,
(vi) the Company's history of losses, (vii) the control of the Company by
Western Resources (as defined) and Westar Capital (as defined), (viii) the
Company's need for additional capital, (ix) the risk related to the Dealer
Program, (x) the possible adverse effect of "false alarm" ordinances, (xi) the
possible effect of future government regulations and the risk of litigation,
(xii) the liability from the Company's operations, (xiii) the Company's
competition, (xiv) the impact of declines in new construction of multi-family
dwellings, (xv) the impact of the year 2000 issue, (xvi) the repurchase of the
Notes upon a change of control triggering event, (xvii) the risks arising under
bankruptcy laws, and (xviii) the absence of a public market for the Notes.
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<PAGE> 11
RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below, as well as the other information set forth in this Prospectus, before
making an investment in the New Notes. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, the risk factors set forth below.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. Monitoring does not currently anticipate that it will register
Old Notes under the Securities Act. See "The Exchange Offer -- Purpose and
Effect." Based on interpretations by the staff of the Commission, as set forth
in no-action letters issued to third parties, Monitoring believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by holders thereof (other than any
such holder which is an "affiliate" of Monitoring within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders, other than broker-dealers, have no arrangement or understanding with
any person to participate in the distribution of such New Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any holder is an affiliate of Monitoring or the Guarantors or
is engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) may not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes pursuant to the Exchange Offer must
acknowledge that such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities and that it will deliver
a prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. Monitoring and Protection One have agreed,
pursuant to the Registration Rights Agreement, subject to certain limitations
specified therein, to cooperate with the holders to register or qualify the New
Notes for offer or sale under the securities laws of such jurisdiction as any
holder reasonably requests. Unless a holder so requests, Monitoring does not
currently intend to register or qualify the sale of the New Notes in any such
jurisdictions. See "The Exchange Offer."
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<PAGE> 12
LEVERAGE
Protection One has a large amount of consolidated indebtedness when
compared to the equity of its stockholders. The terms of various indentures and
credit agreements of Protection One limit, but do not prohibit, the incurrence
of additional indebtedness. Protection One expects to incur additional
indebtedness in the future in order to fund future additions of subscriber
accounts through purchases in connection with a program through which it
acquires subscriber accounts from authorized dealers (the "Dealer Program") and
future acquisitions of subscriber account portfolios as part of the business
strategy. The New Senior Credit Facility will provide for revolving borrowings
of up to $500 million, compared to $472.8 million under its existing Senior
Credit Facility. Additionally, please be aware that, as of September 30, 1998,
Protection One had outstanding long-term indebtedness, including capital leases,
of approximately $820.6 million, an accumulated deficit of $40.0 million and
stockholder's equity of $1,349.8 million. A portion of its consolidated debt
bears interest at floating rates; therefore, Protection One's financial results
are and will continue to be affected by changes in prevailing interest rates. As
of September 30, 1998, Protection One had approximately $294.8 million of debt
outstanding bearing interest at floating interest rates.
In addition, if the Company had entered into the New Senior Credit Facility
as of such date, Protection One would have had approximately $397.6 million
available for future borrowings under such New Senior Credit Facility.
Such a large amount of indebtedness could have negative consequences,
including, without limitation:
- The ability to obtain additional financing in the future for working
capital, the Dealer Program, acquisitions of portfolios of subscriber
accounts, capital expenditures, general corporate purposes or other
purposes may be impaired.
- The vulnerability of Protection One to a downturn in its business or the
economy generally.
- The ability to compete against other less leveraged companies may be
adversely affected.
The New Senior Credit Facility will contain certain restrictive covenants,
including covenants that will require Protection One to obtain the consent of
the lenders under the New Senior Credit Facility to certain actions by
Protection One and to maintain certain financial ratios in order to undertake
significant acquisitions of portfolios of subscriber accounts, all of which may
impose limitations on Protection One's ability to execute its business strategy.
The failure to comply with the aforementioned covenants could be an event of
default and could accelerate our payment obligations and, in some cases, could
affect other obligations with cross-default or cross-acceleration provisions.
Protection One's ability to satisfy its payment obligations will depend, in
large part, on its performance which will ultimately be affected by general
economic and business factors, many of which will be outside management's
control. Protection One believes that the cash flow from operations combined
with borrowings under the Senior Credit Facility will be enough to meet its
expenses and interest obligations, however, if these payment obligations can't
be satisfied, 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.
IMPACT OF ACQUISITION STRATEGY ON OPERATIONS
A principal element of Protection One's business strategy will be to
continue to grow rapidly by acquiring portfolios of alarm monitoring accounts.
Since November 1997, Protection One has completed in excess of 20 transactions,
adding over 1.0 million subscribers. Historically, acquisitions were the primary
source of Protection One's growth; however, growth through Protection One's
Dealer Program has become an increasingly important component of its growth.
8
<PAGE> 13
Demands on Management. The November 1997 transaction that combined the
security businesses of Western Resources with Protection One and subsequent
acquisitions have placed significant demands on Protection One with respect to
management, operational resources and financial and internal control systems.
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 Protection One's management to
attend to other operational, financial and strategic issues.
Uncertainties Associated with Acquisitions. Acquisitions of portfolios of
subscriber accounts involve a number of uncertainties. Sellers 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, but there can be
no assurance that such representations and warranties are or will be true and
complete or, if such representations and warranties are inaccurate, that
Protection One will be able to uncover such inaccuracies in the course of its
due diligence or recover damages from the seller in an amount sufficient to
fully compensate us 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,
- 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,
- for acquisitions that represent new lines of business, the Company will
have to learn and integrate the operations of the new business.
Also, because the primary consideration in acquiring a portfolio of
subscriber accounts is the monthly recurring revenue (the "MRR") associated with
the purchased accounts, the price Protection One has paid has customarily been
directly tied to such MRR. This price varies based on the number and quality of
accounts being purchased from the seller, the historical activity of such
accounts and other factors. Protection One expects that future acquisitions will
present at least the same risks to it as prior acquisitions.
Burdens on Field Service and Subscriber Attention. 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. In addition, if corporate or branch operations
fail to integrate a substantial portion of or do not adequately service acquired
subscriber accounts, Protection One may experience higher attrition in the
future.
9
<PAGE> 14
INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS
As a result of the acquisition of CET, Protection One will generate a
portion of its revenues and operating income from operations in Europe.
Protection One does not engage to a material extent in hedging activities
intended to offset the risk of exchange rate fluctuations. Both the revenues
from international operations and obligations of Protection One denominated in
foreign currency are subject in varying degrees to risks inherent in conducting
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, the Company 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 the
Company 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 the Company'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 such
foreign operations.
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish 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 such
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 its flexibility to charge different prices for similar
products. Protection One's efforts to adapt its systems differ at its various
European operations. Some operations are expected to be able to accommodate
euro-denominated invoicing and purchasing transactions by January 1, 1999.
Protection One's significant European operations have formulated plans to
accommodate all euro-denominated transactions and triangulation conventions by
January 1, 2002. The Company anticipates that its costs in connection with the
euro conversion will not be material, and does not anticipate that the
conversion from the legacy currencies to the euro would have a material adverse
impact on its financial condition or results of operations.
ATTRITION OF SUBSCRIBER ACCOUNTS
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 such accounts or does not
adequately service those accounts. An increase in attrition rates could have a
material adverse effect on Protection One's revenues and earnings.
When acquiring accounts, Protection One seeks 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, such attrition could have a
material adverse effect on the business, financial condition, results of
operations, prospects or ability to service the debt obligations of Protection
One.
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<PAGE> 15
Moreover, there can be no assurance that Protection One will be able to obtain
purchase price holdbacks in future acquisitions, particularly acquisitions of
large portfolios. Protection One has no assurance that actual account attrition
for acquired accounts will not be greater than the attrition rate assumed or
historically incurred. 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 previously
accumulated amortization for Protection One, was $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
forty-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, and
- accounts for which Protection One obtains a guarantee from the seller
that allows it to "put" back to the seller canceled accounts.
The resulting figure is used as a guideline to determine the estimated life
of subscriber revenues. 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 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.
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.
These charges, with the exception of non-recurring charges, will increase
as Protection One continues to purchase subscriber accounts or increase
indebtedness, or if interest rates on their indebtedness increase. There can be
no assurance that Protection One will attain profitable operations on an annual
basis or at all.
CONTROL BY WESTERN RESOURCES
Western Resources, Inc., a Kansas corporation ("Western Resources"),
through Westar Capital Inc., a wholly owned subsidiary of Western Resources
("Westar Capital"), owned approximately 84.6% of the outstanding common stock of
Protection One as of November 30, 1998. The Company also expects Westar Capital
to acquire additional shares of Protection One common stock prior to
consummation of the Lifeline Merger in an amount sufficient for it to maintain
its ownership of at least 80.1% of the issued and outstanding shares of
Protection One common stock, although it is not bound by any agreement with
Protection One that would either obligate it to or prevent it from acquiring
additional shares of common stock before or after the Lifeline Merger. As long
as Westar Capital continues to beneficially own in excess of 50% of the shares
of
11
<PAGE> 16
Protection One common stock outstanding, Westar Capital will be able to exercise
a controlling influence over the business and affairs of Protection One.
NEED FOR ADDITIONAL FUNDING
Protection One's purchases of subscriber accounts through the 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. As a result, Protection One will be required to seek
additional funding from additional borrowings under the Senior Credit Facility,
the New Senior Credit Facility (if consummated), or other credit facilities and
the sale of additional securities in the future, which could include debt
securities, which may lead to higher leverage. See "-- Leverage." Any inability
to obtain funding through external financing could adversely affect 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
Protection One on favorable terms or at all.
