<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1996.
REGISTRATION NO. 333-5849
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PROTECTION ONE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7382 93-1063818
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
6011 BRISTOL PARKWAY
CULVER CITY, CALIFORNIA 90230
(310) 338-6930
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES M. MACKENZIE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PROTECTION ONE, INC.
6011 BRISTOL PARKWAY
CULVER CITY, CALIFORNIA 90230
(310) 338-6930
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
LAURA A. LOFTIN, ESQ.
MITCHELL, SILBERBERG & KNUPP LLP
11377 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064
(310) 312-2000
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered solely in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /__________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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. / /__________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant 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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a) of the
Securities Act of 1933, may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NOTE:
The Registrant hereby deregisters 32,115 shares of Common Stock of the
Registrant previously registered under this Registration Statement.
<PAGE> 3
PROSPECTUS
417,885 SHARES
PROTECTION ONE, INC.
COMMON STOCK
This Prospectus relates to an aggregate of 417,885 shares (the "Shares") of
Common Stock, par value $.01 per share ("Common Stock"), of Protection One,
Inc., a Delaware corporation ("Protection One" and together with its
subsidiaries, the "Company"), that may be offered and sold, from time to time,
by certain stockholders of Protection One (the "Selling Stockholders"). See
"Selling Stockholders." The Shares were issued to the Selling Stockholders in a
private placement made in connection with the acquisition of the stock of Metrol
Security Services, Inc. by the Company completed on June 28, 1996. See "The
Acquisition."
The Selling Stockholders may from time to time sell the shares covered by
this Prospectus (a) to underwriters who will acquire the shares for their own
account and resell such shares in one or more transactions, including negotiated
transactions, at a fixed price or at varying prices determined at the time of
sale, (b) through brokers or dealers, acting as principal or agent, in
transactions (which may involve block transactions) on the Nasdaq National
Market in ordinary brokerage transactions, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, at negotiated prices or otherwise, or (c)
directly or indirectly through brokers or agents in private sales at negotiated
prices, or in any combination of such methods of sale. Underwriters
participating in any offering may receive underwriting discounts and
commissions, and discounts or concessions may be allowed or re-allowed or paid
to dealers, and brokers or agents participating in such transactions may receive
brokerage or agent's commissions or fees. The Selling Stockholders will be
responsible for all commissions and fees so incurred. To the extent required,
the aggregate amount of Shares being offered and the terms of the offering, the
names of any such agents, dealers or underwriters and any applicable commission
with respect to a particular offer will be set forth in an accompanying
Prospectus Supplement. See "Plan of Distribution."
The aggregate proceeds to the Selling Stockholders from the sale of the
Shares will be the selling price of the Shares. The Company will not receive any
proceeds from this offering, but will pay all of the expenses of this offering
other than commissions and discounts of agents, dealers or underwriters. Such
expenses are estimated to be approximately $10,000.
The Selling Stockholders and any agents, dealers or underwriters that
participate in the distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and any and all commissions received by them and any profit on the resale
of the Shares purchased by them may be deemed underwriting commissions or
discounts under the Securities Act.
The Common Stock is traded on the Nasdaq National Market under the symbol
"ALRM." On June 28, 1996, the last reported sale price for the Common Stock was
$16 3/8 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY 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.
------------------------
No person has been authorized in connection with the offering made hereby
to give any information or to make
any representation not contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or any Selling Stockholder. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstance, create any
implication that there has been no change in the affairs of the Company since
the date of this Prospectus or that the information contained herein is correct
as of any time subsequent to the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the shares of Common Stock offered hereby, nor does this Prospectus
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or under any circumstance in which such
offer or solicitation is unlawful.
THE DATE OF THIS PROSPECTUS IS JULY 1, 1996.
<PAGE> 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Protection One with the Commission are
incorporated in this Prospectus by reference:
A. Protection One's Annual Report on Form 10-K for the year ended
September 30, 1995, as amended by Amendment No. 1 on Form 10-K/A filed with
the Commission on December 29, 1995;
B. Protection One's Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1995 and March 31, 1996;
C. Protection One's Current Report on Form 8-K reporting an event
dated May 23, 1996;
D. The description of the Common Stock contained in Protection One's
Registration Statement on Form 8-A dated September 8, 1994; and
E. Protection One's Proxy Statement dated January 2, 1996 for
Protection One's Annual Meeting of Stockholders held on January 26, 1996.
All documents filed by Protection One pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), subsequent to the date of this Prospectus and prior to the termination of
the offering made hereby shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing of such document. Any statement
contained in a document incorporated or deemed 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 subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Protection One will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, on the
written or oral request of such person, a copy of any or all of the information
that has been or hereafter is incorporated by reference herein (other than
exhibits to such information, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates). Requests
for copies should be directed to: Protection One, Inc., 3900 S.W. Murray
Boulevard, Beaverton, Oregon 97005, Attn: Montgomery Cornell, Director of
Investor Relations; telephone (503) 520-6019.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Information by Reference..................................... 2
Available Information................................................................. 3
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 5
The Acquisition....................................................................... 11
Use of Proceeds....................................................................... 11
Description of Capital Stock.......................................................... 11
Selling Stockholders.................................................................. 13
Plan of Distribution.................................................................. 13
Legal Matters......................................................................... 14
Experts............................................................................... 15
</TABLE>
2
<PAGE> 5
AVAILABLE INFORMATION
Protection One is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by Protection One with the
Commission may be inspected without charge and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and the Commission's public reference facilities in New York, New York,
and Chicago, Illinois, at prescribed rates. The Common Stock is traded on the
Nasdaq National Market. Reports, proxy statements and other information
concerning Protection One also may be inspected at the office of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by Protection One with the Commission under
the Securities Act. As permitted by the Securities Act, this Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits thereto for further
information with respect to Protection One and the Common Stock offered hereby.
This Prospectus contains summaries of the material terms and provisions of
certain documents, and in each instance reference is made to the copy of such
document included in the Registration Statement as an exhibit thereto for a
complete statement of such document's provisions. Each such summary is qualified
in its entirety by such reference.
Protection One(R) is a trademark of Protection One, Inc..
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Prospectus. Unless otherwise indicated
or the context otherwise requires, as used in this Prospectus, the "Company"
means Protection One, Inc., a Delaware corporation, and its wholly owned
subsidiaries, including Protection One Alarm Monitoring, Inc. ("Monitoring").
THE COMPANY
Protection One, Inc. and its subsidiaries provide security alarm monitoring
services for residential and small business subscribers. As of March 31, 1996,
the Company had approximately 165,000 subscribers, approximately 80% of which
were residential subscribers (single family homes and multiple-family
dwellings). The Company believes that based on the number of subscribers, the
Company is the fourth largest residential security alarm monitoring company in
the United States and the largest in the five western states of Arizona,
California, Nevada, Oregon and Washington.
The Company's revenues consist primarily of recurring payments under
written contracts for the monitoring and servicing of security alarm systems and
the provision of additional enhanced security services. For the six months ended
March 31, 1996, monitoring and service revenues represented approximately 89.0%
of total revenues. The Company monitors digital signals arising from burglaries,
fires and other events through security systems installed at subscribers'
premises. Most of these signals are received and processed at the Company's
central monitoring station located in Portland, Oregon, which as currently
configured has the capacity to support up to 250,000 subscribers. The Company
also sells enhanced security services, patrol and alarm response services and
security alarm systems and provides local field repair services through nine
branch offices. Enhanced security services provided by the Company include
two-way voice communication, supervised monitoring services, pager service,
wireless backup service and extended service protection.
The Company's strategy is to enhance its position as the largest
residential security alarm monitoring company in the western United States by
pursuing a balanced growth plan incorporating the purchase of subscriber
accounts from independent security alarm system dealers with whom the Company
has exclusive purchase agreements (the "Dealer Program"), acquisitions of
portfolios of subscriber accounts, the sale of enhanced devices and new alarm
systems and possible strategic joint ventures or other strategic alliances.
Protection One, Inc. was incorporated in Delaware in September 1991. The
executive offices of the Company are located at 6011 Bristol Parkway, Culver
City, California 90230, and the Company's telephone number at that address is
(310) 338-6930.
THE ACQUISITION
Pursuant to an Agreement for Purchase and Sale of Stock dated as of May 23,
1996, as amended (the "Purchase Agreement"), by and among Monitoring, Protection
One, the Selling Stockholders and Metrol Security Services, Inc. ("Metrol"), on
June 28, 1996, Monitoring acquired all of the outstanding shares of capital
stock of Metrol (the "Metrol Stock"). As partial payment for the Metrol Stock,
Protection One issued an aggregate of 417,885 shares of Common Stock to the
Selling Stockholders. The Registration Statement of which this Prospectus is a
part has been filed pursuant to the Purchase Agreement and the related
registration rights agreement between the Company and the Selling Stockholders.
4
<PAGE> 7
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of certain of the
risk factors set forth below and elsewhere in this Prospectus. In addition to
the other information set forth and incorporated by reference in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Common Stock offered hereby:
Risks Related to High Leverage. The Company is highly leveraged. At March
31, 1996, the Company's consolidated indebtedness was approximately $168.3
million, and the Company had unused borrowing capacity of approximately $28.5
million under the Company's revolving credit facility with three banks (the
"Revolving Credit Facility"). Future additions of subscriber accounts through
the Dealer Program and acquisitions of subscriber account portfolios will
require additional borrowing under the Revolving Credit Facility, thereby
further increasing the Company's leverage. See "-- Risks Related to
Acquisitions." In addition, the principal amount of Monitoring's 13 5/8% Senior
Subordinated Discount Notes due 2005 (the "Discount Notes") will accrete in
carrying value until June 30, 1998.
The indenture pursuant to which the Discount Notes were issued (the
"Indenture") does not provide for any current amortization of principal or
require the Company to establish any reserves or sinking funds in respect of the
payment of principal. As a result, the Company will be required to repay the
full principal amount of the Discount Notes ($166.0 million) on June 30, 2005.
There can be no assurance that the Company will have the cash necessary to repay
the Discount Notes at maturity or will be able to refinance such obligations. In
addition, all borrowings then outstanding under the Revolving Credit Facility
will be due in full on January 3, 2000. Although the Company has obtained, and
believes that in future it will be able to continue to obtain, extensions of the
maturity date of the Revolving Credit Facility from time to time, or will be
able to refinance the Revolving Credit Facility prior to its maturity date,
there can be no assurance that the Company will be able to do so.
The Company's ability to continue to service its indebtedness will be
subject to various business, financial and other factors, many of which are
beyond the Company's control. In addition, each of the Indenture and the
agreement governing the Revolving Credit Facility includes covenants that
restrict the operational and financial flexibility of the Company. Failure to
comply with certain covenants would, in some instances, permit the holders of
the Discount Notes or the lenders under the Revolving Credit Facility to
accelerate the maturity of the Company's obligations thereunder, and in other
instances could result in cross-defaults permitting the acceleration of all such
debt and debt under other agreements.
The Company's high degree of leverage may have important consequences to
holders of the Common Stock, including the following: (i) a substantial portion
of the Company's cash flow from operations is, and will continue to be,
dedicated to the payment of the principal of and interest on the Company's
existing indebtedness, thereby reducing the funds available to the Company for
its operations and future growth or other business opportunities; (ii) the
Company's 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; (iii) the Indenture and the agreements governing the Revolving Credit
Facility contain, and are expected to continue to contain, certain restrictive
covenants, including certain covenants that require the Company to obtain the
consent of the lenders under the Revolving Credit Facility and to maintain
certain financial ratios in order to undertake significant acquisitions of
portfolios of subscriber accounts; (iv) the Company's borrowings under the
Revolving Credit Facility are at floating rates of interest, causing the Company
to be vulnerable to increases in interest rates; (v) the Company will be more
vulnerable to a downturn in the Company's business or the economy generally; and
(vi) the Company's ability to compete against other less leveraged companies may
be adversely affected.
Risks Related to Acquisitions. A principal element of the Company's
business strategy is to acquire portfolios of alarm monitoring accounts. During
the three fiscal years ended September 30, 1995, the Company completed 87
acquisitions of the portfolios of subscriber accounts of other alarm service
companies, and those acquisitions were the primary source of the Company's
growth during that period. Although the
5
<PAGE> 8
Dealer Program is anticipated to be an increasingly important component of the
Company's growth, an additional 18 portfolios of subscriber accounts were
acquired during the first two quarters of the fiscal year ending September 30,
1996 ("fiscal 1996"), and acquisitions of portfolios of subscriber accounts are
expected to continue. The Company faces competition for the acquisition of
portfolios of subscriber accounts, and may be required to offer higher prices
for acquired accounts than the Company has in the past. See "- Competition." In
addition, due to the continuing consolidation of the security alarm industry and
the acquisition by the Company and other alarm companies of a number of large
portfolios of subscriber accounts, there may in the future be fewer large
portfolios of subscriber accounts available for acquisition. There can be no
assurance that the Company will be able to find acceptable acquisition
candidates or, if such candidates are identified, that acquisitions can be
consummated on terms acceptable to the Company.
Acquisitions of portfolios of subscriber accounts involve a number of
special risks, including the possibility of unanticipated problems not
discovered prior to the acquisition, account attrition and the diversion of
management's attention from other business activities in order to focus on the
assimilation of accounts. For acquisitions that are structured as the purchase
of the stock of other alarm companies, the Company may assume unexpected
liabilities and must dispose of the unnecessary assets of the acquired
companies.
Because the Company's primary consideration in acquiring a portfolio of
subscriber accounts is the amount of cash flow that can be derived from the
monthly recurring revenue ("MRR") associated with the purchased accounts, the
price paid by the Company is customarily directly tied to such MRR. The price
paid varies based on the number and quality of accounts being purchased from the
seller, the historical activity of such accounts and other factors. The seller
typically does not have audited historical financial information with respect to
the acquired accounts, and no such information was provided to the Company prior
to the closing of the 19 largest acquisitions made by the Company from September
1, 1992 through March 31, 1996. Thus, in making acquisitions the Company has
relied on management's knowledge of the industry, due diligence procedures and
representations and warranties of the sellers. There can be no assurance that
such representations and warranties are true and complete or, if such
representations and warranties are inaccurate, that the Company will be able to
recover from the seller damages in an amount sufficient to fully compensate the
Company for any resulting losses. The Company expects that future acquisitions
will present the same risks to the Company as its prior acquisitions.