RISKS RELATED TO THE DEALER PROGRAM
During 1995-1997, Protection One's Dealer Program became an increasingly
important source of its growth, and it expects that this emphasis will continue.
Several of Protection One's competitors also have or are initiating dealer
programs, and there can be no assurance that Protection One will be able to
retain or expand its current dealer base or that competitive offers to dealers
will not require Protection One to pay higher prices to dealers for subscriber
accounts than have previously been paid.
POSSIBLE ADVERSE EFFECT OF "FALSE ALARM" ORDINANCES
According to Protection One's experience and industry data, substantially
all alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false alarms." Significant concern
has arisen in certain municipalities about this high incidence of false alarms.
This concern could cause a decrease in the likelihood or timeliness of police
response to alarm activations and thereby decrease the propensity of consumers
to purchase or maintain alarm monitoring services.
A number of local governmental authorities have considered or adopted
various measures aimed at reducing the number of false alarms. Enactment of
these measures could adversely affect the business and operations of Protection
One. Such measures include:
- subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms,
- licensing individual alarm systems and the revocation of such 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,
and
- requiring further verification of an alarm signal before the police will
respond.
POSSIBLE ADVERSE EFFECT OF FUTURE GOVERNMENT REGULATIONS; RISKS OF LITIGATION
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. Certain jurisdictions require Protection One to
obtain licenses or permits, to comply with standards governing employee
selection and training, and to meet certain standards in the conduct of its
business. The loss of such licenses, or the imposition of conditions to the
granting or retention of such licenses, could have a material adverse effect on
the business, financial condition, results of operations, prospects or ability
to service debt obligations of Protection One.
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<PAGE> 17
Protection One's advertising and sales practices are regulated in the
United States by both the Federal Trade Commission and state consumer protection
laws. In addition, such practices are also regulated by certain administrative
requirements and laws of the foreign jurisdictions in which the Company
operates. These regulations include restrictions on the manner in which
Protection One promotes the sale of security alarm systems, its obligation to
provide purchasers of alarm systems with certain rescission rights and certain
foreign jurisdictions' restrictions on a company's freedom to contract. While
Protection One believes that it has complied with these regulations in all
material respects, there can be no assurance that none of these regulations was
violated in connection with the solicitation of its existing subscriber
accounts, particularly with respect to accounts acquired from third parties, or
that Protection One will not violate these regulations in the future.
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 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 such
matters, there can be no assurance that these limitations will be enforced, and
the costs of such litigation could have a material adverse effect on the
business, financial condition, results of operations, prospects or ability to
service debt obligations of Protection One.
Protection One's alarm response and patrol services require its personnel
to respond to emergencies that may entail risk of harm to such employees and to
others. In most cities in which Protection One provides such 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 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 such insurance. Certain of Protection One's insurance
policies and the laws of some states may limit or prohibit insurance coverage
for punitive or certain other types of damages, or liability arising from gross
negligence.
COMPETITION
The security alarm industry is highly competitive and highly fragmented in
both North America and Europe. Protection One competes with major firms with
substantial financial resources, including ADT Operations Inc., a subsidiary of
Tyco International, Inc. ("ADT"), the security subsidiaries of the Ameritech
Corporation ("Ameritech"), the security subsidiaries of Williams PLC
("Williams"), and Brinks Home Security Inc., a subsidiary of The Pittston
Services Group in North America; and ADT, Ameritech, Williams, and the security
subsidiaries of Securitas AB in Europe. 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 such
competition may be to reduce the purchase opportunities available to Protection
One, thus reducing Protection One's rate of growth, or to increase the price it
pays for subscriber accounts, which could have a material adverse effect on
Protection One's return on investment in such accounts and its results of
operations.
IMPACT OF DECLINES IN NEW CONSTRUCTION OF MULTI-FAMILY DWELLINGS
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
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<PAGE> 18
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, 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 Protection One's alarm
monitoring services to multi-family dwellings would also decline, which could
negatively impact Protection One's results of operations.
IMPACT OF YEAR 2000 ISSUE
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 is reviewing its computer and signal processing
to identify and correct any components that could be affected by the change of
the date to January 1, 2000 (the "Year 2000 Issue"). Protection One will
continue the review until January 1, 2000, particularly with respect to the
acquisition of security businesses that include additional computer systems and
equipment. In addition, changes in the state of compliance or preparedness
within companies that provide services or equipment to Protection One will
require management to continue its evaluation. Based on the on-going review,
Protection One believes 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
telecommunications (local and long distance). While the Company believes the
total collapse of service providers is highly unlikely, one or more of the
following scenarios could occur: (1) temporary disruption or unpredictable
provision of nationwide long-distance service; (2) temporary or unpredictable
provision of local telephone service; and (3) temporary interruption or
unpredictable provision of electrical power. Additionally, Protection One
estimates the costs associated with the assessment of risk and the execution of
corrective action to be approximately $3.0 million. For a more detailed
discussion of the Year 2000 Issue, see the text under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Issue."
REPURCHASE OF THE NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT
Upon a Change of Control Triggering Event, the holders of the Notes will
have the right to require Monitoring to repurchase such holders' Notes, in whole
or in part, at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase. If a Change of Control Triggering Event were to occur, Monitoring
may not have the financial resources to repurchase all of the Notes and repay
any other indebtedness that would become payable upon the occurrence of such
Change of Control Triggering Event. The Change of Control purchase feature of
the Notes may in certain circumstances discourage or make more difficult a sale
or takeover of Monitoring and/or POI. See "Description of the New
Notes -- Certain Covenants -- Change of Control."
FRAUDULENT CONVEYANCE
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, Monitoring
or any Guarantor, at the time it incurred the indebtedness evidenced by the
Notes or its Guarantee, (i) (a) was or is insolvent or rendered insolvent by
reason of such occurrence of (b) was or is engaged in a business or transaction
for which the assets remaining with Monitoring or such Guarantor constituted
unreasonably small capital or (c) intended or intends to incur, or believed or
believes that it would incur, debts beyond its ability to pay such debts as they
mature, and (ii) Monitoring or such Guarantor received or receives less than
reasonably equivalent value or fair consideration for the incurrence of such
indebtedness, then the Notes and the Guarantees could be voided, or claims in
respect of the Notes or the Guarantees could be subordinated to all other debts
of Monitoring or such Guarantor, as the case may be. In addition, the payment of
interest and principal by Monitoring pursuant
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<PAGE> 19
to the Notes or the payment of amounts by a Guarantor pursuant to its Guarantee
could be voided and required to be returned to the person making such payment,
or to a fund for the benefit of the creditors of Monitoring or such Guarantor,
as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, Monitoring or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due. There can be no assurance, however, as to what
standard a court would apply in making such determinations or that a court would
agree with the Monitoring's or the Guarantors' conclusions in this regard.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The New
Notes constitute a new class of securities with no established trading market.
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for the remaining untendered Old Notes could be adversely
affected. There is no existing trading market for the New Notes, and there can
be no assurance regarding the future development of a market for the New Notes,
or the ability of holders of the New Notes to sell their New Notes or the price
at which such holders may be able to sell their New Notes. If such a market were
to develop, the New Notes could trade at prices that may be higher or lower than
their principal amount or purchase price, depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Each of Bear, Stearns & Co. Inc., Lehman Brothers, Inc.,
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc. (collectively, the
"Initial Purchasers") has advised Monitoring that it currently intends to make a
market in the New Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the New Notes may be discontinued
at any time without notice. Therefore, there can be no assurance as to the
liquidity of any trading market for the New Notes or that an active public
market for the New Notes will develop. Monitoring does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the New Notes.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of interest
expense and the component of rental expense believed by management to be
representative of the interest factor thereon. Earnings were insufficient to
cover fixed charges by approximately $82.3 million and $1.0 million for the
Company during the years ended December 31, 1997 and 1996, respectively. For the
Company's predecessor, earnings were insufficient to cover fixed charges by
approximately $7.8 million for the 53 weeks ended December 30, 1996, $9.6
million for the 52 weeks ended December 20, 1995, $2.8 million for the 52 weeks
ended December 20, 1994, and $14.8 million for the 52 weeks ended December 16,
1993.
15
<PAGE> 20
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by Monitoring on August 17, 1998 in the Offering.
In connection with that placement, Monitoring entered into the Registration
Rights Agreement, which requires that Monitoring file the Registration Statement
under the Securities Act with respect to the New Notes and, upon the
effectiveness of that Registration Statement, offer to the holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
New Notes, which will be issued without a restrictive legend and which generally
may be reoffered and resold by the holder without registration under the
Securities Act. The Registration Rights Agreement further provides that
Monitoring must use its reasonable best efforts to (i) cause the Registration
Statement with respect to the Exchange Offer to be declared effective on or
before December 15, 1998 and (ii) consummate the Exchange Offer on or before the
45th business day following the date on which the Registration Statement is
declared effective. Except as provided below, upon the completion of the
Exchange Offer, Monitoring's obligations with respect to the registration of the
Old Notes and the New Notes will terminate. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement, of which
this Prospectus is a part, and the summary herein of the material provisions
thereof does not purport to be complete and is qualified in its entirety by
reference thereto. As a result of the timely filing and the effectiveness of the
Registration Statement, the Liquidated Damages provided for in the Registration
Rights Agreement will not become payable by Monitoring or the Guarantors.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Old Notes not tendered will not have
any further registration rights and those Old Notes will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for the Old Notes could be adversely affected upon consummation of the Exchange
Offer.
In order to participate in the Exchange Offer, a holder must represent to
Monitoring and the Guarantors, among other things, that (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving the New Notes, (ii) neither the
holder nor any such other person is engaging in or intends to engage in a
distribution of the New Notes, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of the New Notes and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 promulgated under the
Securities Act, of Monitoring and the Guarantors. Pursuant to the Registration
Rights Agreement if (i) Monitoring determines that it is not permitted to effect
the Exchange Offer as contemplated hereby because of any applicable law or
Commission policy, or (ii) any holder of Transfer Restricted Securities notifies
Monitoring prior to the 20th day following consummation of the Exchange Offer
(a) that it is prohibited by law or Commission policy from participating in the
Exchange Offer, (b) that it may not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and that this
Prospectus is not appropriate or available for such resales, or (c) that it is a
broker-dealer and owns Old Notes acquired directly from Monitoring or an
affiliate of Monitoring, Monitoring is required to file a "shelf" registration
statement for a continuous offering pursuant to Rule 415 under the Securities
Act in respect of the Old Notes. For purposes of the foregoing, "Transfer
Restricted Securities" means each Old Note until (i) the date on which such Old
Note has been exchanged for a New Note in the Exchange Offer, (ii) the date on
which such Old Note has been electively registered under the Securities Act and
disposed of in accordance with such "shelf" registration statement, (iii) the
date on which such Old Note is sold pursuant to Rule 144 under circumstances in
which any legend borne by such Old Note relating to restrictions on
transferability thereof, under the Securities Act or otherwise, is removed or
such Old Note is eligible to be sold pursuant to paragraph (k) of Rule 144, or
(iv) such Old Note shall cease to be outstanding. Other than as set forth in
this paragraph, no holder will have the right to participate in the "shelf"
registration statement nor otherwise require that Monitoring register such
holder's shares of Old Notes under the Securities Act. See "-- Procedures for
Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to Monitoring and the Guarantors,
Monitoring believes that, with the exceptions set forth below, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold
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<PAGE> 21
and otherwise transferred by any person receiving such New Notes, whether or not
such person is the registered holder (other than any such holder or such other
person which is (i) an "affiliate" of Monitoring or the Guarantors within the
meaning of Rule 405 under the Securities Act or (ii) a broker-dealer that
purchased such Old Notes directly from Monitoring to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (iii) a person
participating in the distribution of the New Notes) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the New Notes are acquired in the ordinary course of business of the holder
or such other person and neither the holder nor such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes. Holders of Old Notes accepting the Exchange Offer will
represent to the Company in the Letter of Transmittal that such conditions have
been met. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Old Notes as a result
of market-making activities or other trading activities and will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Letter of
Transmittal states that by acknowledging and delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Except as aforesaid, this Prospectus may not be used for an offer to
resell, resale or other retransfer of New Notes.
The Exchange Offer is not being made to, nor will Monitoring accept tenders
for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "-- Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the Exchange Offer if the holder does not participate in the
Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, Monitoring will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Monitoring will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture pursuant to which the Old
Notes were issued.
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<PAGE> 22
As of November 30, 1998, Old Notes representing $250.0 million aggregate
principal amount were outstanding and there was one registered holder, a nominee
of DTC. This Prospectus, together with the Letter of Transmittal, is being sent
to such registered holder and to others believed to have beneficial interests in
the Old Notes. Monitoring intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.
Monitoring shall be deemed to have accepted validly tendered Old Notes
when, as, and if Monitoring has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from Monitoring. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. Monitoring will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
January 15, 1999, unless Monitoring, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, Monitoring will notify the Exchange Agent and each registered
holder of any extension by oral or written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Monitoring reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth under "-- Conditions to Exchange Offer" shall not have been
satisfied, to terminate the Exchange Offer, by giving oral or written notice of
such delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "-- Book-Entry Transfer," to tender in the Exchange
Offer a holder must complete, sign, and date the Letter of Transmittal, or a
copy thereof, have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver the Letter of Transmittal or copy
to the Exchange Agent prior to the Expiration Date. In addition, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal prior to the Expiration Date, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth under "-- Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and Monitoring in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
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<PAGE> 23
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR
SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to Monitoring
of their authority to so act must be submitted with the Letter of Transmittal
unless waived by Monitoring.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
Monitoring in its sole discretion, which determination will be final and
binding. Monitoring reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes Monitoring's acceptance of which would,
in the opinion of counsel for Monitoring, be unlawful. Monitoring also reserves
the right to waive any defects, irregularities or conditions of tender as to
particular Old Notes. Monitoring's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as Monitoring shall determine. Although Monitoring intends to notify
holders of defects or irregularities with respect to tenders of Old Notes,
neither Monitoring, the Exchange Agent, nor any other person shall incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, Monitoring reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "-- Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to Monitoring and the Guarantors
that, among other things, (i) the New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the registered holder,
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<PAGE> 24
(ii) neither the holder nor any such other person is engaging in or intends to
engage in a distribution of such New Notes, (iii) neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes and (iv) neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of Monitoring and the Guarantors.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" on or prior to 5:00 p.m., New York City time, on the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
ATOP is the only method of processing exchange offers through DTC. To
accept the Exchange Offer through ATOP, participants in DTC must send electronic
instructions to DTC through DTC's communication system in lieu of sending a
signed, hard copy Letter of Transmittal. DTC is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Old Notes through ATOP,
the electronic instructions sent to DTC and transmitted by DTC to the Exchange
Agent must contain the character by which the participant acknowledges its
receipt of and agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by Monitoring (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the
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<PAGE> 25
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth under "-- Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and principal amount
of such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined by
Monitoring, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender, or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures under "-- Procedures for Tendering" at any time on or prior to
the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, Monitoring shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, Monitoring determines that the Exchange Offer violates
applicable law, any applicable interpretation of the staff of the Commission or
any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of Monitoring and may be
asserted by Monitoring regardless of the circumstances giving rise to any such
condition or may be waived by Monitoring in whole or in part at any time and
from time to time in its sole discretion. The failure by Monitoring at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, Monitoring will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event Monitoring is required to use every reasonable effort
to obtain the withdrawal of any stop order at the earliest possible time.
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<PAGE> 26
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Questions, requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30
p.m.:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7-E Corporate Trust Services Window
New York, New York 10286 Ground Level
New York, New York 10286
Attn: Reorganization Section,
Gertrude Jeanpierre Attn: Reorganization Section,
(212) 815-5920 Gertrude Jeanpierre
(212) 815-5920
</TABLE>
By Facsimile (for Eligible Institutions):
(212) 815-6339
For Information or
Confirmation by Telephone:
(212) 815-5920
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand or by overnight delivery service.)
FEES AND EXPENSES
Monitoring will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of Monitoring.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by Monitoring and are estimated in the aggregate to be
$100,000, which includes fees and expenses of the Exchange Agent, accounting,
legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
Monitoring to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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DESCRIPTION OF THE NEW NOTES
As used in this "Description of the New Notes," all references to (i)
"Monitoring" shall mean Protection One Alarm Monitoring, Inc., excluding, unless
the context otherwise requires or as otherwise expressly stated, its
subsidiaries and (ii) "Protection One" shall mean Protection One, Inc.,
excluding, unless the context otherwise requires or as otherwise expressly
stated, its subsidiaries. Whenever this "Description of the New Notes" refers to
particular defined terms of the Senior Debt Indenture that are not otherwise
defined herein, such defined terms are incorporated herein by reference. For
definitions of certain capitalized terms used in the following summary, see
"-- Certain Definitions" below.
GENERAL
The New Notes offered hereby will be issued pursuant to the Senior Debt
Indenture among Monitoring, the Guarantors and The Bank of New York, as trustee
(the "Senior Trustee"). The Old Notes were also issued pursuant to the Senior
Debt Indenture. The following summary of certain provisions of the Senior Debt
Indenture and the New Notes describes all material terms of such documents, but
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the provisions of the Senior Debt Indenture, including
the definitions therein of certain terms, and of those terms in the Trust
Indenture Act of 1939 made a part thereof.
The New Notes will be limited to $250.0 million aggregate principal amount
and will bear interest at the rate shown on the front cover of this Prospectus
from August 17, 1998 or from the most recent interest payment date to which
interest has been paid or duly provided for, payable semi-annually in arrears on
each February 15 and August 15 commencing February 15, 1999, to the persons in
whose names the New Notes are registered at the close of business on the
February 1 or August 1 as the case may be, preceding such February 15 or August
15. The New Notes will mature on August 15, 2005.
Principal of, premium, if any, and interest on the Notes is payable, and
the Notes may be exchanged or transferred, at the office or agency of Monitoring
in the Borough of Manhattan, the City of New York (which initially will be the
corporate trust office of the Senior Trustee located in New York, New York) or,
at the option of Monitoring, payment of interest may be made by check mailed to
the Holders of the Notes at their respective addresses set forth in the register
of Holders of Notes; provided, however, that all payments of principal, premium
and interest with respect to Notes the Holders of which have given wire transfer
instructions to Monitoring will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
The obligations of Monitoring under the Notes are fully and unconditionally
guaranteed by the Guarantors. The Notes are unsecured and rank pari passu with
all other unsecured and unsubordinated indebtedness of Monitoring and senior to
subordinated indebtedness, including the Discount Notes and the Convertible
Notes. The Guarantees are unsecured and rank pari passu with all other unsecured
and unsubordinated indebtedness of the respective Guarantors. Monitoring's
obligations under the Notes are effectively subordinated to all liabilities
(including trade payables) of its Subsidiaries that are not Subsidiary
Guarantors and Protection One's Guarantee are effectively subordinated to all
liabilities (including trade payables) of its Subsidiaries.