An important aspect of the Company's acquisition program is the
assimilation of subscriber accounts into the Company's operations after
purchase. Depending on the size, frequency and location of acquisitions, the
assimilation of subscribers may adversely affect the provision of field repair
services to existing subscribers, which may cause subscriber attrition to
increase. In addition, if the Company's corporate or branch operations fail to
assimilate a substantial portion of acquired subscriber accounts, the Company
may experience higher attrition in the future.
History of Losses. The Company incurred losses attributable to common stock
of $7.5 million for the six months ended March 31, 1996, $18.5 million for the
year ended September 30, 1995 ("fiscal 1995"), $9.2 million for fiscal 1994,
$4.6 million for fiscal 1993 and $5.0 million for fiscal 1992. ("Losses
attributable to common stock" means the Company's net loss, less dividends
payable on preferred stock.) These losses reflect, among other factors, the
substantial charges incurred by the Company for amortization of purchased
subscriber accounts, interest incurred on the Company's indebtedness and
extraordinary losses on early extinguishment of debt. Such charges, with the
exception of the extraordinary losses, will increase as the Company continues to
purchase subscriber accounts, if the Company's indebtedness increases, or if
interest rates increase. The Company's earnings have been insufficient to cover
its fixed charges since the Company was formed, and there can be no assurance
that the Company will attain profitable operations.
Risks Related to the Dealer Program. During fiscal 1995, the Company
increased its emphasis on the Dealer Program, which became a more significant
source of growth than in prior years. The Company has continued this emphasis in
fiscal 1996. Several of the Company's competitors also have dealer programs, and
there can be no assurance that the Company will be able to retain or expand its
current dealer base or that competitive offers to the Company's dealers will not
require the Company to pay higher prices to the Company's dealers for subscriber
accounts than previously paid. The Company's five highest producing
6
<PAGE> 9
dealers generated approximately 49.6% of the total subscriber accounts purchased
by the Company through the Dealer Program in the second quarter of fiscal 1996.
The loss of any of such dealers would negatively impact the Company's growth.
Need for Additional Capital. During fiscal 1995 and the first six months of
fiscal 1996, the Company invested a total of approximately $103.5 million in
acquisitions of portfolios of subscriber accounts and purchases of subscriber
accounts through the Dealer Program. Net cash provided by operating activities
totaled approximately $19.0 million during this period. The Company used
borrowings under the Revolving Credit Facility and proceeds from offerings of
debt and equity securities to fund the remainder of the Company's investing
activities during those fiscal years. The Company intends to continue to pursue
subscriber account growth through the Dealer Program and acquisitions. As a
result, the Company will be required to seek additional funding from additional
borrowings under the Revolving Credit Facility and the sale of additional debt
or equity securities in the future, which may lead to higher leverage or the
dilution of then existing holders' investment in the Common Stock. See "-- Risks
Related to High Leverage." Any inability of the Company to obtain funding
through external financings is likely to adversely affect the Company's ability
to increase the Company's subscribers, revenues and earnings before interest,
taxes and depreciation and amortization ("EBITDA"). There can be no assurance
that external funding will be available to the Company on attractive terms or at
all.
Management of Growth. The Company's business strategy is to grow rapidly
through the addition of subscriber accounts. This expansion has placed and will
continue to place substantial demands on the Company's management and
operational resources. The Company's future operating results will depend in
part on the Company's ability to continue to implement and improve the Company's
operating and financial controls and to expand, train and manage the Company's
employee base. Significant changes in quarterly revenues and costs may result
from the Company's execution of its business strategy, resulting in fluctuating
financial results. Additionally, management of growth may limit the time
available to the Company's management to attend to other operational, financial
and strategic issues.
Attrition of Subscriber Accounts. The Company 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, the Company loses certain accounts,
particularly acquired accounts, to the extent the Company does not service those
accounts adequately or does not assimilate new accounts into the Company's
operations. An increase in such attrition could have a material adverse effect
on the Company's revenues and earnings.
When acquiring accounts, the Company usually withholds 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 rate assumed
by the Company at the time of the acquisition, and the Company is unable to
recoup its damages from the portion of the purchase price held back from the
seller, such attrition could have a material adverse effect on the Company's
financial condition, results of operations or cash flows. The Company is not
aware of any reliable historical data relating to account attrition rates
prepared by companies from whom the Company has acquired accounts, and the
Company has no assurance that actual account attrition for acquired accounts
will not be greater than the attrition rate assumed or historically incurred by
the Company. In addition, because some acquired accounts are prepaid on an
annual, semi-annual or quarterly basis, attrition may not become evident for
some time after an acquisition is consummated.
At March 31, 1996, the cost of subscriber accounts and intangible assets,
net of previously accumulated amortization, was $202.2 million, which
constituted approximately 89.3% of the book value of the Company's total assets.
The Company's purchased subscriber accounts are amortized on a straight-line
basis over the estimated life of the related revenues. To estimate such life,
the Company first determines gross subscriber attrition, defined by the Company
for a period as a quotient, the numerator of which is equal to the number of
subscribers who disconnect services during such period and the denominator of
which is the average of the number of subscribers at each month end during such
period. Gross subscriber attrition was 18.2%, 19.6% and 19.3% for fiscal 1993,
1994 and 1995, respectively. The Company offsets gross attrition by adding new
accounts from subscribers who move into premises previously occupied by Company
subscribers and in which
7
<PAGE> 10
security alarm systems are installed ("reconnects"), conversions of accounts
that were previously monitored by other alarm companies to the Company's
monitoring services ("conversions") and accounts for which the Company obtains a
guarantee from the seller that provides for the Company to "put" back to the
seller canceled accounts ("guaranteed accounts"). The resulting figure is used
as a guideline to determine the estimated life of subscriber revenues. It is the
Company's policy to review periodically actual account attrition and, when
necessary, adjust the remaining estimated lives of the Company's purchased
accounts to reflect assumed future attrition. In fiscal 1993, the Company made
such an adjustment to the estimated life of subscriber accounts, reducing such
estimated life from 12 years to 10 years. There could be a material adverse
effect on the Company's results of operations, financial condition and cash
flows if actual account attrition significantly exceeds assumed attrition and
the Company has to make further adjustments with respect to the amortization of
purchased subscriber accounts.
Impact of Accounting Differences for Account Purchases and New
Installations. A difference between the accounting treatment of the purchase of
subscriber accounts (including both purchases of subscriber account portfolios
and purchases under ongoing agreements with independent alarm dealers) and the
accounting treatment of the generation of subscriber accounts through direct
sales by the Company's sales force has a significant impact on the Company's
results of operations. All direct external costs associated with purchases of
subscriber accounts are capitalized and amortized over 10 years on a
straight-line basis. Also included in capitalized costs are certain acquisition
transition costs that reflect the Company's estimate of costs associated with
incorporating the purchased subscriber accounts into the Company's operations.
Such costs include costs incurred by the Company in fulfilling the seller's
pre-acquisition obligations to the acquired subscribers, such as providing
warranty repair services. In contrast, all of the Company's costs related to the
marketing, sales and installation of new alarm monitoring systems generated by
the Company's sales force are expensed in the period in which such activities
occur. The Company's marketing, sales and installation expenses for new systems
generally exceed installation revenues.
The Company's purchase activity increased significantly during fiscal 1994
and 1995. See "-- Risks Related to Acquisitions." In addition, during that
period the Company adopted a strategy of reducing the Company's sales of new
systems and related marketing expenditures. As a result of the difference in the
methods by which such activities are accounted for, the combined effect of these
two factors was to significantly improve operating results during fiscal 1994
and 1995. The Company has not reduced, and does not expect to further reduce,
sales of new systems by Company personnel and related marketing expenditures in
fiscal 1996. There can be no assurance that the Company will not increase its
emphasis on the marketing and sales of new alarm system installations in the
future, which could adversely affect results of operations.
Possible Adverse Effect of "False Alarm" Ordinances. According to certain
data concerning the residential security alarm market prepared in 1995 by J.P.
Freeman & Co. (the "Freeman Data"), approximately 97% of 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. Such measures
include (i) subjecting alarm monitoring companies to fines or penalties for
transmitting false alarms, (ii) licensing individual alarm systems and the
revocation of such licenses following a specified number of false alarms, (iii)
imposing fines on alarm subscribers for false alarms, (iv) 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 (v) requiring further
verification of an alarm signal before the police will respond. Enactment of
such measures could adversely affect the Company's future business and
operations.
Possible Adverse Effect of Future Government Regulations; Risks of
Litigation. The Company's operations are subject to a variety of laws,
regulations and licensing requirements of federal, state and local authorities.
In certain jurisdictions, the Company is required to obtain licenses or permits,
to comply with
8
<PAGE> 11
standards governing employee selection and training, and to meet certain
standards in the conduct of the Company's 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 Company.
The Company's advertising and sales practices are regulated by both the
Federal Trade Commission and state consumer protection laws. Such regulations
include restrictions on the manner in which the Company promotes the sale of
security alarm systems and the obligation of the Company to provide purchasers
of alarm systems with certain rescission rights. While the Company 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 the Company's existing subscriber accounts, particularly with
respect to accounts acquired from third parties, or that no such violation will
occur in the future.
From time to time subscribers have submitted complaints to state and local
authorities regarding the Company's sales and billing practices, which in some
instances have resulted in discussions with, or actions by, such authorities. In
August 1994, as a result of certain complaints by subscribers, three California
governmental authorities brought an action against the Company, and concurrently
settled such action. In connection with the settlement of such action, the
Company agreed to the filing of an injunction requiring the Company to provide
notices of certain increases in charges for its services and to comply with
certain restrictions in its marketing, billing and collection activities, and
paid certain restitution to subscribers in the amount of approximately $31,000
and civil penalties of $30,000. Any violation by the Company of the terms of
such injunction could have a material adverse effect on the Company.
The Company does not believe that any of the investigations or actions
described herein has had or will have a material adverse effect on the Company.
However, there can be no assurance that other actions that may be taken in the
future by these or other authorities as a result of subscriber complaints will
not have such a material adverse effect.
Risks of Liability from Operations. The nature of the services provided by
the Company 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 Company's alarm monitoring agreements and other agreements pursuant
to which the Company sells its 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
an adverse effect on the Company.
The Company's alarm response and patrol services require Company personnel
to respond to emergencies that may entail risk of harm to such employees and to
others. In most cities in which the Company provides such services, the
Company's patrol officers carry firearms, which may increase such risk. Although
the Company screens and trains its employees, the provision of alarm response
service subjects the Company 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 the Company's patrol officers to
greater hazards and further increase the Company's risk of liability.
The Company carries insurance of various types, including general liability
and errors and omissions insurance providing coverage of $15.0 million on both
an aggregate and a per claim basis. The loss experience of the Company and other
security service companies may affect the availability and cost of such
insurance. Certain of the Company'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.
Geographic Concentration. The Company's existing subscriber base is
geographically concentrated in certain metropolitan areas and surrounding
suburbs, including Phoenix and Tucson, Arizona; Bakersfield, Los Angeles, San
Diego and San Francisco, California; Las Vegas, Nevada; Portland, Oregon; and
Seattle, Washington. Accordingly, the performance of the Company may be
adversely affected by regional or local economic conditions.
The Company may from time to time make acquisitions in regions outside of
the Company's current operating area. The acquisition of subscriber accounts in
other regions, or in metropolitan areas in which the
9
<PAGE> 12
Company does not currently have subscribers, requires an investment by the
Company in local branches and personnel necessary to service such accounts. In
order for the Company to expand successfully into a new area, the Company must
obtain a sufficient number, and density, of subscriber accounts in such area to
support the additional investment. There can be no assurance that an expansion
into new geographic areas would generate operating profits.
Competition. The security alarm industry is highly competitive and highly
fragmented. The Company competes with larger national companies, as well as
smaller regional and local companies, in all of the Company's operations.
Furthermore, new competitors are continuing to enter the industry and the
Company may encounter additional competition from such future industry entrants.
In addition, as a result of a 1991 modification to the court order that led to
the division of AT&T Corp. into the regional Bell system, the seven regional
Bell operating companies are not prohibited from entering the information
services industry, which includes the electronic security services industry. One
of such companies, Ameritech Corp., has acquired several security monitoring
businesses, including The National Guardian Corporation, which had approximately
275,000 subscribers at the time of the acquisition.
Certain of the Company's current competitors have, and new competitors may
have, greater financial resources than the Company. In addition, other alarm
services companies have adopted a strategy similar to the Company's that entails
the aggressive purchase of alarm monitoring accounts both through acquisitions
of account portfolios and through dealer programs. Some of these companies may
be willing to offer higher prices than the Company is prepared to offer to
purchase subscriber accounts. The effect of such competition may be to reduce
the purchase opportunities available to the Company, thus reducing the Company's
rate of growth, or to increase the price paid by the Company for subscriber
accounts, which would adversely affect the Company's return on investment in
such accounts and the Company's results of operations.
Dependence Upon Senior Management. The success of the Company's business is
largely dependent upon the active participation of the Company's executive
officers. The loss of the services of one or more of such officers for any
reason may have a material adverse effect on the Company's business.
Significant Ownership of Shares by Certain Stockholders. As of the date of
this Prospectus, three investment funds managed or advised by Patricof & Co.
Ventures, Inc. ("Patricof") beneficially own approximately 20.4% of the
outstanding shares of Common Stock, and one director of Protection One is an
officer of Patricof. As a result, these investors currently have the ability to
significantly influence the outcome of matters submitted for approval of the
stockholders of Protection One (including the election of directors and any
merger, consolidation or sale of all or substantially all of Protection One's
assets) and the affairs of the Company generally.
Effect of Change of Control; Delaware Anti-takeover Law. Monitoring is
required to make an offer to purchase all of the Discount Notes at a price equal
to 101% of their Accreted Value (as defined in the Indenture) on any repurchase
date prior to June 30, 1998, or at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to any repurchase date
on or after June 30, 1998, upon the occurrence of any "change of control" as
defined in the Indenture. A "change of control" also constitutes an event of
default under the Revolving Credit Facility. If such a triggering event were to
occur, the Company may not be able to repay all of its obligations that would
then become payable. Such provisions, together with certain provisions of
Delaware law, could delay or prevent a change in control of the Company, could
discourage acquisition proposals and could diminish the opportunities for a
stockholder to participate in tender offers, including tender offers at a price
above the then current market value of the Common Stock or over a stockholder's
cost basis in the Common Stock. In addition, the Board of Directors of
Protection One (the "Board of Directors"), without further stockholder approval,
may issue preferred stock, which could have the effect of delaying, deferring or
preventing a change in control of the Company. The issuance of preferred stock
could also adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others.
Possible Volatility of Stock Price. The stock market has from time to time
experienced extreme price and volume fluctuations that have been unrelated to
the operating performance of particular companies. The market price of the
Common Stock may be significantly affected by quarterly variations in the
Company's
10
<PAGE> 13
operating results, changes in financial estimates by securities analysts or
failures by the Company to meet such estimates, litigation involving the
Company, general trends in the security alarm industry, actions by governmental
agencies, national economic and stock market conditions, industry reports and
other factors, many of which are beyond the control of the Company.
THE ACQUISITION
Pursuant to an Agreement for Purchase and Sale of Stock dated as of May 23,
1996, as amended, by and among Monitoring, Protection One, the Selling
Stockholders and Metrol Security Services, Inc., on June 28, 1996, Monitoring
acquired all of the outstanding shares of capital stock of Metrol. As partial
payment for the Metrol Stock, Protection One issued an aggregate of 417,885
shares of Common Stock to the Selling Stockholders. The Registration Statement
of which this Prospectus is a part has been filed pursuant to the Purchase
Agreement and the related registration rights agreement between the Company and
the Selling Stockholders.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholders.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Protection One consists of 24,000,000
shares of Common Stock and 5,000,000 shares of preferred stock, par value $.10
per share ("Preferred Stock").
COMMON STOCK
As of June 28, 1996, there were 12,726,255 shares of Common Stock issued
and outstanding.
Each share of Common Stock entitles the holder of record thereof to cast
one vote on all matters submitted for a vote of stockholders. The holders of
Common Stock do not possess cumulative voting rights, and members of the Board
of Directors are elected by a plurality vote. As a result, the holders of a
majority of outstanding shares of Common Stock voting for the election of
directors can elect all directors then being elected.
Each share of Common Stock has an equal and ratable right to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, subject to the rights of the holder(s) of any one or more
series of Preferred Stock then outstanding.
Upon the liquidation, dissolution or winding up of Protection One, the
assets of Protection One legally available for distribution to stockholders are
distributable equally and ratably among the holders of Common Stock, subject to
prior distribution rights of creditors of the Company and to the preferential
rights of the holders of any one or more series of Preferred Stock then
outstanding.
The holders of shares of Common Stock have no preemptive, subscription,
redemption or conversion rights and are not liable for further calls or
assessments. All of the outstanding shares of Common stock are fully paid and
nonassessable.
The Transfer Agent and Registrar for the Common Stock is First Interstate
Bank of Oregon, N.A., Seattle, Washington.
PREFERRED STOCK
Protection One is authorized to issue up to an aggregate of 5,000,000
shares Preferred Stock in such series and with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the
11
<PAGE> 14
voting power or other rights of the holders of the Common Stock. In the event of
such issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of Protection One. As of the date of this Prospectus, there are no
shares of Preferred Stock outstanding, and Protection One has no present
intention to issue any additional such shares.
DELAWARE ANTI-TAKEOVER LAW
Protection One is a Delaware corporation and is subject to Section 203 of
the Delaware General Corporation Law. Pursuant to Section 203, certain "business
combinations" (as defined) between a Delaware corporation and an "interested
stockholder" (defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's outstanding voting stock) are
prohibited for three years following the date such stockholder became an
interested stockholder, unless: (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203; (ii) the
business combination or the transaction in which the interested stockholder
became an interested stockholder was approved by the corporation's board of
directors before the other party to the business combination became an
interested stockholder; (iii) upon consummation of the transaction that resulted
in the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding voting stock owned
by directors who are also officers of the corporation or held in employee
benefit plans that do not provide employees a confidential right to determine
whether to tender (or how to vote) stock held by the plan; or (iv) the business
combination was approved by the board of directors of the corporation and by the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. The three-year prohibition also does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an "interested stockholder,"
transactions with an "interested stockholder" involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions that
increase an interested stockholder's percentage ownership of stock. The
provisions of Section 203 requiring a "supermajority" vote to approve certain
corporate transactions could enable certain of the Company's stockholders to
exercise veto power over such transactions.
12
<PAGE> 15
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
number of shares of Common Stock beneficially owned by the Selling Stockholders
as of June 28, 1996, the number of shares to be offered by the Selling
Stockholders pursuant to this Prospectus and the number and percentage of
outstanding shares of Common Stock to be owned by each Selling Stockholder if
all of the shares offered hereby are sold as described herein:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES NUMBER NUMBER OF OF OUTSTANDING
OWNED PRIOR OF SHARES SHARES OWNED SHARES OWNED
SELLING STOCKHOLDER TO OFFERING BEING OFFERED AFTER OFFERING AFTER OFFERING
- -------------------------------- ---------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
The Buckey Family Trust......... 219,391 219,391 0 *
Sandler Mezzanine
Partners, L.P................. 107,745 107,745 0 *
Sandler Mezzanine
T-E Partners, L.P............. 48,305 48,305 0 *
Sandler Mezzanine
Foreign Partners, L.P......... 23,195 23,195 0 *
Steven Wheeler.................. 1,907 1,907 0 *
Galbri Holding, Inc............. 1,907 1,907 0 *
Collins Family Partnership...... 3,814 3,814 0 *
Martin C. Madden................ 953 953 0 *
Arnold Zousmer.................. 1,907 1,907 0 *
Jack Kadis...................... 953 953 0 *
BHI Associates IX, L.P.......... 7,808 7,808 0 *
</TABLE>
- ---------------
* Less than one percent.
The preceding table has been prepared based upon information furnished to
the Company by or on behalf of the Selling Stockholders. Other than as a
stockholder of Metrol prior to the Acquisition, none of the Selling Stockholders
listed above had any material relationship with the Company within the
three-year period ending on the date of this Prospectus. To the extent required
by applicable law, the Company may amend or supplement this Prospectus from time
to time to disclose the names, relationships to the Company and holdings of
Common Stock of additional Selling Stockholders or to update the disclosure set
forth herein.
PLAN OF DISTRIBUTION
The Selling Stockholders may from time to time sell the shares covered by
this Prospectus in one or more of the following transactions: (a) to
underwriters who will acquire the shares for their own account and resell such
shares in one or more transactions, including negotiated transactions, at a
fixed price or at varying prices determined at the time of sale, with any
initial public offering price and any discount or concession allowed or
re-allowed or paid to dealers subject to change from time to time, (b) through
brokers or dealers, acting as principal or agent, in transactions (which may
involve block transactions) on the Nasdaq National Market in ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or otherwise (including without limitation sales in
transactions that comply with the volume and manner of sale provisions contained
in paragraphs (e) and (f) of Rule 144 under the Securities Act ("Rule 144")) or
(c) directly or indirectly through brokers or agents in private sales at
negotiated prices, or in any combination of such methods of sale.
In connection with distributions of the shares of Common Stock covered
hereby or otherwise, the Selling Stockholders may enter into hedging
transactions with broker-dealers or other financial institutions. In connection
with such transactions, broker-dealers or other financial institutions may
engage in short sales of Common Stock in the course of hedging the positions
they assume with Selling Stockholders. The Selling Stockholders may also sell
Common Stock short and redeliver the shares to close out such short positions.
The Selling Stockholders may also enter into option or other transactions with
broker-dealers or other financial
13
<PAGE> 16
institutions which require the delivery to such broker-dealer or other financial
institution of the Common Stock offered hereby, which Common Stock such
broker-dealer or other financial institution, subject to any applicable transfer
restrictions in agreements between the Selling Stockholders and the Company, may
resell pursuant to this Prospectus (as supplemented or amended to reflect such
transaction). The Selling Stockholders may also pledge the shares registered
hereunder to a broker-dealer or other financial institution and, upon a default,
such broker-dealer or other financial institution may, subject to any applicable
transfer restrictions in agreements between the Selling Stockholder and the
Company, effect sales of the pledged Common Stock pursuant to this Prospectus
(as supplemented or amended to reflect such transaction). In addition, any
securities covered by this Prospectus that qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus.
Underwriters participating in any offering may receive underwriting
discounts and commissions and discounts or concessions may be allowed or
re-allowed or paid to dealers, and brokers or agents participating in such
transactions may receive brokerage or agent's commissions or fees.
In effecting sales of the Shares, brokers or dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive compensation in the form of commissions or discounts from
Selling Stockholders in amounts to be negotiated, including immediately prior to
the sale. The Selling Stockholders and all brokers, dealers or agents, if any,
who participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales, and any profits on the sale of such shares by such stockholders, and all
discounts, commissions or concessions received by such dealers or agents, if any
(whether received from the Selling Stockholders and/or from the purchasers of
the Shares for whom those dealers or agents may act as agents), may be deemed to
be underwriting discounts and commissions under the Securities Act.
Certain of the above-described underwriters, dealers, brokers or agents may
have other business relationships with the Company and its affiliates in the
ordinary course of business.
Upon Protection One being notified by a Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Shares through a block trade, special offering or secondary distribution or a
purchase by a broker-dealer, to the extent required by applicable law, a
supplement to this Prospectus will be distributed that will set forth the name
of each such Selling Stockholder, and of the participating underwriters,
broker-dealer(s) or agents, the aggregate amount of Shares being offered and the
terms of the offer, including all discounts, commissions and other items
constituting compensation from the Selling Stockholders, if any, and all
discounts, commissions or concessions allowed or re-allowed or paid to dealers,
if any.
The Selling Stockholders and other persons participating in the
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations of the Commission thereunder,
including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7, which
provisions may limit the timing of the purchase and sale of shares of Common
Stock by the Selling Stockholders.
Protection One will pay all of the expenses incident to this offering,
other than commissions and fees of third parties employed by a Selling
Stockholder, including attorneys' fees. The Company has agreed to indemnify the
Selling Stockholders and any and all broker-dealers they may utilize against
certain civil liabilities, including liabilities under the Securities Act, that
may arise in connection with their distribution of Shares.
LEGAL MATTERS
The validity of the Shares has been passed upon for Protection One by
Mitchell, Silberberg & Knupp LLP, Los Angeles, California, counsel for
Protection One.
14
<PAGE> 17
EXPERTS
The consolidated balance sheets as of September 30, 1995, and 1994, and the
consolidated statements of operations, cash flows and changes in stockholder's
equity (deficit) and financial statement schedule for each of the three years in
the period ended September 30, 1995, incorporated by reference in this
Prospectus, have been incorporated herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
15
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
NATURE OF EXPENSE
-----------------
<S> <C>
SEC Registration Fee........................................ $2,225.17
Legal (including blue sky) fees and expenses................ 3,000.00
Accounting fees and expenses................................ 2,000.00
Miscellaneous............................................... 2,500.00
---------
Total............................................. $9,725.17
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS OF AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation has the power to indemnify a director, officer,
employee or agent of the corporation and certain other persons serving at the
request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made party by reason of such position, if such person shall
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful, provided that, in the case of actions brought by or in the right of
the corporation, no indemnification shall be made with respect to any matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances. The Registrant's Certificate
of Incorporation provides that the Registrant shall indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law.
The Registrant's Certificate of Incorporation also provides that no
director shall be liable to the Registrant or its stockholders for monetary
damages for breach of his fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction in which the
director derived an improper personal benefit.
The By-laws of the Registrant contain provisions to the effect that each
director, officer and employee of the Registrant shall be indemnified by the
Registrant against liabilities and expenses in connection with any legal
proceedings to which he may be made a party or with which he may become involved
or threatened by reason of having been an officer, director or employee of the
company or of any other organization at the request of the company. The
provisions include indemnification with respect to matters covered by a
settlement. Under Delaware law, any such indemnification shall be made only if
the Board determines by a majority vote of a quorum consisting of disinterested
directors (or, if such quorum is not obtainable, or if the Board of Directors
directs, by independent legal counsel) or by stockholders, that indemnification
is proper in the circumstances because the person seeking indemnification has
met the applicable standards of conduct. In addition, it must be determined that
the director, officer or employee acted in good faith with the reasonable belief
that his action was in or not opposed to the best interests of the company, and,
with respect to any criminal action or proceeding, that he had no reasonable
cause to believe his conduct was unlawful.
II-1
<PAGE> 19
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------------
<C> <S>
2.1 Agreement for Purchase and Sale of Assets dated as of May 23, 1996, among Metrol
Security Services, Inc. and, inter alia, Protection One Alarm Monitoring, Inc. and
Protection One, Inc.
2.2 Amendment No. 1 to Agreement dated as of June 28, 1996, among Metrol Security
Services, Inc. and, inter alia, Protection One Alarm Monitoring, Inc. and
Protection One, Inc.
4.1 Fifth Amended and Restated Certificate of Incorporation of Protection One, Inc.(1)
4.2 Bylaws of Protection One, Inc.(2)
5.1 Opinion of Mitchell, Silberberg & Knupp LLP
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Mitchell, Silberberg & Knupp LLP (included in Exhibit 5.1)
24.1 Power of attorney for James M. Mackenzie, Jr., Robert Chefitz and Ben Enis
(included on signature page)+
24.2 Power of Attorney for James Q. Wilson
</TABLE>
- ---------------
+ Previously filed.
(1) Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K
for the year ended September 30, 1994, filed by Protection One, Inc.
(2) Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form
10-Q filed by Protection One, Inc. for the quarter ended March 31, 1996.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(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 of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this 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 this Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (1)(i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.
II-2
<PAGE> 20
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's 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 this
Registration Statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the indemnification provisions described herein, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange 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 by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant 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 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-3
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies hat is has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Beaverton, State of Oregon, on June 28, 1996.
PROTECTION ONE, INC.
By: /s/ JOHN W. HESSE
--------------------------------------
John W. Hesse
Executive Vice President
and Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
* President, Chief Executive June 28, 1996
- --------------------------------------------- Officer and Director
James M. Mackenzie, Jr.