Except as described under "-- Certain Covenants -- Change of Control" and
"Certain Covenants -- Merger, Consolidation and Sale of Assets" below, the
Senior Debt Indenture does not contain any other provisions that limits the
ability of Monitoring or the Guarantors to incur indebtedness or that affords
Holders of the Notes protection in the event of (a) a highly leveraged or
similar transaction involving Monitoring or a Guarantor or (b) a reorganization,
restructuring, merger or similar transaction involving Monitoring or a Guarantor
that may adversely affect the Holders of the New Notes. In addition, subject to
the limitations set forth under "-- Certain Covenants" below, Monitoring or any
Guarantor may, in the future, enter into certain transactions such as the sale
of all or substantially all of its assets or the merger or consolidation of
Monitoring with another entity that would increase the amount of Monitoring's or
such Guarantor's indebtedness or substantially reduce or eliminate Monitoring's
or such Guarantor's, as the case may be, assets, which may have an adverse
effect on Monitoring's ability to service its indebtedness, including the New
Notes.
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OPTIONAL REDEMPTION
The Notes may be redeemed, in whole or in part, at any time at the option
of Monitoring upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each Holder's registered address, at a redemption price (the
"Make-Whole Price") equal to the greater of (i) 100% of the principal amount
thereof or (ii) as determined by an Independent Investment Banker, the sum of
the present values of the Remaining Scheduled Payments discounted to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus, in each case, accrued
interest and Liquidated Damages, if any, thereon to the date of redemption.
"Adjusted Treasury Rate" means with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.50%.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York or in
the city in which the Corporate Trust Office is located are authorized or
obligated by law or executive order to close.
"Comparable Treasury Issue" means the United States Treasury Security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
Notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the Senior Trustee obtains fewer than three such Reference Treasury Dealer
Quotations, the average of all such quotations.
"Independent Investment Banker" means the Reference Treasury Dealers
appointed by the Senior Trustee after consultation with Monitoring.
"Reference Treasury Dealer" means each of Bear, Stearns & Co. Inc., Morgan
Stanley & Co. Incorporated, Lehman Brothers Inc. and Salomon Brothers Inc and
their respective successors; provided, however, that if any of the foregoing
shall cease to be a primary U.S. Government securities dealer in New York City
(a "Primary Treasury Dealer"), Monitoring shall substitute therefor another
Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average as determined by
the Senior Trustee, of the bid and asked prices of the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Senior Trustee by such Reference Treasury Dealer at 5:00 p.m. on
the third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to each Note to be
redeemed, the remaining scheduled payments of the principal thereof and interest
thereon that would be due after the related redemption date but for such
redemption; provided, however, that, if such redemption date is not an interest
payment date with respect to such Note, the amount of the next succeeding
scheduled interest payment thereon will be reduced by the amount of interest
accrued thereon to such redemption date.
Unless Monitoring defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the Notes or portion
thereof called for redemption.
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CERTAIN COVENANTS
Change of Control
Upon the occurrence of a Change of Control Triggering Event, each Holder of
Notes will have the right to require Monitoring to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control
Triggering Event, Monitoring will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control Triggering
Event and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the Senior Debt Indenture and described in such
notice. Monitoring will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control Triggering Event.
On the Change of Control Payment Date, Monitoring will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Senior Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by Monitoring. The Paying Agent will promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Senior
Trustee will promptly authenticate and mail (or cause to be transferred by
book-entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. Monitoring will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Senior Debt Indenture are applicable. Except
as described above with respect to a Change of Control Triggering Event, the
Senior Debt Indenture does not contain provisions that permit the Holders of the
Notes to require that Monitoring repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar transaction.
IN THE EVENT THAT AT ANY TIME (i) BOTH RATING AGENCIES ASSIGN THE NOTES AN
INVESTMENT GRADE RATING AND (ii) NO DEFAULT HAS OCCURRED AND IS CONTINUING UNDER
THE SENIOR DEBT INDENTURE, THE PROVISIONS OF THE SENIOR DEBT INDENTURE WITH
RESPECT TO A CHANGE OF CONTROL OFFER WILL BE PERMANENTLY TERMINATED.
The Senior Credit Facility contains and future senior indebtedness may
contain prohibitions of certain events that would constitute a Change of Control
Triggering Event. In addition, the exercise by the Holders of Notes of their
right to require Monitoring to repurchase the Notes could cause a default under
such other senior indebtedness, even if the Change of Control Triggering Event
itself does not, due to the financial effect of such repurchases on Monitoring.
Finally, Monitoring's ability to pay cash to the Holders of Notes upon a
repurchase may be limited by Monitoring's then existing financial resources.
Monitoring will not be required to make a Change of Control Offer upon a
Change of Control Triggering Event if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Senior Debt Indenture applicable to a Change of
Control Offer made by Monitoring and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
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Liens
The Senior Debt Indenture will provide that none of Protection One,
Monitoring or their respective Subsidiaries will, directly or indirectly,
create, incur, assume or suffer to exist any Lien of any kind on any asset now
owned or hereafter acquired to secure Debt without making, or causing such
Subsidiary to make, effective provision for securing the Notes equally and
ratably with (or prior to) such Debt or, in the event such Debt is subordinate
in right of payment to the Notes, prior to such Debt, as to such asset for so
long as such Debt will be so secured. The foregoing restrictions will not apply
to Liens in respect of Debt existing on the date of the Senior Debt Indenture or
to: (a) Liens securing only Notes; (b) Liens in favor of Protection One,
Monitoring or any of their respective Subsidiaries; (c) Liens on assets or
property existing immediately prior to the time of acquisition thereof (and not
created in anticipation of the financing of such acquisition); (d) Liens to
secure Debt incurred for the purpose of financing all or any part of the
purchase price or the cost of construction or improvement of assets or property
used in the business of Protection One, Monitoring or any of their respective
Subsidiaries and subject to such Liens, provided that (i) the principal amount
of any Debt secured by such a Lien does not exceed 100% of the direct and
indirect costs of such purchase, (ii) such Lien does not extend to or cover any
other assets or property other than such assets or property and any such
improvements, and (iii) such Debt is incurred within 180 days of such purchase,
construction or improvement; (e) Liens on assets or property of a Person
existing at the time such Person is merged with or into or consolidated with or
substantially all of the assets or property of such Person are otherwise
acquired by Protection One, Monitoring or any of their respective Subsidiaries
that were not created in anticipation of the acquisition of such Person,
provided that such Lien does not extend to or cover any property other than that
of the Person so merged, consolidated or acquired; (f) Liens in favor of a
governmental body to secure partial progress, advance or other payments pursuant
to any contract or statute of such governmental body; and (g) Liens to secure
Debt incurred to extend, renew, refinance, replace or refund (or successive
extensions, renewals, refinancings, replacements or refundings), in whole or in
part, (i) any secured Debt existing on the date of the Senior Debt Indenture, or
(ii) any Debt secured by any Lien referred to in the foregoing clauses, so long
as in each such case the Lien does not extend to any other property and the Debt
so secured is not increased other than for reasonable costs related to such
extension, renewal, refinancing, replacement or refunding.
In addition to the foregoing, Protection One, Monitoring and their
respective Subsidiaries may incur a Lien or Liens to secure Debt (excluding Debt
secured by Liens permitted under the foregoing exceptions) the aggregate amount
of which, including Attributable Debt in respect of Sale and Leaseback
Transactions, does not exceed 10% of Consolidated Net Assets. Protection One,
Monitoring and their respective Subsidiaries may also incur a Lien or Liens to
secure any Debt incurred pursuant to a Sale and Leaseback Transaction, without
securing the Notes equally and ratably with or prior to such Debt, as
applicable, provided that such Sale and Leaseback Transaction is permitted by
the provisions of the Senior Debt Indenture described below in clauses (b) and
(c) under "-- Sale and Leaseback Transactions."
Sale and Leaseback Transactions
The Senior Debt Indenture will provide that none of Protection One,
Monitoring or their respective Subsidiaries will enter into any Sale and
Leaseback Transaction (except for a period, including renewals, not exceeding 36
months) unless (a) at the time of entering into such Sale and Leaseback
Transaction, Protection One, Monitoring or such Subsidiary would be entitled to
incur Debt, in a principal amount equal to the Attributable Debt in respect of
such Sale and Leaseback Transaction, secured by a Lien, without equally and
ratably securing the Notes; (b) Protection One, Monitoring or such Subsidiary
applies, within twelve months after the sale or transfer, an amount equal to the
greater of (i) the net proceeds of the assets sold pursuant to the Sale and
Leaseback Transaction, or (ii) the fair value (in the opinion of an executive
officer of Protection One or Monitoring, as applicable) of such assets to the
acquisition of or construction of assets or property used or to be used in the
ordinary course of business of Protection One, Monitoring or their respective
Subsidiaries; or (c) Protection One, Monitoring or such Subsidiary applies,
within twelve months after the sale or transfer, an amount equal to the net
proceeds of the assets sold pursuant to the Sale and Leaseback Transaction to
the voluntary defeasance or retirement of Debt (other than Debt that is held by
Protection One, Monitoring or
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their respective Subsidiaries or Debt of Protection One or Monitoring or their
respective Subsidiaries that is subordinate in right of payment to the Notes or
the Guarantees, as applicable), which amount will not be less than the fair
value (in the opinion of an executive officer of Protection One or Monitoring,
as applicable) of such assets (adjusted to reflect an amount expended by
Protection One or Monitoring as set forth in clause (b) above) less an amount
equal to the principal amount of such Debt voluntarily defeased or retired by
Protection One, Monitoring or such Subsidiary within such twelve-month period.