/s/ *JOHN W. HESSE Executive Vice President, June 28, 1996
- --------------------------------------------- Chief Financial Officer
John W. Hesse (principal financial officer)
and Secretary
* Director June 28, 1996
- ---------------------------------------------
Robert M. Chefitz
* Director June 28, 1996
- ---------------------------------------------
Ben Enis
/s/ JAMES Q. WILSON Director June 28, 1996
- ---------------------------------------------
James Q. Wilson
*By: /s/ JOHN W. HESSE
- ---------------------------------------------
John W. Hesse
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
Exhibit 2.1
AGREEMENT FOR PURCHASE AND SALE OF STOCK
OF METROL SECURITY SERVICES, INC.
BY AND AMONG
THE SHAREHOLDERS OF
METROL SECURITY SERVICES, INC.
METROL SECURITY SERVICES, INC.
AND
PROTECTION ONE ALARM MONITORING, INC.
PROTECTION ONE, INC.
MAY 23, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.1 "Accounts Receivable" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.2 "Alarm Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.3 "Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.4 "Base Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.5 "Cash Closing Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.6 "Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.7 "Closing Balance Sheet Adjustments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.8 "Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.9 "Closing Financials" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.10 "Closing Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.11 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.12 "Company's knowledge" or "knowledge of the Company" . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.13 "Contractual Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.14 "Copyrights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.15 "Customer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.16 "Customer Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.17 "Customer Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.18 "Deferred Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.19 "Escrow Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.20 "Escrow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.21 "Final Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.22 "Financial Adjustment Schedule" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.23 "Financial Statements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.24 "Improvements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.25 "Intellectual Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
1.26 "Inventory" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.27 "Licenses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.28 "Majority in Interest of Shareholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.29 "Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.30 "Parent's Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.31 "Percentage Ownership" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.32 "Permitted Liens" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.33 "Personal Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.34 "Real Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4 -
1.35 "Registration Rights Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
1.36 "Shareholder's knowledge" or "knowledge of Shareholder(s)" . . . . . . . . . . . . . . . . . . . . . . . - 5 -
1.37 "Shareholders' Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
1.38 "Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
1.39 "Subscriber" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
1.40 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
2. PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5 -
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
2.2 Closing Date; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
2.3. Purchase Price; Adjustments to Purchase Price; Payments . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
2.3.1 Base Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
2.3.2 Determination of Purchase Price Paid at Closing . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
2.3.3 Additions and Subtractions to Base Purchase Price Based on the Company's Assets and
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7 -
2.3.4 Payment of the Closing Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7 -
2.4 Financial Adjustment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
2.5 Final Purchase Price Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
2.6 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
2.7 Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
2.7.1 Payment of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
2.7.2 Application of Deposit to Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
2.7.3 Refund of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3. SCHEDULES DELIVERED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.1 Alarm Accounts List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.2 Asset List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.3 Customer Accounts List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.4 Excluded Asset List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.5 Schedule of Closing Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4. INDIVIDUAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.1 Ownership of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.2 Capacity and Authority, No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
4.4 Absence of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
4.5 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
4.6 Investment Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
5.1 Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
5.2 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
5.3 Binding Effect, No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
5.6 Current Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
5.7 Absence of Specified Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 15 -
5.8 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
5.9 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
5.10 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
5.11 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
5.12 Alarm Systems and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
5.13 UL and Factory Mutual Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
5.14 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
5.15 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
5.16 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
5.17 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19 -
5.18 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
5.19 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
5.20 Subscriber and Customer Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
5.21 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
5.22 Insurance Policies and Coverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
5.23 Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
5.24 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
5.25 Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
5.26 Schedules Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
5.27 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
6. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
6.1 Organization, Standing and Shares of Parent's Stock . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
6.2 Parent SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
6.3 Power and Authority, Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
6.4 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
6.5 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
6.6 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
6.7 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
7. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
7.1 Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
7.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
7.4 Disclosure of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
7.5 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
7.8 Dictograph Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
8. COVENANTS OF BUYER AND PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
8.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
8.2 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
8.3 Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
8.4 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
9. CONDITIONS TO OBLIGATION OF BUYER TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
9.1 Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
9.2 Material Disclosures in Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
9.3 Representations and Warranties True on the Closing Date . . . . . . . . . . . . . . . . . . . . . . . - 30 -
9.4 Compliance with Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
9.5 Tender of All Stock and Stock Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
9.6 Resignation of Directors and Certain Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
9.7 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
9.8 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
9.9 Approval of Revisions to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
9.10 No Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
9.11 No Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
9.12 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
9.13 Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
10. CONDITIONS TO OBLIGATION OF SHAREHOLDERS TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
10.1 Representations and Warranties True on the Closing Date . . . . . . . . . . . . . . . . . . . . . . . - 32 -
10.2 Compliance with Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
10.3 No Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
10.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
10.5 Hart-Scott-Rodino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
10.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
10.7 No Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
10.8 Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
11. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
11.2 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
12. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
12.1 Shareholders' Obligations at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
12.2 Shareholders' Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
12.3 Buyer's and Parent's Obligations at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
12.4 The Company's Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
13. INDEMNIFICATION BY SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
13.1 Scope of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
13.2 Notice; Tendering Defense to Shareholders for Third Party Claims . . . . . . . . . . . . . . . . . . . - 37 -
13.3 Buyer's Claim Basket and Liability Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
13.4 Tax Buyer's Claim Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
13.5 Other Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
13.6 Sole and Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
13.7 Survivability of a Buyer's Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
13.8 Payment of Buyer's Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
14. INDEMNIFICATION BY BUYER AND PARENT OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
14.1 Scope of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
14.2 Notice; Tendering Defense to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
14.3 Buyer's Claim Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
14.4 Survivability of a Shareholders' Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
14.5 Sole and Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
15. OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
15.1 Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
15.2 Retention of Company's Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
</TABLE>
- iv -
<PAGE> 6
<TABLE>
<S> <C> <C>
15.3 Stub Tax Year Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
16. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
16.1 Submission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
16.2 Selection of Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
16.3 Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
16.4 Time Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
16.5 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
16.6 Applicable Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
16.7 Injunctive and Provisional Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
17. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
17.1 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
17.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
17.3 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
17.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
17.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
17.6 Entire Agreement: Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
17.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
17.8 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.10 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.12 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.13 Successors in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
17.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
17.16 Preparation of Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
17.17 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
17.18 Joint and Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
17.19 Action by the Shareholders' Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
</TABLE>
- v -
<PAGE> 7
AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT FOR PURCHASE AND SALE OF STOCK (the
"Agreement") is executed as of the 23rd day of May, 1996 (the "Execution
Date"), by and among the persons and entities described in Section 2.1 hereto
(individually a "Shareholder" and collectively, the "Shareholders"), METROL
SECURITY SERVICES, INC., a Delaware corporation ("Metrol"), and PROTECTION ONE
ALARM MONITORING, INC., a Delaware corporation (the "Buyer"), and PROTECTION
ONE, INC., a Delaware corporation (the "Parent").
RECITALS
WHEREAS, Metrol and its subsidiaries are engaged in the
business of the sale and installation of security and alarm equipment,
servicing and monitoring security and alarm customers and operating a guard and
patrol service and owning certain personal property, vehicles and other assets
in connection therewith (the "Business"); and
WHEREAS, Shareholders are the owners of all of the issued and
outstanding capital stock of Metrol and the owners of certain warrants to
acquire additional shares of capital stock of Metrol; and
WHEREAS, Metrol is the sole owner of all of the issued and
outstanding capital stock of each Subsidiary (as hereinafter defined); and
WHEREAS, Shareholders desire to sell to Buyer and Buyer
desires to purchase from Shareholders, on the terms and subject to the
conditions of this Agreement, all of the Stock (as hereinafter defined); and
WHEREAS, Buyer is a wholly-owned subsidiary of Parent.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter contained, the parties agree as
follows:
1. DEFINITIONS
In addition to any other terms that are defined in this
Agreement, the following terms shall have the following meanings in this
Agreement:
1.1 "Accounts Receivable" means all rights of the Company to
payment for goods sold or leased, or for services rendered, by the Company, and
shall include all notes and other instruments or obligations arising out of, or
evidencing or representing the right to payment for, such goods sold or leased,
or services rendered, by the Company.
1.2 "Alarm Account" means an installed monitored alarm account of
the Company and all available records (including, without limitation, service
and installation records), files, computer information, monitoring codes,
upload codes, download codes, master codes, lock-out codes, communicator
identification codes and goodwill of the Company related thereto, and any and
all related agreements for alarm systems and services ("Subscriber
Agreement(s)") between the Company and a Subscriber. The Alarm Accounts shall
be listed on Schedule 3.1, which list shall set forth the
<PAGE> 8
account number, account name, the recurring monthly revenue ("RMR") for each
Alarm Account as of the date set forth on such schedule and the total RMR for
the Alarm Accounts as of the date set forth on such schedule.
1.3 "Assets" means all assets and properties of the Company,
including the Alarm Accounts, Subscriber Accounts, Accounts Receivable, Real
Property, Inventory, Personal Property, Contractual Rights and Intellectual
Property, and all records and files related thereto.
1.4 "Base Purchase Price" has the meaning specified in subsection
2.3.1.
1.5 "Cash Closing Payment" has the meaning specified in subsection
2.3.2.
1.6 "Closing" has the meaning specified in Section 2.2.
1.7 "Closing Balance Sheet Adjustments" has the meaning specified
in subsection 2.3.3.
1.8 "Closing Date" has the meaning specified in Section 2.2.
1.9 "Closing Financials" means (a) the audited consolidated
statements of the Company's income and expenses for the period from January 1,
1996 through and including 11:59:59 pm of the day preceding the Closing Date,
and (b) the audited consolidated balance sheet of the Company as of the day
preceding the Closing Date, in each case together with the report thereon of
KPMG Peat Marwick, the Company's independent certified public accountants.
1.10 "Closing Purchase Price" has the meaning specified in
subsection 2.3.2.
1.11 "Company" means Metrol and the Subsidiaries, collectively.
1.12 "Company's knowledge" or "knowledge of the Company" or similar
words or phrases refer to the actual knowledge of the Company after due inquiry
of the officers and managers of Metrol or any Subsidiary identified on Schedule
1.12 (collectively "Company Representatives").
1.13 "Contractual Rights" means any and all rights of the Company
in, or claims of the Company under, telephone lines and service, leases,
permits, licenses, franchises, purchase and sales orders, promissory notes,
covenants not to compete, or other contracts or agreements (including contracts
and agreements with Customers and Subscribers for alarm monitoring or security
equipment and/or services) of any nature whatsoever in any manner related to
the ownership, possession, lease or use of the Assets or to the ownership,
operation or conduct of the Business.
1.14 "Copyrights" means all copyrights, registered or unregistered,
statutory or common law, of the Company, including all registrations and
applications therefor.
1.15 "Customer" means any person, business, corporation or other
entity, other than a Subscriber, who has a Customer Account.
- 2 -
<PAGE> 9
1.16 "Customer Account" means a security services account of the
Company and all available records, files, computer information, post
instructions, patrol routes, and goodwill related thereto, and any and all
related agreements for patrol, guard or other security services other than
alarm monitoring, installation and repair services. The Customer Accounts
shall be set forth on a schedule to be delivered by the Company to Buyer at
Closing which list shall set forth the account number, account name and the
recurring monthly revenue, if any, for each Customer Account as of the date set
forth on such schedule.
1.17 "Customer Agreement" means a written agreement pursuant to
which a Customer is provided patrol, guard or other security services by the
Company.
1.18 "Deferred Payment" has the meaning specified in subsection
2.3.2.
1.19 "Escrow Agent" means a national bank or another institution
experienced in managing escrows acceptable to Shareholders and Buyer, who shall
act as escrow agent pursuant to the Escrow Agreement.
1.20 "Escrow Agreement" means the Escrow Agreement to be entered
into by and among the Shareholders' Representatives, on behalf of Shareholders,
Buyer and the Escrow Agent within five (5) business days after the Execution
Date, substantially in the form set forth on Exhibit 1.20.
1.21 "Final Purchase Price" has the meaning specified in Section
2.5.
1.22 "Financial Adjustment Schedule" has the meaning specified in
Section 2.4.
1.23 "Financial Statements" means (a) audited consolidated
statements of the Company's income and expenses for the twelve (12) month
periods ended December 31, 1993, December 31, 1994, and December 31, 1995, and
the audited consolidated balance sheets of the Company as of such dates,
together with the report thereon of KPMG Peat Marwick, the Company's
independent certified public accountants, and (b) unaudited consolidated
statements of the Company's income and expenses for the three (3) month period
ended March 31, 1996, and the balance sheet of the Company as of such date.
The Financial Statements are set forth in Exhibit 1.23. The internal unaudited
consolidated balance sheet dated as of the day preceding the Closing Date of
the Company shall be delivered at Closing to Buyer by the Company and
Shareholders and is herein referred to as the "Current Financials."
1.24 "Improvements" means all improvements and fixtures now or
hereafter located on or attached to all Real Property owned or leased by the
Company, including without limitation all buildings, structures, signage,
landscaping, paving, parking facilities, fencing, gates, lighting, heating,
ventilation, air conditioning, refrigeration, garbage disposal, communication,
electrical and plumbing systems, and all other facilities used to provide any
utility or other service to the Real Property.
1.25 "Intellectual Property" means all trademarks, trade names,
service marks, patents, patent applications, Copyrights and other intangible
property in any manner related to the ownership, possession or use of the
Assets or to the ownership, operation or conduct of the Business that are owned
or licensed by the Company or in which the Company has any other proprietary
right.
- 3 -
<PAGE> 10
1.26 "Inventory" means all raw materials, work in process and
finished goods produced or used by the Company in the Business.
1.27 "Licenses" means all licenses or similar agreements to which
the Company is a party, either as licensee or licensor, relating to
Intellectual Property.
1.28 "Majority in Interest of Shareholders" means any Shareholder
or group of Shareholders who, individually or collectively, has the power to
vote a majority of the shares of the Stock.
1.29 "Notes" means the obligations of the Company evidenced by
secured or unsecured promissory notes of the Company and that are reflected
under the captions "Notes Payable" and "Current Portion of Notes Payable" on
the Current Financials.
1.30 "Parent's Shares" means that number of shares of the common
stock, par value $.01 per share (the "Parent's Common Stock"), of Parent equal
to Six Million Dollars ($6,000,000) divided by (ii) the average closing price
of the Parent's Common Stock as reported by the Nasdaq National Market on the
fifteen (15) trading days commencing on the sixteenth (16th) trading day
preceding the Closing Date (the "Average Closing Price"). No fractional
interest in the Parents's Shares shall be issued; in lieu thereof, each
Shareholder otherwise entitled to a fractional interest shall receive an amount
in cash based on the Average Closing Price.
1.31 "Percentage Ownership" means, as to each Shareholder, the
percentage calculated by dividing the number of shares of the Stock owned by
such Shareholder as of the Closing Date (and after giving effect to the
conversion of all shares of preferred stock of the Company and the exercise of
the warrants held by BHI Associates IX, L.P.) by the total number of shares of
the Stock which are issued and outstanding and held by Shareholders as of the
Closing Date and sold to Buyer.
1.32 "Permitted Liens" means (i) the lien of taxes not yet
delinquent or the validity of which are being contested in good faith by
appropriate actions and that are described on Schedule 5.25; and (ii)
easements, covenants and restrictions that are presently of record and that do
not materially interfere with or impair the Company's use and presently
intended use of any of the Real Property or materially reduce the value of any
of the Real Property.
1.33 "Personal Property" means all equipment, tools, machinery,
furniture, motor vehicles, trade fixtures, supplies, materials and other
tangible personal property, other than Inventory, used by the Company in any
manner in connection with the Business, whether owned or leased.
1.34 "Real Property" means all land in which the Company holds a
leasehold interest, all Improvements thereon and all easements and other rights
or interests appurtenant thereto or owned or used by the Company in connection
therewith.
1.35 "Registration Rights Agreement" means the registration rights
agreement to be entered into between Parent and Shareholders with respect to
the Parent's Shares, the form of which agreement is attached hereto as Exhibit
1.35.
- 4 -
<PAGE> 11
1.36 "Shareholder's knowledge" or "knowledge of Shareholder(s)" or
similar words or phrases refer, with respect to each Shareholder, to the actual
knowledge of such Shareholder.
1.37 "Shareholders' Representatives" means Mary Schick (or any
other Trustee of the Buckey Family Trust) and Hannah C. Stone (or any other
person designated to act in her stead by Sandler Mezzanine General
Partnership), acting jointly.
1.38 "Stock" means all of the issued and outstanding capital stock
of Metrol as of the Closing, including the shares of capital stock issuable
upon the conversion of preferred stock or the exercise of warrants held by
certain Shareholders.
1.39 "Subscriber" means any person, business, corporation or other
entity that has an Alarm Account with the Company for the provision of alarm
monitoring, installation and/or repair services.
1.40 "Subsidiary" and "Subsidiaries" have the meanings specified
in Section 5.1.
2. PURCHASE AND SALE OF STOCK
2.1 Purchase and Sale
Subject to the terms and conditions of this Agreement,
Shareholders agree to sell, convey, transfer, assign and deliver to Buyer, and
Buyer agrees to purchase from Shareholders, on the Closing Date, the number of
shares of Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
Shareholder Number of Shares* Percent of Stock*
----------- ----------------- -----------------
<S> <C> <C>
The Buckey Family Trust 287,634 49.7550%
Sandler Mezzanine Partners, L.P. 141,260 24.4351%
Sander Mezzanine T-E Partners, L.P. 63,330 10.9548%
Sandler Mezzanine Foreign Partners, L.P. 30,410 5.2603%
Steven Wheeler 2,500 0.4325%
Galbri Holding, Inc. 2,500 0.4325%
Collins Family Partnership 5,000 0.8649%
Martin C. Madden 1,250 0.2162%
Arnold Zousmer 2,500 0.4325%
Jack Kadis 1,250 0.2162%
</TABLE>
- 5 -
<PAGE> 12
<TABLE>
<S> <C> <C>
BHI Associates IX, L.P. 40,467 7.0000%
------ -------
TOTAL 578,101 100.00%
</TABLE>
*It is understood that, immediately prior to the Closing, BHI Associates IX,
L.P., intends to exercise its Company warrants pursuant to the "net issue"
exercise provisions contained therein (unless such holder elects otherwise),
and the actual number of shares held by such holder as of the Closing (and, as
a result, the percentages listed above) may change.
The Stock shall be transferred, simultaneously with payment by Buyer of the
Purchase Price, by delivery of certificates representing the Stock, duly
endorsed or accompanied by a duly executed stock power in a form satisfactory
to counsel for Buyer, whose approval shall not be unreasonably withheld.
2.2 Closing Date; Closing
The sale and purchase of the Stock ("Closing") shall take
place on the later of May 31, 1996 or that date which is three (3) business
days after the later of (i) that date on which all of the consents described in
Sections 9.12 and 10.6 have been obtained or expressly waived by Buyer and the
Shareholders' Representatives in writing, or (ii) on the date Buyer's due
diligence review described in Section 9.1 has been completed, at 10:00 a.m. at
the offices of the Company or the Company's counsel in Phoenix, Arizona, or at
such other time and place as the parties may agree to in writing. The date and
time at which the Closing actually occurs is referred to herein as the "Closing
Date."
2.3. Purchase Price; Adjustments to Purchase Price; Payments
In consideration of the sale of the Stock, the parties agree
as follows:
2.3.1 Base Purchase Price
The "Base Purchase Price" for the Stock shall be $30,000,000,
less the amount of the Notes (including all accrued interest, penalties and
late-payment fees and all prepayment penalties, if any), and shall be subject
to the adjustments set forth herein.
2.3.2 Determination of Purchase Price Paid at Closing
The purchase price which shall be paid at Closing (the
"Closing Purchase Price") shall be the Base Purchase Price adjusted by the
items listed in subsection 2.3.3 hereof, and shall consist of the Parent's
Shares and cash. The calculation of the Closing Purchase Price and its
components shall be set forth on Schedule 2.3, a proforma of which is attached
hereto. A payment of $2,500,000 of the cash portion of the Closing Purchase
Price (which together with the Deposit is the "Deferred Payment"), shall be
delivered, by wire transfer or other same-day funds, at the Closing to the
Escrow Agent pursuant to the Escrow Agreement. The Deferred Payment shall be
subject to adjustment pursuant to this Agreement and the Escrow Agreement. The
remaining cash portion of the Closing Purchase Price (the "Cash Closing
Payment") shall be paid to Shareholders and certificates representing the
Parent's Shares shall be delivered to Shareholders. Such payment and delivery
of the
- 6 -
<PAGE> 13
certificates representing the Parent's Shares shall be made to each Shareholder
prorated on the basis of such Shareholder's respective Percentage Ownership.
2.3.3 Additions and Subtractions to Base Purchase Price
Based on the Company's Assets and Liabilities
The following "Closing Balance Sheet Adjustments" will be made
to the Base Purchase Price at Closing to obtain the Closing Purchase Price:
ADD TO THE BASE PURCHASE PRICE THE AMOUNTS SHOWN ON THE CURRENT FINANCIALS AS
THE FOLLOWING LINE ITEMS:
a. Cash and Cash Equivalents
b. Short-Term Investments
c. Accounts Receivable, Net of Allowance for
Doubtful Accounts
d. Inventories, and
e. Prepaids & Deposits
DEDUCT FROM THE BASE PURCHASE PRICE THE AMOUNTS SHOWN ON THE CURRENT FINANCIALS
AS THE FOLLOWING LINE ITEMS:
a. Accounts Payable
b. Dividends Payable, except to the extent they
are cancelled upon conversion of the preferred stock of the Company to the
common stock of the Company
c. Accrued Interest, but only to the extent not
included in the calculation of the Base Purchase Price pursuant to subsection
2.3.1.
d. Accrued Liabilities (including payments due
to employees under the Bonus Plan), and
e. Deferred Revenues
FURTHER DEDUCT FROM THE BASE PURCHASE PRICE THE AMOUNT, IF ANY, ADVANCED BY
BUYER PURSUANT TO SECTION 7.5.
2.3.4 Payment of the Closing Purchase Price
On the Closing Date, Buyer shall (i) by wire transfer
or other form of immediately available or same- day funds, pay to Shareholders
in accordance with their Percentage Ownership the Cash Closing Payment set
forth on the final version of Schedule 2.3, and (ii) deliver the
- 7 -
<PAGE> 14
Deferred Payment to the Escrow Agent. In addition, Parent will deliver the
Parent's Shares to Shareholders in accordance with their Percentage Ownership.
2.4 Financial Adjustment Schedule
Not later than sixty (60) days after the Closing, the parties
will cause the Company's certified public accounting firm (KPMG Peat Marwick)
to deliver to the Shareholders' Representatives, the Company and Buyer the
Closing Financials (together with all related work papers) for the Company.
Within thirty (30) days after receipt thereof, Buyer shall prepare and deliver
to the Shareholders' Representatives a draft of a schedule (the "Financial
Adjustment Schedule") setting forth any proposed adjustments to the Closing
Purchase Price based upon any changes, differences, or discrepancies to or
between the Closing Balance Sheet Adjustments made pursuant to the Closing
Financials as compared to the Closing Balance Sheet Adjustments that were been
made based upon the Current Financials. Buyer's draft of the Financial
Adjustment Schedule shall be subject to the Shareholders' Representatives'
review and approval, which approval, subject to Section 2.6, shall not be
unreasonably withheld. The Shareholders' Representatives shall direct KPMG
Peat Marwick to prepare the Closing Financials, at Shareholders' expense, in
accordance with generally accepted accounting principles applied consistently
by the Company throughout the periods indicated and on a consistent basis with
the Financial Statements.
2.5 Final Purchase Price Determination
All adjustments set forth in the Financial Adjustment Schedule
which are subtractions from the Closing Purchase Price shall be paid out of the
Deferred Payment by the Escrow Agent to Buyer within ten (10) days after the
Shareholders' Representatives' receipt of the Financial Adjustment Schedule as
approved by the Shareholders' Representatives, and no such adjustment payments
shall be made until the Financial Adjustment Schedule has been so approved.
Any adjustments in the Financial Adjustment Schedule, as approved by the
Shareholders' Representatives which are additions to the Closing Purchase Price
shall be paid, in cash, by Buyer to Shareholders, pro rata with their
respective Percentage Ownership of the Stock, simultaneously with Buyer's
delivery of the schedule. The Closing Purchase Price, plus and minus the
adjustments set forth on the Financial Adjustment Schedule, as agreed upon by
Buyer and the Shareholders' Representatives shall constitute the "Final
Purchase Price."
2.6 Dispute Resolution
If Buyer, on the one hand, and the Shareholders'
Representatives, on the other hand, shall dispute the determination of the
Financial Adjustment Schedule or Final Purchase Price, they shall use their
reasonable best efforts to resolve such dispute, and if they cannot do so, the
dispute shall be submitted to binding arbitration pursuant to the provisions of
Article 16.
2.7 Deposit
2.7.1 Payment of Deposit
- 8 -
<PAGE> 15
Upon signing the Escrow Agreement (which shall be
done within five (5) business days after the Execution Date), Buyer will
deposit with the Escrow Agent the sum of $500,000.00 (the "Deposit"). The
Deposit shall be invested and administered by the Escrow Agent in accordance
with the instructions set forth in the Escrow Agreement.
2.7.2 Application of Deposit to Purchase Price
If this transaction is consummated, the Deposit shall
be retained by the Escrow Agent and applied to the Deferred Payment, the
Closing Purchase Price and the Final Purchase Price. Interest earned on the
Deposit shall be distributed to the Shareholders as additional Purchase Price
pursuant to the provisions of the Escrow Agreement.
2.7.3 Refund of Deposit
If this transaction fails to close for any reason
whatsoever, the Deposit (together with all interest accrued thereon) shall be
distributed solely in accordance with the provisions of the Escrow Agreement.
The Deposit is not intended to constitute liquidated damages hereunder.
3. SCHEDULES DELIVERED
In addition to other schedules specified herein, Shareholders
shall have prepared, and shall have delivered to Buyer on the Execution Date
the following schedules unless another date is specified herein:
3.1 Alarm Accounts List
A schedule of all of the Alarm Accounts and associated RMR as
of the day that is five (5) business days prior to the Execution Date prepared
as provided in Section 1.2.
3.2 Asset List
A schedule of all of the Assets as of the Execution Date,
other than immaterial assets which may be excluded from the Asset List pursuant
to Section 5.8 hereof, which schedule may incorporate by reference Assets
listed on any other schedule.
3.3 Customer Accounts List
A schedule of all of the Customer Accounts and associated
recurring revenue as of the day that is five (5) business days prior to the
Execution Date, prepared as provided in Section 1.16.
3.4 Excluded Asset List
A schedule of all of the assets of the Company, if any,
included on the Financial Statements as of December 31, 1995 which have been or
will be transferred to Shareholders or others
- 9 -
<PAGE> 16
(except for the transfer of assets made in the ordinary course of business) at
or prior to the Closing Date in accordance with this Agreement.
3.5 Schedule of Closing Work in Process
A schedule, delivered two (2) business days prior to the
Closing Date, setting forth, in reasonable detail, the Company's work in
process for new alarm systems for which installation has not been completed as
of the day which is five (5) business days prior to the Closing Date.
3.6 Schedule of Suppliers and Open Purchase Orders
A schedule, delivered two (2) days prior to the Closing Date,
of the Company's material suppliers and a list of all open purchase orders
(including the name of the supplier, a general description of the goods or
services ordered, the amount, anticipated delivery date and whether the
purchase order can be canceled without liability by the Company) of the Company
requiring payment by the Company of $5,000.00, or more to any single supplier.
Seven (7) business days prior to the Closing Date,
Shareholders shall have delivered drafts of all other schedules to be provided
to Buyer at the Closing Date (including those described in Article 5 and not
deliverable at the Execution Date). Such drafts shall be delivered separate
and apart from this Agreement, and the schedules shall not be considered part
of this Agreement and no representation or warranty shall be deemed to have
been made with respect to such draft schedules for any purpose.
4. INDIVIDUAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder, in his, her or its individual capacity and
not on behalf of any other Shareholder, severally represents and warrants to
Buyer that as of the Execution Date and the Closing Date:
4.1 Ownership of Stock
Such Shareholder as of the Closing Date will be the owner,
beneficially and of record, of, and have good title to, all shares of the Stock
to be transferred by such Shareholder hereunder, free and clear of all liens,
encumbrances, security agreements, equities, options, claims, charges or
restrictions (except for those arising under the Stockholders Agreement dated
as of December 12, 1994, which agreement shall be terminated without any
further obligation or liability of any party at or before the Closing).
4.2 Capacity and Authority, No Violations
4.2.1 Such Shareholder has the requisite corporate,
partnership or individual (as the case may be) power, legal capacity and
authority and the right to execute and deliver this Agreement and to carry out
the terms and conditions applicable to such Shareholder under this Agreement,
including, but not limited to, the corporate, partnership or individual (as the
case may be) power, legal capacity, legal authority and right to sell, convey
and transfer to Buyer at the Closing the Stock
- 10 -
<PAGE> 17
to be sold to Buyer by such Shareholder. Upon consummation of the Closing,
Buyer will acquire from such Shareholder legal and beneficial ownership of,
good and marketable title to, and all rights to vote the Stock to be sold to
Buyer by such Shareholder, free and clear of all liens, encumbrances, security
agreements, equities, options, claims, charges or restrictions.
4.2.2 The execution, delivery and performance of this
Agreement by such Shareholder have been duly authorized by all requisite
corporate, partnership or individual (as the case may be) action on the part of
such Shareholder, and this Agreement has been duly executed and delivered by
such Shareholder.
4.2.3 This Agreement constitutes, and each other agreement
and instrument to be executed and delivered pursuant to the terms of this
Agreement (collectively, the "Transaction Documents") by any Shareholder will
constitute, the legal, valid and binding obligation of such Shareholder
enforceable in accordance with such Transaction Document's terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general equitable principles.
4.2.4 The execution and delivery of this Agreement and the
other Transaction Documents by such Shareholder, and such Shareholder's
consummation of the transactions contemplated hereby and thereby and the
performance of such Shareholder's obligations hereunder and thereunder, will
not (a) conflict with or result in the violation of any material applicable law
or rule or regulation affecting such Shareholder or the Stock owned by such
Shareholder; (b) conflict with or result in the violation of any judgment,
order, decree or award of any court, arbitrator, mediator or governmental
agency or instrumentality to which such Shareholder is a party or by which such
Shareholder or the Stock owned by such Shareholder is bound or affected; or (c)
conflict with, result in the violation or termination of, or accelerate the
performance required by, any contract, indenture, instrument or other agreement
to which such Shareholder is a party or by which such Shareholder or the Stock
owned by such Shareholder may be bound or affected, except in the case of
clauses (a), (b) and (c) for any such conflict, violation, termination or
acceleration as would not have a material adverse effect on such Shareholder's
ownership of the Stock or such Shareholder's ability to perform its obligations
under this Agreement and the other Transaction Documents or consummate the
transactions contemplated hereby and thereby.
4.3 Consents and Approvals
No consent, approval, authorization or other action by, or
filing or registration with, any federal, state or local governmental
authority, or any other person or entity, is required in connection with the
execution and delivery by such Shareholder of this Agreement and the other
Transaction Documents, the consummation by such Shareholder of the transactions
contemplated hereby and thereby or the performance of such Shareholder's
obligations hereunder and thereunder, except for (i) filings under the
Hart-Scott-Rodino Act, (ii) the consent of Sonitrol, (iii) filings required by
the FCC related to Company's radio licenses and arising out of the change of
control of the Company and (iv) such other consents and approvals as may be set
forth on Schedule 4.3.
- 11 -
<PAGE> 18
4.4 Absence of Defaults
Such Shareholder is not in default under or in violation of
(a) any contract, indenture, instrument, or other agreement, arrangement or
understanding to which such Shareholder is a party or by which such Shareholder
or the Stock owned by such Shareholder may be bound or affected, and no fact,
circumstance or event has occurred which, upon notice, lapse of time or both,
would constitute such a default or violation; (b) any applicable law, rule or
regulation affecting such Shareholder or the Stock owned by such Shareholder;
or (c) any judgment, order, decree, or award of any court, arbitrator, mediator
or governmental agency or instrumentality to which such Shareholder is a party
or by which the Stock owned by such Shareholder is bound or affected; except
for in each case such defaults and violations as will not individually or in
the aggregate have a material adverse effect on such Shareholder's ownership of
the Stock or such Shareholder's ability to perform its obligations under this
Agreement and the other Transaction Documents or consummate the transactions
contemplated hereby and thereby.
4.5 Litigation and Claims
Such Shareholder is not a party to, nor is there, any pending
or, to the knowledge of such Shareholder, overtly threatened litigation and
other legal proceeding or governmental investigation against such Shareholder,
or affecting the Stock owned by such Shareholder, or challenging the validity
or propriety of, or seeking to enjoin or set aside, (a) the execution and
delivery of this Agreement and the other Transaction Documents by such
Shareholder; (b) the consummation by such Shareholder of the transactions
contemplated hereby and thereby; or (c) the performance by such Shareholder of
such Shareholder's obligations hereunder and thereunder; except for in each
case such litigation or other proceedings as will not individually or in the
aggregate have a material adverse effect on such Shareholder's ownership of the
Stock or such Shareholder's ability to perform its obligations hereunder or
thereunder or consummate the transactions contemplated hereby or thereby.
4.6 Investment Representation
Such Shareholder is acquiring the Parent's Shares to be
acquired by such Shareholder for such Shareholder's own account for investment
purposes only and not with a view to or for sale in connection with a
distribution thereof other than in compliance with all applicable federal and
state securities laws. Together with the execution of this Agreement, such
Shareholder shall deliver to Buyer an investment letter in form and substance
substantially as set forth in Exhibit 4.6.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer that as of
the Execution Date and Closing Date:
- 12 -
<PAGE> 19
5.1 Capital Structure
The aggregate authorized capital stock of Metrol at the
Closing will consist of Two Million (2,000,000) shares of common stock, $.01
par value per share, of which 578,101 shares will be issued and outstanding at
the Closing (subject to any adjustment required as a result of an election by
BHI Associates IX, L.P. to utilize the "net issue" provisions of its Company
warrants), and One Hundred Thousand (100,000) shares of preferred stock, $.01
par value per share, of which no shares will be issued and outstanding at the
Closing. All shares of the Stock at the Closing will have been duly authorized
and validly issued, fully paid, and nonassessable. There will be at Closing no
outstanding subscriptions, options, rights, warrants, convertible securities or
other agreements or commitments obligating the Company to issue or to transfer
from treasury stock, or to redeem, repurchase or otherwise acquire, any shares
of capital stock or any other securities, bonds or debentures of any class.
As of the Closing, Metrol will own, beneficially and of
record, all of the outstanding stock of the following corporations: Sonitrol of
Arizona, Inc., an Arizona corporation (formerly known as Sonitrol of Maricopa
County, Inc., an Arizona corporation and/or Sonitrol of Tucson, Inc., an
Arizona corporation), and Electronic Security Services, Inc., an Arizona
corporation. As of the Closing, Sonitrol of Arizona, Inc. will own,
beneficially and of record, all of the outstanding stock of the following
corporations: G.T.M.P. Holding Company, Inc., an Arizona corporation,
G.T.M.T., Inc., an Arizona corporation, and DictoGuard Security, Inc., a New
Mexico corporation. Each entity described above (other than Metrol) is herein
referred to as a "Subsidiary" and collectively as the "Subsidiaries." The
stock of each Subsidiary is owned by its respective parent, free and clear of
all liens, encumbrances, security agreements, equities, options, claims,
charges or restrictions other than the pledge of the stock of certain
Subsidiaries to State Street Bank and Trust Company. Contracts, agreements,
leases and other contractual arrangements of the Company as described herein
are or may be in the name or names of said Subsidiaries, their predecessors, or
the names of previously acquired asset entities. All outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly issued
and are fully paid and nonassessable. There are no outstanding subscriptions,
options, rights, warrants, convertible securities or other agreements or
commitments obligating any Subsidiary to issue or to transfer from treasury
stock, or to repurchase, redeem or otherwise acquire, any shares of capital
stock or any other securities, bonds or debentures of any class.
Except as set forth on Schedule 5.1, neither Metrol nor any
Subsidiary has any ownership interest in any other corporation, partnership,
limited liability company or other entity, except for Metrol's and Sonitrol of
Arizona, Inc.'s interests in the Subsidiaries.
5.2 Organization and Standing
Metrol is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is qualified
to do business as a foreign corporation under the laws of the State of Arizona.
Sonitrol of Arizona, Inc. is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Arizona, and is qualified
to do business in the States of California, Colorado, Florida, Georgia,
Illinois, Maryland, Nevada, Texas, Utah and Washington. G.T.M.P. Holding
Company, Inc. is a corporation duly incorporated,
- 13 -
<PAGE> 20
validly existing and in good standing under the laws of the State of Arizona.
G.T.M.T., Inc. is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Arizona. DictoGuard Security, Inc. is
a corporation duly incorporated, validly existing and in good standing under
the laws of the State of New Mexico. Electronic Security Services, Inc. is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Arizona. Except as set forth on Schedule 5.2, Metrol and
the Subsidiaries are each duly qualified to do business as a foreign
corporation in each state in which the nature of such corporation's business or
the character or location of such corporation's assets requires such
qualification, except where the failure to be so qualified has not had and
would not be reasonably expected to have a material adverse effect on the
Business.
Metrol and the Subsidiaries each have the requisite corporate
power and corporate authority to own and operate the Assets owned by that
corporation and to carry on the Business as such Business is currently being
conducted.
The minute books of Metrol and Sonitrol of Arizona, Inc.,
accurately reflect all material actions and proceedings taken to date by the
respective shareholders, boards of directors and committees of the boards of
directors of Metrol and Sonitrol of Arizona, Inc.. The minute books of each
Subsidiary other than Sonitrol of Arizona, Inc., accurately reflect all
material actions and proceedings taken from the date such Subsidiary was
acquired by Metrol to date by the respective shareholders, boards of directors
and committees of the boards of directors of such Subsidiaries. Such minute
books contain true and complete copies of the charter documents of Metrol and
the Subsidiaries and all related amendments. The stock record books of Metrol
and each Subsidiary, to the knowledge of Company, reflect accurately all
issuances by such entities of their respective capital stock of all classes.
Each officer and director of Metrol and each Subsidiary is
listed on Schedule 5.2 hereto.
5.3 Binding Effect, No Violations
5.3.1 This Agreement constitutes, and each other Transaction
Document to be executed and delivered by the Company will constitute, the
legal, valid and binding obligations of Company, enforceable against Company in
accordance with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally or by general equitable principles.
5.3.2 The execution and delivery of this Agreement and the
other Transaction Documents by the Company, consummation of the transactions
contemplated hereby and thereby, and the performance of the Company's
obligations hereunder and thereunder will not (a) conflict with or result in the
violation of any provision of the Articles of Incorporation or Bylaws of Metrol
or any Subsidiary; (b) conflict with or result in the violation of any material
applicable law or rule affecting Metrol or any Subsidiary, the Stock, the Assets
or the Business; (c) conflict with or result in the violation of any judgment,
order, decree or award of any court, arbitrator, mediator, or governmental
agency or instrumentality to which the Company is a party or by which the
Company, the Stock, the Assets or the Business is bound or affected; or (d)
conflict with, result in the violation or termination of, or accelerate the
performance required by, any contract, indenture, instrument or other agreement
to which the Company is a party or by which the Company, the Stock, the Assets
or the Business is
- 14 -
<PAGE> 21
bound or affected (other than the Note payable to State Street Bank and Trust
Company), except in the case of clauses (b), (c) and (d) for any such conflict,
violation, termination or acceleration as would not have a material adverse
effect on the Business.
5.4 Consents and Approvals
No consent, approval, authorization or other action by, or
filing or registration with, any federal, state or local governmental authority
or any other person or entity, except for (i) filings under the
Hart-Scott-Rodino Act, (ii) the consent of Sonitrol, (iii) filings required by
the FCC related to Company's radio licenses, and (iv) such other consents and
approvals as may be set forth on Schedule 5.4, is necessary in connection with
the execution and delivery by the Company of this Agreement and the other
Transaction Documents, the consummation by the Company of the transactions
contemplated hereby and thereby, or the performance of the Company's
obligations hereunder or thereunder.
5.5 Financial Statements
The Financial Statements do not contain any untrue statement
of material fact or omit to state any material fact necessary to make the
statements or information therein not misleading. The Financial Statements are
complete and fairly present in all material respects the financial position,
results of the operations, and the changes in financial position of the Company
for the periods indicated, and were prepared from the books and records of the
Company in accordance with generally accepted accounting principles then in
effect; and have been prepared on a consistent basis with past periods;
provided, however, that unaudited interim Financial Statements are subject to
normal year-end adjustments and do not contain all of the footnotes required by
generally accepted accounting principles for audited statements. The books of
account and other financial records of the Company are complete and correct in
all material respects, and there have been no transactions involving the
Company which properly should have been set forth therein and which have not
been so set forth.
5.6 Current Financials
The Current Financials shall have been prepared in accordance
with generally accepted accounting principles and present fairly the financial
position of the Company as of the date thereof and shall have been prepared on
a consistent basis with the audited Financial Statements.
5.7 Absence of Specified Changes
Except as set forth in Schedule 5.7, from December 31, 1995,
there has not been any:
5.7.1 material transaction by the Company except in the
ordinary course of business;
5.7.2 material adverse change in the Assets, the financial
condition, liabilities, business or operations of the Company;
- 15 -
<PAGE> 22
5.7.3 change in accounting methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) by the Company;
5.7.4 revaluation by the Company of any of the Assets;
5.7.5 acquisition or disposition of any of the Assets, except
in the ordinary course of business;
5.7.6 amendment or termination of any contract, agreement, or
license to which the Company is a party, except in the ordinary course of
business;
5.7.7 loan by the Company to any person or entity, or guaranty
by the Company of any loan;
5.7.8 mortgage, pledge, security interest, lien or other
encumbrance of any of the Assets; or
5.7.9 any increase in the RMR for any Subscriber, except for
increases attributable to changes in equipment and services provided to such
Subscriber, or increases incidental to a renewal of an existing Subscriber
Agreement or new Subscriber Agreement with such Subscriber.