Subsidiary Guarantees
(a) The Senior Debt Indenture will provide that Monitoring will not permit
any Domestic Subsidiary to issue Debt or any Subsidiary to guarantee the payment
of any Debt of Monitoring or any Guarantor (in each case, the "Guaranteed Debt;"
Monitoring or the Guarantor that is primarily liable on the Guaranteed Debt
being the "Obligor") unless: (i) if such Subsidiary is not a Subsidiary
Guarantor, such Subsidiary simultaneously executes and delivers a guarantee
pursuant to a supplemental indenture to the Senior Debt Indenture of payment of
the Notes by such Subsidiary; provided, however, such guarantee shall be
required only to the extent and for so long as such Subsidiary guarantees the
Guaranteed Debt or such Debt is outstanding and (ii) if such Debt or the
Guaranteed Debt is by its express terms subordinated in right of payment to the
Notes or the Guarantee of such Obligor, any such Debt or Guarantee of such
Subsidiary Guarantor with respect to the Guaranteed Debt shall be subordinated
in right of payment to such Subsidiary Guarantor's Guarantee with respect to the
Notes substantially to the same extent as the Debt or Guaranteed Debt is
subordinated to the Notes or the Guarantee of such Obligor.
(b) The Senior Debt Indenture will require that (i) any Subsidiary
executing a Guarantee pursuant to clause (a) above will waive and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement indemnity or subrogation or any other rights against Monitoring or
any other Guarantor as a result of any payment by such Guarantor under its
Guarantee and (ii) such Subsidiary shall deliver to the Senior Trustee an
opinion of counsel to the effect that (A) such Guarantee of the Notes has been
duly executed and authorized and (B) such Guarantee of the Notes constitutes a
valid, binding and enforceable obligation of such Guarantor, except insofar as
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
(including, without limitation, all laws relating to fraudulent transfers) and
except insofar as enforcement thereof is subject to general principles of
equity.
(c) No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Subsidiary
Guarantor unless (i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the obligations of
such Subsidiary Guarantor pursuant to a supplemental indenture under the Notes
and the Senior Debt Indenture and (ii) immediately after giving effect to such
transaction no Default or Event of Default exists.
Merger, Consolidation and Sale of Assets
The Senior Debt Indenture will provide that neither Monitoring nor any
Guarantor shall consolidate with or merge into any other corporation or sell,
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, unless: (1) the corporation formed by such consolidation or into
which Monitoring or a Guarantor, as applicable, is merged or the Person which
acquires by sale, conveyance or transfer, or which leases, the properties and
assets of Monitoring or a Guarantor, substantially as an entirety (A) shall be a
corporation, partnership, limited liability company or trust organized and
validly existing under the laws of the United States of America, any state
thereof or the District of Columbia and (B) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Senior Trustee, in
form reasonably satisfactory to the Senior Trustee, the obligations of
Monitoring and/or any Guarantor, as applicable, for the due and punctual payment
of the principal of, premium and Liquidated Damages, if any, and interest on all
the Notes and the performance and observance of every covenant of the Senior
Debt Indenture on the part of Monitoring or the Guarantees on the part of any
Guarantor to be performed or observed; (2) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; and (3) Monitoring or a Guarantor, as applicable, or such Person
shall have delivered to the Senior Trustee an
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Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such supplemental
indenture comply with the "Merger, Consolidation and Sale of Assets" provisions
of the Senior Debt Indenture and that all conditions precedent provided for
relating to such transaction have been satisfied. These provisions apply only to
a merger or consolidation in which Monitoring or a Guarantor, as applicable, is
not the surviving corporation and to sales, conveyances, leases and transfers by
Monitoring and any Guarantor as transferor or lessor.
The Senior Debt Indenture will further provide that upon consolidation by
Monitoring or any Guarantor, as applicable, with any other Person or merger by
Monitoring or a Guarantor, as applicable, into any other Person or any sale,
conveyance, transfer or lease of the properties and assets of Monitoring or any
Guarantor, as applicable, substantially as an entirety to any Person in
accordance with the preceding paragraph, the successor Person formed by such
consolidation or into which Monitoring or any Guarantor, as applicable, is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, Monitoring
under the Senior Debt Indenture and any Guarantor under the Guarantees, as
applicable, with the same effect as if such successor Person had been named as
Monitoring or any Guarantor therein, respectively, and in the event of any such
conveyance or transfer, Monitoring and the Guarantor, as applicable, except in
the case of a lease, shall be discharged of all obligations and covenants under
the Senior Debt Indenture and the Notes.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be resold as
set forth herein will initially be issued in the form of one or more Global
Notes (the "Global Notes"). The Global Notes will be deposited on the date of
the closing of the exchange of the Old Notes for the New Notes (the "Closing
Date") with, or on behalf of the Depositary and registered in the name of Cede &
Co., as nominee of the Depositary (such nominee being referred to herein as the
"Global Note Holder").
Notes that are issued as described below under "-- Certificated Notes" will
be issued in the form of registered definitive certificates (the "Certificated
Notes"). Upon the transfer of Certificated Notes, such Certificated Notes may,
unless all Global Notes have previously been exchanged for Certificated Notes,
be exchanged for an interest in the Global Note representing the principal
amount of Notes being transferred, subject to the transfer restrictions set
forth in the Senior Debt Indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
Monitoring expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (ii) ownership of the Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer New Notes evidenced by the
Global Note will be limited to such extent. For certain other restrictions on
the transferability of the New Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Senior Debt
Indenture of any Notes evidenced by the Global Notes.
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Beneficial owners of Notes evidenced by the Global Notes will not be considered
the owners or Holders thereof under the Senior Debt Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Senior Trustee thereunder. Neither Monitoring nor the Senior
Trustee will have any responsibility or liability for any aspect of the records
of the Depositary or for maintaining, supervising or reviewing any records of
the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Upon the terms of the Senior Debt Indenture,
Monitoring and the Senior Trustee may treat the persons in whose names Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments. Consequently, neither Monitoring nor the Senior
Trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Notes. Monitoring believes, however, that it is
currently the policy of the Depositary to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of New Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Certificated Notes
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Senior Trustee, exchange such beneficial
interest for Notes in the form of Certificated Notes. Upon any such issuance,
the Senior Trustee is required to register such Certificated Notes in the name
of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). All such Certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (i) Monitoring notifies the Senior Trustee in writing that the Depositary is
no longer willing or able to act as a depositary and Monitoring is unable to
locate a qualified successor within 90 days or (ii) Monitoring, at its option,
notifies the Senior Trustee in writing that it elects to cause the issuance of
Notes in the form of Certificated Notes under the Senior Debt Indenture, then,
upon surrender by the Global Note Holder of its Global Note, Notes in such form
will be issued to each person that the Global Note Holder and the Depositary
identify as being the beneficial owner of the related Notes.
Neither Monitoring nor the Senior Trustee will be liable for any delay by
the Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and Monitoring and the Senior Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same Day Settlement and Payment
The Senior Debt Indenture will require that payments in respect of the
Notes represented by the Global Note (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global Note Holder.
With respect to Certificated Notes, Monitoring will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. Monitoring expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Senior Debt Indenture
with respect to the Notes:
(1) default in the payment of interest on the Notes when such interest
becomes due and payable, and continuance of such default for a period of 60
days; or
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(2) default in the payment of the principal of (or premium, if any,
on) the Notes at their Maturity or upon any redemption and such default
shall continue for five or more days; or
(3) default in the performance, or breach, of any covenant or warranty
in the Senior Debt Indenture (other than a default in the performance, or
breach, of a covenant or warranty which is specifically dealt with
elsewhere under this "Events of Default" section), and continuance of such
default or breach for a period of 90 days after there has been given, by
registered or certified mail, to Monitoring and any Guarantor by the Senior
Trustee or to Monitoring, any Guarantor and the Senior Trustee by the
Holders of at least 33 1/3% of all outstanding Notes, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" thereunder; or
(4) the entry of a decree or order by a court having jurisdiction in
the premises adjudging Monitoring or any Guarantor bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of Monitoring or
any Guarantor under the Federal Bankruptcy Code or any other applicable
federal or state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of Monitoring or any
Guarantor, or of any substantial part of the property of Monitoring or any
Guarantor, or ordering the winding up or liquidation of the affairs of
Monitoring or any Guarantor, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(5) the institution by Monitoring or any Guarantor of proceedings to
be adjudicated bankrupt or insolvent, or the consent by Monitoring or any
Guarantor to the institution of bankruptcy or insolvency proceedings
against either of them, or the filing by either of them of a petition or
answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable federal or state law, or the
consent by either of them, to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of Monitoring or any Guarantor, or of any
substantial part of the property of Monitoring or any Guarantor, or the
making by either of them of an assignment for the benefit of creditors.
The failure to redeem any Notes subject to a Conditional Redemption is not
an Event of Default if any event on which such redemption is so conditioned does
not occur and is not waived before the scheduled redemption date.
If an Event of Default described in clause (1), (2) or (3) above with
respect to the Notes at the time outstanding occurs and is continuing, then in
every such case the Senior Trustee or the Holders of not less than 33 1/3% in
principal amount of the outstanding Notes may declare the principal amount of
all of the Notes to be due and payable immediately, by a notice in writing to
Monitoring and any Guarantor (and to the Senior Trustee if given by Holders),
and upon any such declaration such principal amount (or specified portion
thereof) shall become immediately due and payable. If an Event of Default
described in clause (4) or (5) above occurs and is continuing, then the
principal amount of all the Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Senior
Trustee or any Holder.
At any time after a declaration of acceleration with respect to the Notes
has been made, the Holders of a majority in principal amount of the outstanding
Notes, by written notice to Monitoring or any Guarantor and the Senior Trustee,
may rescind and annul such declaration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of acceleration. No such rescission shall
affect any subsequent default or impair any right consequent thereto.
Except as otherwise provided in the Senior Debt Indenture, or any
supplement thereto, the Holders of not less than a majority in principal amount
of the outstanding Notes may on behalf of the Holders of all the Notes waive any
past default described in clause (1), (2), (3) of the first paragraph of this
section (or, in the case of a default described in clause (4) or (5) of the
first paragraph of this section, the Holders of not less than a majority in
principal amount of all outstanding Notes may waive any such past default), and
its consequences, except a default (i) in respect of the payment of the
principal of (or premium, if any, on) or
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interest on any Note, or (ii) in respect of a covenant or provision which under
the Senior Debt Indenture cannot be modified or amended without the consent of
the Holder of each outstanding Note affected.
Upon any such waiver, any such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of the Senior Debt Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default.
During the existence of an Event of Default, the Senior Trustee is required
to exercise such rights and powers vested in it under the Senior Debt Indenture
in good faith. Subject to the provisions of the Senior Debt Indenture relating
to the duties of the Senior Trustee, in case an Event of Default shall occur and
be continuing, the Senior Trustee is not under any obligation to exercise any of
its rights or powers under the Senior Debt Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Senior
Trustee reasonable security or indemnity. Subject to certain provisions
concerning the rights of the Senior Trustee, with respect to the Notes, the
Holders of not less than a majority in principal amount of the outstanding Notes
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Senior Trustee, or exercising any
trust or power conferred on the Senior Trustee under the Senior Debt Indenture.
Monitoring is required to deliver to the Senior Trustee, within 120 days
after the end of each fiscal year, a brief certificate of its compliance with
all of the conditions and covenants under the Senior Debt Indenture.
DEFEASANCE OR COVENANT DEFEASANCE
The Senior Debt Indenture will provide that Monitoring may, at its option
and at any time, terminate its obligations with respect to the outstanding Notes
and the obligations of the Guarantors with respect to the Guarantees
("defeasance"). Such defeasance means that Monitoring shall be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Notes, except for the following which shall survive until otherwise terminated
or discharged under the Senior Debt Indenture: (A) the rights of Holders of such
outstanding Notes to receive, solely from the trust fund described in the Senior
Debt Indenture, payments in respect of the principal of (and premium, if any,
on) and interest on such Notes when such payments are due, (B) obligations of
Monitoring to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and, if Monitoring acts as its own
Paying Agent, hold in trust, money to be paid to such Persons entitled to
payment, and with respect to "additional amounts," as contemplated by the Senior
Debt Indenture, if any, on such Notes as contemplated in the Senior Debt
Indenture, (C) the rights, powers, trusts, duties and immunities of the Senior
Trustee under the Senior Debt Indenture and (D) the defeasance provisions of the
Senior Debt Indenture. In addition, Monitoring may, at its option and at any
time, elect to terminate the obligations of Monitoring, POI and their respective
Subsidiaries with respect to certain covenants that are set forth in the Senior
Debt Indenture and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance:
(1) Monitoring shall irrevocably have deposited or caused to be
deposited with the Senior Trustee, in trust, for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Notes, (A) money in an amount
(in such currency in which such Notes are then specified as payable at
Stated Maturity), or (B) U.S. Government Obligations applicable to such
Notes which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later than
one day before the due date of any payment of principal (including any
premium) and interest, if any, under such Notes, money in an amount or (C)
a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants to pay and discharge (i)
the principal of (and premium, if any, on) and interest on the outstanding
Notes on the Stated Maturity (or any Redemption Date selected by
Monitoring, if applicable) of such principal (and premium, if any) or
installment or interest and (ii) any mandatory sinking fund payments or
analogous payments applicable to the outstanding Notes on the day on which
such payments are due and payable in accordance with the terms of the
Senior Debt Indenture
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and of such Notes; provided, however, that the Senior Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect to such Notes.
Before such a deposit, Monitoring may give to the Senior Trustee, in
accordance with the redemption provisions in the Senior Debt Indenture, a
notice of its election to redeem all or any portion of such outstanding
Notes at a future date in accordance with the terms of the Notes and the
redemption provisions of the Senior Debt Indenture, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given
effect in applying the foregoing;
(2) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, the Senior Debt
Indenture or any other material agreement or instrument to which Monitoring
is a party or by which it is bound;
(3) in the case of a covenant defeasance, Monitoring shall have
delivered to the Senior Trustee an Opinion of Counsel to the effect that
the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(4) such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or
limitations in connection therewith pursuant to the Senior Debt Indenture;
and
(5) Monitoring shall have delivered to the Senior Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent under the Senior Debt Indenture to either defeasance or covenant
defeasance, as the case may be, have been satisfied.
AMENDMENTS AND WAIVERS
The Senior Debt Indenture will provide that at any time and from time to
time, Monitoring and the Senior Trustee may, without the consent of any holder
of Notes, enter into one or more indentures supplemental thereto for certain
specified purposes, including, among other things, to (i) cure ambiguities,
defects or inconsistencies, or to make any other provisions with respect to
questions or matters arising under the Senior Debt Indenture; (ii) effect or
maintain the qualification of the Senior Debt Indenture under the TIA; (iii)
secure any Notes; (iv) add covenants for the protection of the holders of Notes;
(vi) to establish the forms or terms of Notes; (vii) make any other change that
does not adversely affect in all material respects the rights under such Senior
Debt Indenture of the holders of Notes thereunder; (viii) add any Guarantee;
(ix) evidence the acceptance of appointment by a successor trustee; and (x) to
evidence the succession of another person to Monitoring or any Guarantor and the
assumption by any such successor of the obligations of Monitoring or such
Guarantor in accordance with the Senior Debt Indenture and the Notes. Other
amendments and modifications of the Senior Debt Indenture or the Notes may be
made by Monitoring and the Senior Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of all of the then
outstanding Notes; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (1) change the Stated Maturity of the principal of, or any installment
of interest on, any Note or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
any obligation of Monitoring to pay any "additional amounts" contemplated by the
Senior Debt Indenture (except as contemplated and permitted by certain
provisions of the Senior Debt Indenture), or adversely affect, after the event
giving rise to any right of repayment shall have occurred, any right of
repayment at the option of any Holder of any Note, or change any place of
payment described in the Senior Note Indenture where, or the currency in which,
any Note or any premium or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption or repayment at the option of
the Holder, on or after the redemption date or repayment date, as the case may
be), or adversely affect any right to convert or exchange any Notes as may be
provided pursuant to the Senior Debt Indenture, or (2) reduce the percentage in
principal amount of the outstanding Notes of any series, the consent of whose
Holders is required for any such supplemental indenture, for any waiver of
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<PAGE> 37
compliance with certain provisions of the Senior Debt Indenture or certain
defaults thereunder and their consequences provided for in the Senior Debt
Indenture.
CERTAIN DEFINITIONS
"Attributable Debt" means, as to any particular lease under which any
Person is at the time liable at any date as of which the amount thereof is to be
determined, the total net amount of rent required to be paid by such Person
under such lease during the remaining term thereof, excluding renewals,
discounted at a rate per annum equal to the prevailing market interest rate, at
the time such lease was entered into, on United States Treasury obligations
having a maturity substantially the same as the average term of such lease, plus
3%. The net amount of rent required to be paid under any such lease for any such
period shall be the amount of the rent payable by the lessee with respect to
such period, after excluding amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges and contingent rents such as those based on sales. In the case of any
lease which is terminable by the lessee upon the payment of a penalty, such net
amount shall also include the amount of such penalty, but no rent shall be
considered as required to be paid under such lease subsequent to the first date
upon which it may be so terminated.
"Change of Control" means (i) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), other than the Principal and its Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and rule 13d-5 under the Exchange
Act), directly or indirectly, of more than 35% of the Voting Stock of POI or
Monitoring (measured by voting power rather than number of shares) or (ii) the
first day on which a majority of the members of the Board of Directors of POI or
Monitoring are not Continuing Directors.
"Conditional Redemption" means a redemption pursuant to a notice of
redemption that provides that it is subject to the occurrence of any event
before the date fixed for such redemption as described in such notice of
redemption.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Consolidated Net Assets" means the total assets shown on the most recent
quarterly reviewed consolidated balance sheet of Monitoring and its consolidated
subsidiaries, after deducting the amount of all current liabilities and goodwill
and trademarks.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Monitoring who (i) was a member of such Board of
Directors on the date of the Senior Debt Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Debt" means notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Domestic Subsidiary" means a subsidiary organized under the laws of one of
the states of the United States or the District of Columbia.
"Holder" means a Person in whose name a Note is registered.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) and BBB-(or the equivalent) by Moody's Investors Service, Inc.
(or any successor to the rating agency business thereof) and Standard & Poor's
Ratings Group (or any successor to the rating agency business thereof),
respectively.
"Lien" means any mortgage, charge, security interest, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security agreement except: (a) liens for
taxes, assessments, levies and other governmental charges (i) which are not yet
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<PAGE> 38
delinquent or (ii) which are being contested in good faith by all appropriate
proceedings; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, brokers' or other like liens (i) which do not remain unsatisfied or
undischarged for a period of more than 90 days, or (ii) which are being
contested in good faith by all appropriate proceedings; (c) attachment or
judgment liens not giving rise to or an Event of Default and which are being
contested in good faith by appropriate proceedings; (d) pledges or deposits in
connection with workers compensation, unemployment insurance and other social
security legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements or to obtain the benefit of, or to
comply with, laws; (e) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business; and (f) easements, rights of way,
restrictions, development orders, plats and other similar encumbrances.