5.8 Assets
All of the Assets of the Company as of the Closing Date shall
be included on the Asset List (Schedule 3.2), with the exception of any
Excluded Assets and immaterial assets (which have no more than a total fair
market value of $15,000.00). The only tangible and intangible operating assets
of the Company will be the Assets. The Company has good and marketable title
to (or as to any Asset not owned by the Company, a valid leasehold interest or
other valid right to possess and use) the Assets, free and clear of all liens,
deeds of trust, mortgages, pledges, charges, security interests, encumbrances,
claims, conditional sales agreements, easements, licenses, rights-of-way,
covenants, conditions, restrictions or other rights of third parties, except
for Permitted Liens and as otherwise disclosed in Schedule 3.2.
5.9 Excluded Assets
All of the Company's right, title and interest in the assets
of the Company set forth on the Excluded Asset List (Schedule 3.4) shall have
been assigned to Shareholders, their designees or others, and such persons
shall have acknowledged receipt of such assets as of or prior to the Closing
Date.
5.10 Inventory
The Inventory consists of items of a quality and quantity
usable and saleable in the usual and ordinary course of business, and is
reflected in the Financial Statements with adequate provision for obsolete,
outdated, unsalable, unusable or damaged items. All items of Inventory
consisting of finished goods meet applicable design and manufacturing
specifications and comply with
- 16 -
<PAGE> 23
any and all warranties customarily given to Subscribers or Customers with
respect to the various items of Inventory. The items of Inventory consisting
of raw materials and work in process are capable of being processed into
finished goods of merchantable quality at ordinary costs and by ordinary
procedures.
5.11 Personal Property
Schedule 5.11 sets forth a list of each lease affecting any
item of Personal Property, a description of the Personal Property subject to
the lease and the term of the lease. The leases described in Schedule 5.11 are
and at the Closing (except for leases indicated as having an expiration date
prior thereto) shall be valid and in full force and effect. Neither the
Company nor, to Company's knowledge, any other party to any such lease is in
material default under the terms of such lease and no condition exists that,
with notice or lapse of time or both, would constitute such a material default
by the Company or, to the knowledge of the Company, by any such other party.
There has been no modification or amendment of any such lease other than as
indicated thereon or attached thereto, and the Company has made no commitment,
concession, undertaking or representation to any lessee or to any lessor other
than as set forth in such lease or as further set forth in Schedule 5.11.
Except as set forth in Schedule 5.11, the Company is in possession of all
Personal Property leased to it from others.
5.12 Alarm Systems and Equipment
Other than as set forth on Schedule 5.12, all of the alarm
systems in which the protective devices are leased by the Company to the
Subscribers are in good working order and condition, ordinary wear and tear,
routine service needs and Subscriber misuse or non-use excepted. The alarm
system equipment for such alarm systems was installed in accordance with good
workmanlike practices prevailing in the industry at the time of installation.
All alarm systems and equipment installed by the Company conform in all
material respects to the Subscriber Agreement pursuant to which such systems
and equipment were installed, and to the Company's knowledge complied in all
material respects with applicable laws, rules, regulations and codes at the
time of installation. The Company has performed in all material respects all
warranty service and other repairs requested by Subscribers prior to the
Closing Date, with the exception of routine service and repairs scheduled to be
performed after the Closing Date in accordance with the Company's ordinary
scheduling practices and consistent with past scheduling practices.
5.13 UL and Factory Mutual Compliance
The Company's central stations have been listed by
Underwriters' Laboratory ("UL") and Factory Mutual ("FM"). There are no
outstanding deficiencies from any written report received by the Company from
UL or FM in connection with any inspection of such central station facilities
or UL certificated systems. All required fire inspections with respect to each
fire alarm system installed at the premises of the Company's customers have
been performed as required in accordance with the obligations and commitments
of the Company to UL, FM and/or to any other applicable insurance rating
organization. There are no UL certificates issued by the Company for alarm
systems installed at the premises of the Company's customers.
- 17 -
<PAGE> 24
5.14 Real Property
The Company does not own any real property. Schedule 5.14
sets forth a list of each lease of real property to which the Company is a
party, the address of the real property subject to the lease, the amount and
terms of payment of rent, the term of the lease, and to the extent not set
forth in the lease or any attachment thereto, the amount of security, cleaning
or any other refundable or non-refundable deposits, and the existence and
description of any rent concessions, any options for renewal or purchase, and
any guarantees thereof. All of the real property used by the Company is
subject to one of the leases set forth on Schedule 5.14. The leases described
in Schedule 5.14 are valid and in full force and effect. Neither the Company
nor, to the knowledge of the Company, any other party to any such lease is in
material default under the terms of such lease and no condition exists that,
with notice or lapse of time or both, would constitute such a material default
by the Company or, to the knowledge of the Company, by any such other party.
There are no leasing fees or commissions due or to become due, now or upon
renewal or expansion, with respect to any of the leases.
5.15 Material Contracts
Schedule 5.15 is a list of all material contracts and
agreements, except Subscriber Agreements and Customer Agreements, to which the
Company is a party and which affect the Assets, the Company's title thereto, or
the operation and conduct of the Business, including, but not limited to, all
promissory notes evidencing obligations of the Company, agreements guarantying
recurring revenue, if any, all non-compete or non-solicitation agreements or
covenants, all other agreements or understandings that restrict or purport to
restrict the Company's business, (whether with specified persons or in
specified areas or otherwise), all consulting agreements and all other
agreements between the Company and third parties relating to the Company's
acquisition of Alarm Accounts or Customer Accounts. There has been no material
modification or amendment of any such contract other than as disclosed in such
contract or agreement or as otherwise described in such Exhibit. Except as
otherwise disclosed in such Schedule 5.15, (a) the Company has performed in all
material respects all obligations required to be performed, (b) there are no
material defaults by the Company or, to the Company's knowledge, by any other
party thereto, and to the Company's knowledge no event has occurred (or failed
to occur) that, with the passing of time or the giving of notice or both would
constitute a material default under any such contract, and (c) no contract or
agreement set forth on Schedule 5.15 restricts or purports to restrict the
Company's business, (whether with specified persons or in specified areas or
otherwise). The Company is not a party to, nor are any of the Assets bound by,
any undisclosed contract that is reasonably likely to have a material adverse
effect on the Assets, the Stock or the financial condition or business of the
Company. Each promissory note described on Schedule 5.15 may be prepaid by the
Company without penalty and without the consent of its holder.
5.16 Liabilities
The Company has no, and at the Closing will not, have any
obligations, indebtedness or liabilities, contingent or otherwise, other than:
(i) obligations of the Company to Subscribers and Customers pursuant to written
Subscriber Agreements and Customer Agreements; (ii) those disclosed or
adequately reserved for in the Financial Statements (as updated by the Closing
Financials); (iii) those expressly described or listed in the schedules hereto,
including Schedule 5.17; (iv) immaterial
- 18 -
<PAGE> 25
obligations, indebtedness or liabilities arising in the ordinary course of
business and not required by generally accepted accounting principles to be
recorded in financial statements or notes thereto, and which in the aggregate
do not exceed $5,000.00; or (v) unexpired real and personal property lease
obligations which are disclosed on the schedules hereto.
5.17 Litigation and Claims
5.17.1 Except as set forth in Schedule 5.17, the Company is
not a party to, nor is there, any pending or, to the Company's knowledge,
overtly threatened litigation or other legal proceeding or governmental
investigation against the Company or the Assets, the Stock, or the financial
condition or business of the Company, or challenging the validity or propriety
of, or seeking to enjoin or to set aside, the transactions contemplated by this
Agreement. The Company has no knowledge of any basis for the assertion of any
claim or cause of action which would be reasonably likely to lead to any such
litigation or legal proceedings and which is not listed in Schedule 5.17.
5.17.2 The matters set forth in Schedule 5.17, if decided
adversely to the Company, are not reasonably likely to have a material adverse
effect on the Assets, the Stock or the financial condition or business of the
Company.
5.17.3 The Company is not a party to any judgment, order,
decree or award of any court, arbitrator, mediator or governmental agency or
instrumentality which has had or is reasonably likely to have a material
adverse effect on the Assets, the Stock or the financial condition or business
of the Company.
5.17.4 At Closing, Schedule 5.17 shall be amended to include
any litigation or proceeding commenced between the date hereof and the Closing
Date and the Company's insurance carrier's latest loss claim reports for
general liability claims, automobile related claims, and worker's compensation
claims.
5.17.5 After the Execution Date and prior to Closing, Company
will use its commercially reasonable best efforts to settle or otherwise
resolve based on consultations with Company's counsel as to the merits of the
Company's claims or defenses, matters # 1 and 2 disclosed on Schedule 5.17.5,
and, if requested by Buyer (based upon its due diligence review) of the
Shareholders' Representatives after the Execution Date, will use its
commercially reasonable best efforts to settle or otherwise resolve based on
consultations with Company's counsel as to the merits of the Company's claims
or defenses, matter #3 on Schedule 5.17.5. Company is indemnified by the
former shareholders G.T.M.T., Inc., G.T.M.P. Holding Company, Inc. and
DictoGuard Security, Inc. with respect to matter #4 on Schedule 5.17.5 pursuant
to Agreement for Purchase and Sale of Stock dated March 10, 1995, and the
Company has a claim against an escrow holdback of the purchase payment to the
former shareholders. Such former shareholders have not denied their indemnity
obligation to Company for such matter.
- 19 -
<PAGE> 26
5.18 Accounts Receivable
All of the Accounts Receivable are validly created and have
been incurred in bona fide transactions in the ordinary course of the Company's
business, and to Company's knowledge there are no defenses, counterclaims or
rights of set-off to any Accounts Receivable (other than immaterial offsets or
counterclaims in an aggregate amount of no more than $5,000.00).
5.19 Employees
Schedule 5.19 is a list of all Company employment agreements,
consulting agreements, bonus or other compensation agreements and employee
severance plans, all employee benefit plans, including without limitation,
pension or retirement plans, profit sharing plans, stock purchase or stock
option plans, medical insurance, and provisions for vacation or sick leave, to
which the Company is a party. Except as set forth on Schedule 5.19, the
Company is not a party or otherwise subject to any collective bargaining or
other agreement governing the wages, hours and terms of employment of the
Company's employees, is not subject to any actual or, to the Company's
knowledge threatened, with any labor dispute or labor trouble involving
employees of the Company, and is not subject to any actual, or, to the
Company's knowledge, threatened, demand by its employees for a collective
bargaining agreement or recognition by any labor organization, labor grievance
proceeding, controversy with any labor or employee organization, or claim or
proceeding with any employee or union under any labor law, including equal
opportunity law or occupational safety and health law. Prior to Closing, Buyer
shall have been provided with a complete and current copy of all of the
Company's employee manuals, benefits and policies. Except as set forth on
Schedule 5.19, the Company: (i) does not have any obligation, contingent or
otherwise, under, nor any commitment or agreement to enter into, and no
officer, director or employee of the Company is covered in respect of their
employment by, employees' profit sharing plan, employees' stock purchase plan,
employees' pension plan, employees' severance pay plan or policy, or other
similar agreement or benefit plan other than a 401(k) plan; (ii) is not in
default under any such agreement; (iii) is not a party to, or in any other
manner participates in any multi-employer pension plan, and (iv) has no
outstanding claims, submittals or awards of the Arizona Civil Right Division.
No "reportable event" (as defined in Section 4043 of ERISA) has occurred with
respect to such 401(k) plan.
5.20 Subscriber and Customer Agreements
Included in Schedule 5.20, is a true and correct copy of each
type of pre-printed form Subscriber Agreement and Customer Agreement the
Company has in effect with not less than eighty percent (80%) of its
Subscribers and Customers. Except as set forth in Schedule 5.20, substantially
all of the pre-printed form Subscriber Agreements and Customer Agreements not
included in Schedule 5.20 contains a limitation of liability provision which
limits Company's liability to not more than Five Hundred Dollars ($500.00) in
the event of damage, loss or injury to the Subscriber or Customer. Company's
Subscriber Agreements and Customer Agreements are covered by the Company's
general liability and errors and omissions insurance. The Company has not
modified in any material respects, except as set forth in Schedule 5.20, any of
the pre-printed form Subscriber Agreements or Customer Agreements, and except
as set forth on Schedule 5.20 has not undertaken any obligations or made any
warranties or guarantees to any Subscriber or Customer other than those set
forth in the Subscriber
- 20 -
<PAGE> 27
Agreements and Customer Agreements. Except as set forth in Schedule 5.20: (i)
each of the Subscriber Agreements and Customer Agreements with the Alarm
Accounts and Customer Accounts, as the case may be, is valid, enforceable and
in full force and effect, except as such enforceability may be limited by (x)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, or (y) general equitable principles;
(ii) there is no existing material default, event or condition, which notice or
lapse of time or both, would constitute an event of material default by the
Company or, to the Company's knowledge, any Subscriber or Customer under any
Subscriber Agreement or Customer Agreement; and (iii) no Subscriber Agreement
or Customer Agreement has been materially modified or otherwise altered orally,
in writing or by course of conduct. Except as set forth in Schedule 5.20, the
Company has not entered into any other type of service or lease contract with
its Subscribers or Customers, nor is the Company rendering services to more
than ten percent (10%) of its Subscribers or Customers other than pursuant to a
Subscriber Agreement or Customer Agreement. The Company has no knowledge of
any claim or contention by any Subscriber, Customer or governmental agency
asserting that any pre-printed form, Subscriber Agreement or Customer Agreement
is invalid or unenforceable in accordance with its terms, or that the Company
has failed to comply in any material respect with any "three-day right of
rescission" law or similar statutes covering any of the Subscriber Agreements
or Customer Agreements.