"Maturity," when used with respect to any Notes, means the date on which
the principal of such Notes or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption, notice of option to elect
repayment or otherwise.
"Officers' Certificate" means a certificate signed by the Chief Executive
Officer, the President, the Chief Financial Officer, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
Monitoring, and delivered to the Senior Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for Monitoring, including an employee of Monitoring.
"Paying Agent" means any Person (including Monitoring acting as Paying
Agent) authorized by Monitoring to pay the principal of (and premium, if any,
on) or interest on any Notes on behalf of Monitoring.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Principal" means Western Resources, Inc.
"Rating Agencies" mean Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc. ("S&P"), and Moody's Investors Service, Inc. ("Moody's") or
any successor to the respective rating agency businesses thereof.
"Rating Category" means (i) with respect to S&P, any of the following
categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's any of the following categories: Aaa,
Aa, A, Baa, Ba, B, Caa, Ca and C (or equivalent successor categories) and (iii)
the equivalent of any such category of S&P and Moody's used by another Rating
Agency. In determining whether the rating of the Notes has decreased by one or
more gradations, gradations within Rating Categories (+ and - for S&P: 1, 2 and
3 for Moody's; or the equivalent gradations for another Rating Agency) shall be
taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to
BB, as well as from BB- to B+, will constitute a decrease of one gradation).
"Rating Decline" means (i) a decrease of two or more gradations (including
gradations within Rating Categories as well as between Rating Categories) in the
rating of the Notes by either Rating Agency from the rating of the Notes by such
Rating Agency or (ii) a withdrawal of the rating of the Notes by either Rating
Agency, provided that such decrease or withdrawal occurs on, or within 90 days
after, the date of public notice of the occurrence of a Change of Control or of
the intention by the Company to effect a Change of Control (which period shall
be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by either Rating Agency).
"Related Party" with respect to the Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of the Principal and/or such other Persons referred to
in the immediately preceding clause (A).
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"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement is the date of the
last payment of rent or any other amount due under such arrangement prior to the
first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Stated Maturity," when used with respect to any Notes or any installment
of principal thereof or interest thereon, means the date specified in such Notes
as the fixed date on which the principal of such Notes or such installment of
principal or interest is due and payable.
"Subsidiary" means any corporation of which at the time of determination a
Person, directly and/or indirectly through one or more Subsidiaries, owns more
than 50% of the Voting Stock.
"Subsidiary Guarantors" means each direct and indirect Subsidiary of
Monitoring that is required to execute a Guarantee pursuant to the Senior Debt
Indenture.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in
force at the date as of which the Senior Debt Indenture were executed, except
that any supplemental indenture executed pursuant to the Senior Debt Indenture
shall conform to the requirements of the Trust Indenture Act as in effect on the
date of execution thereof.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" means stock of the class or classes having general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers, trustees or individuals performing similar functions of a
Person (irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does not
purport to be a complete analysis of all potential tax effects. The discussion
is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the New Notes.
The description does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not constitute a sale or an exchange for federal income tax purposes.
Accordingly, such exchange should have no federal income tax consequences to
holders of Old Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes pursuant to the Exchange Offer, where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. Monitoring has agreed that, for a period of 90 days after the
Registration Statement is declared effective, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until March 15, 1999, all dealers effecting
transactions in the New Notes may be required to deliver a Prospectus.
Monitoring and the Guarantors will not receive any proceeds from any sale
of New Notes by broker-dealers. New Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Registration Statement is declared
effective, Monitoring will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal or otherwise. Monitoring
has agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Notes) other than commissions or
concessions of any broker-dealers and will indemnify holders of the Old
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<PAGE> 41
Notes (including any broker-dealers) against certain liabilities, including
certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and Guarantees will be passed upon for
Monitoring and the Guarantors by Weil, Gotshal & Manges LLP, Dallas, Texas and
New York, New York.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1997 and the consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997,
referenced in this Prospectus have been included herein in reliance on the
report of Arthur Andersen LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR ANY OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... i
Incorporation of Certain Documents by i
Reference................................
Forward-Looking Statements................. ii
Certain Definitions........................ ii
Prospectus Summary......................... 1
Risk Factors............................... 7
Ratio of Earnings to Combined Fixed 15
Charges..................................
The Exchange Offer......................... 16
Description of the New Notes............... 23
Certain Federal Income Tax 36
Considerations...........................
Plan of Distribution....................... 36
Legal Matters.............................. 37
Experts.................................... 37
</TABLE>
------------------------
UNTIL MARCH 15, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
7 3/8% SENIOR
NOTES DUE 2005
FOR
7 3/8% SENIOR
NOTES DUE 2005
---------------------
PROSPECTUS
---------------------
DECEMBER 15, 1998
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<PAGE> 43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Bylaws of Monitoring provide for the indemnification of officers and
directors made a party to a suit or proceeding (other than an action by or in
the right of Monitoring), by reason of the fact that he was an officer or
director, against expenses (including attorneys fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by him in
connection with such action; provided, that, he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Monitoring and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Also, the Bylaws of
Monitoring provide for the indemnification, with some limitations, of officers
and directors made party to any action or suit by or in the right of Monitoring
by reason of the fact that he was an officer or director against expenses
(including attorneys' fees) in connection with his defense; provided, that, he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of Monitoring. The Bylaws of Monitoring also
provide for the advancement of the payment for expenses with regard to such
indemnities. Although the Bylaws of Monitoring expressly permit other
indemnification permitted under law, the Bylaws do not have a provision which
says that indemnification shall be provided to the fullest extent permitted by
the General Corporation Law of the State of Delaware (the "DGCL").
Indemnification is not available if such person has been adjudged to have been
liable to Monitoring, unless and only to the extent that the Court of Chancery
or the court in such action determines that, despite the adjudication of
liability, but in view of all of the circumstances, the person is reasonably and
fairly entitled to indemnification for such expenses as the court shall deem
proper. The Certificate of Incorporation and the Bylaws of POI provide for the
indemnification of directors and officers to the fullest extent permitted by
law.
Pursuant to the provisions of Section 145 of the DGCL, each of POI and
Monitoring has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was a director, officer,
employee, or agent of such company against any and all expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding. The power to indemnify under
the DGCL only applies if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of such company and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The DGCL also
expressly provides that the power to indemnify authorized thereby is not
exclusive of any rights granted under any bylaw, agreement, vote of shareholders
or disinterested directors or otherwise.
The above discussion of the Bylaws of POI and Monitoring and Section 145 of
the DGCL is not intended to be exhaustive and is qualified in its entirety by
reference thereto.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of POI and
Monitoring pursuant to the foregoing provisions, or otherwise, POI and
Monitoring have been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of expenses incurred or paid by
a director, officer or controlling person thereof in the successful defense of
any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, POI and
Monitoring will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-1
<PAGE> 44
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of POI, as amended
(incorporated by reference to the Form 10-Q filed for the
fiscal quarter ended September 30, 1998).
3.2 -- Bylaws of POI (incorporated by reference to the Form 10-Q
filed for the fiscal quarter ended September 30, 1998).
3.3 -- Certificate of Incorporation of Monitoring, as amended
(incorporated by reference to the Form 10-Q filed for the
fiscal quarter ended September 30, 1998).
3.4 -- Bylaws of Monitoring (incorporated by reference to the
Form 10-Q filed for the fiscal quarter ended September
30, 1998).
4.1 -- Indenture, dated as of August 17, 1998, among Monitoring,
as issuer, the Guarantors named therein and The Bank of
New York, as trustee (the "Trustee").**
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity
of the securities registered hereby.*
10.1 -- Purchase Agreement, dated as of August 12, 1998, among
Monitoring, as issuer, the Guarantors named therein and
the Initial Purchasers.**
10.2 -- Registration Rights Agreement, dated as of August 17,
1998, among Monitoring, the Guarantors named therein and
the Initial Purchasers.**
12.1 -- Statement regarding computation of ratio of earnings to
fixed charges (incorporated by reference to the Amendment
No. 1 to Form S-3 of POI and Monitoring filed on May 5,
1998, Registration No. 333-50383).
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion to be filed as Exhibit 5.1 to the Registration
Statement).
23.2 -- Consent of Arthur Andersen LLP, independent auditors.*
24.1 -- Powers of Attorney of directors and executive officers of
the Co-Registrants (included on the signature pages
hereto).
25.1 -- Statement of Eligibility and Qualification of The Bank of
New York, as trustee, under the Indenture listed as
Exhibit 4.1 hereto on Form T-1.*
99.1 -- Form of Letter of Transmittal.**
99.2 -- Form of Notice of Guaranteed Delivery.**
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Co-Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate
II-2
<PAGE> 45
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned Co-Registrants hereby undertake that, for purposes
of determining any liability under the Securities Act, each filing of the
Co-Registrants' annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) The undersigned Co-Registrants hereby undertake to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report, to security holders
that is incorporated by reference in the prospectus and furnished pursuant
to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(6) The undersigned Co-Registrants hereby undertake as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(7) The Co-Registrants undertake that every prospectus: (i) that is
filed pursuant to paragraph (6) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act
and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(8) The undersigned Co-Registrants hereby undertake to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(9) The undersigned Co-Registrants hereby undertake to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-3
<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all requirements for filing on Form S-4 and has duly caused this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Dallas, State of Texas, on December 8,
1998.
PROTECTION ONE, INC.
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ JOHN W. HESSE
-------------------------------------
John W. Hesse
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Know all those by these presents, that each person whose signature appears
below constitutes and appoints each of James M. Mackenzie, Jr. and John W.
Hesse, or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full Power of Substitution and Resubstitution, for such person
and in his name, place and stead, in any and all capacities, in connection with
the Registration Statement on Form S-4 of Protection One Alarm Monitoring, Inc.
and the Guarantors named therein under the Securities Act of 1933, as amended,
including, without limitation the generality of the foregoing, to sign the
Amendment No. 1 to Registration Statement in the name and on behalf of
Protection One, Inc. and Protection One Alarm Monitoring, Inc., or on behalf of
the undersigned as a director or officer of Protection One, Inc. and Protection
One Alarm Monitoring, Inc., and any and all amendments or supplements to the
Registration Statement, including any and all stickers and post-effective
amendments to the Registration Statement, and to sign any and all additional
Registration Statements relating to the same offering of Securities as the
Registration Statement that are filed pursuant to Rule 462 under the Securities
Act of 1933, as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and any applicable securities exchange or securities self-regulatory
body, granting unto said attorneys-in-fact and agents, each acting alone, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Executive December 8, 1998
- ----------------------------------------------------- Officer and Director
James M. Mackenzie, Jr. (Principal Executive
Officer)
/s/ JOHN W. HESSE Executive Vice President, December 8, 1998
- ----------------------------------------------------- Chief Financial Officer
John W. Hesse and Secretary (Principal
Financial and Accounting
Officer)
* Director December 8, 1998
- -----------------------------------------------------
Peter C. Brown
</TABLE>
II-4
<PAGE> 47
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director December 8, 1998
- -----------------------------------------------------
Robert M. Chefitz
* Director December 8, 1998
- -----------------------------------------------------
Howard A. Christensen
* Director December 8, 1998
- -----------------------------------------------------
Ben M. Enis
* Director December 8, 1998
- -----------------------------------------------------
Joseph J. Gardner
* Director December 8, 1998
- -----------------------------------------------------
William J. Gremp
* Director December 8, 1998
- -----------------------------------------------------
Steven L. Kitchen
* Director December 8, 1998
- -----------------------------------------------------
Carl M. Koupal, Jr.
* Director December 8, 1998
- -----------------------------------------------------
John C. Nettels, Jr.
* Director December 8, 1998
- -----------------------------------------------------
Jane Dresner Sadaka
* Director December 8, 1998
- -----------------------------------------------------
James Q. Wilson
*By: /s/ JOHN W. HESSE
------------------------------------------------
John W. Hesse
Attorney-In-Fact
</TABLE>
II-5
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to the validity
of the securities registered hereby.*
23.2 -- Consent of Arthur Andersen L.L.P., independent auditors.*
25.1 -- Statement of Eligibility and Qualification of The Bank of
New York, as trustee, under the Indenture listed as
Exhibit 4.1 hereto on Form T-1.*
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 5.1
December 11, 1998
Protection One Alarm Monitoring, Inc.
Protection One, Inc.
6011 Bristol Parkway
Culver City, California 90230
Ladies and Gentlemen:
We have acted as counsel to Protection One Alarm Monitoring, Inc., a
Delaware corporation (the "Issuer"), and Protection One, Inc., a Delaware
corporation ("POI"), in connection with the preparation and filing by the Issuer
and POI of a Registration Statement on Form S-4 (Registration No. 333-64021)
(the "Registration Statement") filed with the Securities and Exchange Commission
on September 22, 1998 under the Securities Act of 1933, as amended (the "Act"),
relating to the Issuer's $250,000,000 aggregate principal amount of 7 3/8%
Senior Notes due 2005 (the "New Notes") that are to be issued in exchange for a
like principal amount of the issued and outstanding 7 3/8% Senior Notes due 2005
(the "Old Notes") of the Issuer. The Issuer proposes to offer, upon the terms
set forth in the prospectus contained in the Registration Statement, to exchange
$1,000 principal amount of New Notes for each $1,000 principal amount of Old
Notes (the "Exchange Offer"). POI will fully, unconditionally and jointly and
severally guarantee (the "Guarantee") the New Notes on an unsecured, senior
basis. The New Notes and the Guarantee will be issued under the Indenture (the
"Indenture"), dated as of August 17, 1998, by and among the Issuer, POI, two
former guarantors which have merged into the issuer, and The Bank of New York,
as trustee (the "Trustee"). Capitalized terms defined in the Registration
Statement and not otherwise defined herein are used herein as so defined.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the Indenture, the form of the New
Notes set forth in the Indenture and such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the Issuer and the
Guarantors and have made such inquiries of such officers and representatives as
we have deemed relevant and necessary as a basis for the opinion hereinafter set
forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to all questions of fact material to this
opinion that have not been independently established, we have relied upon
certificates or comparable documents of officers and representatives of the
Issuer and POI.
<PAGE> 2
Protection One Alarm Monitoring, Inc.
Protection One, Inc.
December 11, 1998
Page 2 of 2
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The New Notes have been duly authorized by the Issuer for issuance
and, when executed by the Issuer and authenticated by the Trustee in accordance
with the terms of the Indenture, and delivered in exchange for the Old Notes in
accordance with the Exchange Offer, will be legal, valid and binding obligations
of the Issuer, enforceable against it in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity); and
2. The Guarantee of POI has been duly authorized by POI, and when (i)
the New Notes issuable upon consummation of the Exchange Offer have been duly
executed by the Issuer and authenticated by the Trustee in accordance with the
terms of the Indenture, and (ii) the New Notes issuable upon consummation of the
Exchange Offer have been duly delivered against receipt of Old Notes surrendered
in exchange therefor, the Guarantee of New Notes issuable upon consummation of
the Exchange Offer will, when executed and delivered in accordance with the
Indenture, constitute the legal, valid and binding obligation of POI,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
The opinion expressed herein is limited to the laws of the State of New
York and the corporate Laws of the State of Delaware and we express no opinion
as to the effect on the matters covered by this letter of the laws of any other
jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Weil Gotshal & Manges LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated January 29, 1998
and August 22, 1997 included in Protection One, Inc.'s Form 10-K for the year
ended December 31, 1997 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Dallas, Texas
December 10, 1998
<PAGE> 1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------
PROTECTION ONE, INC.
(Exact name of obligor as specified in its charter)
Delaware 92-1063818
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
------------
PROTECTION ONE ALARM MONITORING, INC.
(Exact name of obligor as specified in its charter)
Delaware 93-1064579
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
6011 Bristol Parkway
Culver City, California 90230
(Address of principal executive offices) (Zip code)
----------------------
7-3/8% Senior Notes due 2005
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- -----------------------------------------------------
Name Address
- -----------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 11th day of , 1998.
THE BANK OF NEW YORK
By: /s/THOMAS C. KNIGHT
-------------------------------
Name: THOMAS C. KNIGHT
Title: ASSISTANT VICE PRESIDENT
<PAGE> 4
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency
and coin......................................... $ 7,301,241
Interest-bearing balances.......................... 1,385,944
Securities:
Held-to-maturity securities........................ 1,000,737
Available-for-sale securities...................... 4,240,655
Federal funds sold and Securities purchased
under agreements to resell....................... 971,453
Loans and lease financing receivables:
Loans and leases, net of unearned
income............... 38,788.269
LESS: Allowance for loan and
lease losses............632,875
LESS: Allocated transfer risk
reserve...................0
Loans and leases, net of unearned income, 38,155,394
allowance, and reserve...........................
Assets held in trading accounts....................... 1,307,562
Premises and fixed assets (including
capitalized leases).............................. 670,445
Other real estate owned............................... 13,598
Investments in unconsolidated subsidiaries
and associated companies......................... 215,024
Customers' liability to this bank on
acceptances outstanding.......................... 974,237
Intangible assets..................................... 1,102,625
Other assets.......................................... 1,944,777
------------
Total assets.......................................... $ 59,283,692
============
</TABLE>
<PAGE> 5
<TABLE>
LIABILITIES
Deposits:
<S> <C>
In domestic offices................................ $ 26,930,258
Noninterest-bearing......................11,579.390
Interest-bearing.........................15,350,868
In foreign offices, Edge and Agreement 16,117,854
subsidiaries, and IBFs...........................
Noninterest-bearing.........................187,464
Interest-bearing.........................15,930,390
Federal funds purchased and Securities sold
under agreements to repurchase................... 2,170,238
Demand notes issued to the U.S.Treasury............... 300,000
Trading liabilities................................... 1,310,867
Other borrowed money:
With remaining maturity of one year or
less............................................. 2,549,479
With remaining maturity of more than one
year through three years......................... 0
With remaining maturity of more than
three years...................................... 46,654
Bank's liability on acceptances executed and
outstanding........................................ 983,398
Subordinated notes and debentures..................... 1,314,000
Other liabilities..................................... 2,295,520
Total liabilities..................................... 54,018,268
EQUITY CAPITAL
Common stock.......................................... 1,135,284
Surplus............................................... 731,319
Undivided profits and capital reserves................ 3,385,227
Net unrealized holding gains (losses) on 51,233
available-for-sale securities......................
Cumulative foreign currency translation
adjustments...................................... ( 37,639)
------------
Total equity capital.................................. 5,265,424
------------
Total liabilities and equity capital.................. $ 59,283,692
============
</TABLE>
<PAGE> 6
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot Directors
Thomas A. Renyi
Alan R. Griffith
- --------------------------------------------------------------------------------