5.21 Compliance With Laws.
The Company has complied in all respects with all material
laws, rules, regulations and orders applicable to the operation of the business
conducted by the Company. To Company's knowledge, the Company is not in
violation of any material federal, state or local law governing environmental
matters, including discharge of materials into the environment, noise abatement
and other similar matters. Except as set forth on Schedule 5.21, the Company
does not own, lease or otherwise have any obligations with respect to or
responsibility for any underground fuel storage tanks or facilities and has not
and does not transport, store or use any hazardous substance in violation of
any federal, state or local law, rule, regulation permit, order or other
directive addressing environmental matters. For the purposes of this section,
"hazardous substances" shall mean (1) any chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," "toxic pollutants," "toxic substances" or words of similar
import under any applicable environmental law, (2) any oil, petroleum or
petroleum products, (3) asbestos and asbestos containing materials in any form
which is or could become friable, and (4) radon gas, urea formaldehyde foam
insulation or polychlorinated biphenyls. The Company has not received notice
nor taken any action nor failed to take any action which action or failure will
or would, in any way, preclude or prevent the Company from continuing to use
the Assets after the Closing in all material respects in the same manner as
theretofore used by the Company. None of the real property leased by the
Company, or the occupation thereof, is, to the Company's knowledge, in
violation of any material law, building code, zoning or other authority, code
or regulation applicable thereto, and no notice from any governmental body has
been served upon the Company claiming any violation of any such material law,
ordinance, codes or regulation or requiring or calling attention to the need
for any work, repair, construction, alteration or installation or in connection
with said properties which has not been complied with or settled.
- 21 -
<PAGE> 28
5.22 Insurance Policies and Coverages
Schedule 5.22 is a list and brief description of all insurance
policies (including policy amounts and deductibles) which provide coverage to
the Company, including without limitation general liability, fire and title
insurance policies on the Real Property and on each item of Inventory and
Personal Property. The Company's insurance coverages are adequate for the
conduct of the Business in the event any such Assets are damaged, destroyed or
lost as the result of any fire or other casualty or loss customarily insured
against under extended fire and "all risk" insurance policies. The Company's
general liability coverage includes "errors and omissions" coverage, "premises
and operations" coverage and "products and completed operations" coverage, and
such insurance is written on an "occurrence" form policy. At or prior to
Closing, Company's insurance provider(s) shall provide a certificate of
insurance(s) to Buyer identifying Company's general liability, automobile and
property insurance. The Company has not received notice of termination of any
policy and has no knowledge of any facts or conditions which, with notice or
lapse of time, or both, would be reasonably likely to result in a termination
of any of the policies. The Company has had similar liability insurance in
full force and effect, without interruption, since January 1, 1992. The
Company is not in default, and to the Company's knowledge no event has occurred
(or failed to occur) that, with the passing of time or the giving of notice or
both would constitute a material default by the Company under any such policy
of insurance, or would entitle the insurer under such insurance to deny
coverage of any claim against the Company.
5.23 Work in Process
All work in process in connection with the installation of
alarm monitoring equipment for new alarm accounts has been sold, and through
the Closing Date, will be sold in a commercially reasonable manner and priced
in accordance with Company's standard pricing policies and sales practices now
in effect.
5.24 Brokers and Finders
All fees and expenses due to Bariston Associates, Inc. and MHS
Associates, Inc., (collectively "Shareholders' Brokers") in connection with the
transactions contemplated hereby shall be paid by Shareholders at the Closing
from the proceeds of the sale. No other broker or finder has acted for
Shareholders in connection with this Agreement or the transactions contemplated
hereby and no other broker or finder is entitled to any brokerage commission,
finder's fee or other compensation based on agreements or arrangements made by
Company or Shareholders. Shareholders shall cause Shareholders' Brokers to
deliver to Buyer at Closing a release of Buyer in a form satisfactory to Buyer.
5.25 Taxes and Tax Returns
Except as set forth on Schedule 5.25, all federal, state and
local income and other tax returns (including without limitation any and all
returns or declarations with respect to income, real property, personal
property, sales, excise, use, payroll, unemployment or like insurance, and
other taxes and impositions) of the Company required to be filed on or before
the date hereof have been filed, and all taxes shown on said returns or on any
assessments received by the Company, or by Shareholders on behalf of the
Company, to be due and payable on or before the date hereof have been
- 22 -
<PAGE> 29
paid or adequately reserved for on the Financial Statements as updated by the
Closing Financials. Except as set forth on Schedule 5.25, all taxes and
assessments required to have been withheld or collected by the Company have
been duly withheld and collected on or before the date hereof and have been
duly paid over to the proper governmental authorities, as and to the extent
required by law, or are being contested in good faith and with adequate
reserves established therefor, as set forth on Schedule 5.25. Except as set
forth on Schedule 5.25, no tax audits of the Company by any governmental
authority have been instituted since 1992. Except as set forth on Schedule
5.25, the Company has not been advised of any deficiency claimed or proposed to
be claimed against or relating to the Company by any taxing authority which has
not been paid, settled or scheduled herein, and there are no matters under
discussion by the Company with any taxing authority which might result in the
assessment of additional amounts against or relating to the Company. There are
no agreements, waivers or other arrangements providing for an extension of time
with respect to the filing of any returns or the assessment of any tax or
deficiency against or relating to the Company. The reserve for taxes on the
Financial Statements, Current Financials and on the Closing Financials, will be
sufficient for the payment of all unpaid federal, state and local taxes
(including without limitation the various taxes or impositions referred to in
the first sentence of this Section) through the date of such financial
statements and for all periods prior thereto, including without limitation all
taxes, if any, imposed after such respective dates but with respect to any
period or periods prior to the date of such financial statements. The Company
has furnished Buyer with true and complete copies of all federal, state and
local income tax and property tax returns of or with respect to the Company as
actually filed for the Company's last three (3) tax years and, if requested by
Buyer, the Company shall cause Buyer to be furnished with copies of all of the
available related work papers of the Company utilized in the preparation of
such tax returns.
5.26 Schedules Delivered
All of the schedules described in this Agreement and prepared
by the Company which are being delivered to Buyer herewith or to be delivered
at Closing are accurate and complete as of the date delivered, and will be
accurate and complete as of the Closing Date, unless the schedule reflects a
different date, and if so, are true, accurate and complete as of the date
indicated, and have been prepared in conformity with the provisions of this
Agreement.
5.27 No Material Misstatements
No representation or warranty by the Company contained in this
Agreement, or in any exhibit or schedule attached hereto, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained herein or therein, in light of all the
circumstances under which they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent, (in the case of Parent, to the extent the
representation or warranty pertains to Parent) represent and warrant to
Shareholders and the Company that, as of the date of this Agreement and as of
the Closing Date:
- 23 -
<PAGE> 30
6.1 Organization, Standing and Shares of Parent's Stock
6.1.1 Buyer is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Delaware and is
qualified to do business as a foreign corporation under the laws of the State
of Arizona. Buyer has the requisite corporate power and corporate authority to
own, lease and operate its properties and is duly authorized and licensed to
acquire the Stock and perform Buyer's obligations under this Agreement and the
other Transaction Documents. Buyer is a wholly-owned subsidiary of Parent.
Buyer is not qualified to do business in New Mexico.
6.1.2 Parent is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of Delaware. Parent
has the requisite corporate power and corporate authority to own, lease and
operate its properties and is duly authorized to perform Parent's obligations
under this Agreement and the other Transaction Documents.
6.1.3 The Parent's Shares will be, when issued, duly
authorized and validly issued, fully paid, and nonassessable. The Parent's
Shares to be issued to Shareholders will be listed for trading on the Nasdaq
National Market. Parent is qualified to use Form S-3 for the purposes of
registering the offer and sale by the Shareholders of the Parent's Shares and
shall continue to so qualify until at least such time as the registration
statement referred to in Section 8.4 hereof has been declared effective by the
Securities and Exchange Commission.
6.2 Parent SEC Documents
As of their respective dates, each of the reports and other
documents listed as items 2.1 through 2.4 (such documents collectively the
"Parent SEC Documents") in the investor representation letters executed and
delivered concurrently herewith (the "Investor Letters") complied in all
material respects with the requirements of the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, as the case may
be, and the rules and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Document, and none of the Parent SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. Except to the extent that information contained in any
Parent SEC Document has been revised or superseded by a later-filed Parent SEC
Document filed and publicly available prior to the date this representation is
made or deemed made and after giving effect to the Form 8-K to be filed by
Parent in connection herewith, none of the Parent SEC Documents contains any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
6.3 Power and Authority, Consents
6.3.1 Buyer and Parent have the requisite corporate power and
corporate authority to execute and deliver this Agreement and the other
Transaction Documents, and to carry out the terms and conditions applicable to
it under this Agreement and the other Transaction Documents. The execution,
delivery and performance of this Agreement and the other Transaction Documents
by Buyer and Parent have been duly authorized by all requisite corporate action
on the part of Buyer and Parent, as the case may be, and this Agreement and the
other Transaction Documents have been duly
- 24 -
<PAGE> 31
executed and delivered by Buyer and Parent. This Agreement constitutes, and
each other agreement or instrument to be executed and delivered by Buyer and
Parent pursuant to the terms of this Agreement will constitute, the legal,
valid and binding obligations of Buyer and Parent, enforceable against Buyer
and Parent in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally or by general equitable principles.
6.3.2 The execution and delivery of this Agreement and other
Transaction Documents by Buyer and Parent, Buyer's and Parent's consummation of
the transactions contemplated hereby and thereby, the performance of Buyer's
and Parent's obligations hereunder and thereunder will not (a) conflict with or
result in the violation of any provision of the Certificates of Incorporation
or By-Laws of Buyer or Parent; (b) conflict with or result in the violation of
any material applicable law or rule affecting Buyer or Parent; or (c) conflict
with or result in the violation of any judgment, order, decree, or award of any
court, arbitrator, mediator, or governmental agency or instrumentality, to
which Buyer or Parent is a party or by which Buyer or Parent is bound or
affected.
6.3.3 No consent, approval, authorization or other action by,
or filing or registration with, any federal, state, local governmental
authority or any other person or entity, (other than compliance with the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"Hart-Scott-Rodino Act")), consents by the FCC for the transfer of any radio
licenses, filings with and actions by the SEC in connection with the
registration statement provided for in Section 8.4, is required in connection
with the execution and delivery by Buyer or Parent of this Agreement and other
Transaction Documents, the consummation by Buyer or Parent of the transactions
contemplated hereby or the performance of Buyer's and Parent's obligations
hereunder and thereunder.
6.4 Litigation and Claims
Neither Buyer or Parent is a party to, nor is there, any
pending or, to the knowledge of Buyer, overtly threatened litigation or other
legal proceeding against Buyer or Parent challenging the validity or propriety
of, or seeking to enjoin or set aside, (a) the execution and delivery of this
Agreement and the other Transaction Documents by Buyer or Parent, (b) the
consummation by Buyer or Parent of the transactions contemplated hereby and
thereby, or (c) the performance by Buyer or Parent of their respective
obligations hereunder and thereunder. Buyer has no knowledge of any basis for
the assertion of any claim or cause of action which is reasonably likely to
lead to any such litigation or legal proceedings.
6.5 Brokers and Finders
No broker or finder has acted for Buyer or Parent in
connection with this Agreement or the transactions contemplated hereby and no
broker or finder is entitled to any brokerage commission, finder's fee or other
compensation based on agreements or arrangements made by Buyer.
- 25 -
<PAGE> 32
6.6 Investment Intent
Buyer is purchasing the Stock for its own investment and not
with a view to sale or distribution of the Stock to other persons.
6.7 No Material Misstatements
No representation or warranty by Buyer or Parent contained in
this Agreement, or in any exhibit or schedule attached hereto, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances under which they are made, not misleading.
7. COVENANTS OF THE COMPANY
7.1 Right of Inspection
From the date of this Agreement and for ten (10) consecutive
business days thereafter (the "Due Diligence Period"), the Company shall (i)
permit Buyer and its authorized representatives to have full access to the
Company's properties during regular business hours and such additional hours as
Buyer may reasonably request, (ii) use its best efforts to make the Company's
employees and authorized representatives available to confer with Buyer and its
authorized representatives, and (iii) make available to Buyer and its
authorized representatives for inspection during regular business hours and
such additional hours as Buyer may reasonably request all books, papers and
records relating to the Stock, the Assets, the Business, or the obligations and
liabilities of the Company, including without limitation all books of account
(including the general ledger), tax records, organizational documents,
corporate minute book, bylaws, contracts and agreements, filings with any
regulatory authority, or any financial operating data and any other business
information relating to the Company's business activities as Buyer may from
time to time reasonably request.
7.2 Conduct of Business
From the date of this Agreement through the Closing, the
Company shall (a) conduct the Business and engage in transactions only in the
usual and ordinary course of business and in a commercially reasonable manner,
(b) use all commercially reasonable efforts to preserve the Company's business
organization intact and to preserve all present relationships of the Company
with, and the goodwill of, suppliers, customers and others having a business
relationship with the Company, (c) protect and preserve the Assets and the
Company's rights therein, and (d) maintain the Assets in good operating
condition and repair, ordinary wear and tear excepted. The Company shall not,
without the prior consent of Buyer, do any of the following: (i) change the
compensation for any officer or employee (other than a raise to an employee
arising out of a regularly scheduled review in a manner consistent with past
practices); (ii) dispose of any of the Assets, other than inventory and
supplies consumed in the ordinary conduct of the Company's business; (iii) make
any capital expenditure in excess of $5,000.00; (iv) enter into any new
contract or cancel any existing contract to which the Company is a party (other
than contracts with Subscribers or Customers which are entered into or canceled
in the ordinary conduct of the Company's business); (v) forgive any accounts
receivable due to the Company other than routine credits or adjustments given
in the ordinary course of business or
- 26 -
<PAGE> 33
resulting from cancellations of service; (vi) increase the recurring service
rate for Subscribers or Customers, except for increases to the recurring
service rate to a Subscriber or Customer to reflect additions to the protective
equipment or services provided to such Subscriber or Customer; (vii) commit any
act that will have a materially adverse effect on the Assets; (viii) issue,
sell or transfer any Stock or any shares of capital stock held in the Company's
treasury, other than pursuant to the conversion of preferred stock and the
exercise of warrants outstanding on the date hereof; or (ix) issue or grant any
warrants or options to purchase any shares of capital stock of the Company.
Without limiting the generality of the foregoing, between the Execution Date
and the Closing Date, the marketing and sales practices of the Company
(including pricing of systems, equipment and services) shall be conducted
solely in the ordinary course of the Company's business consistent with past
practices and pricing; and the Company shall not acquire any Alarm Accounts or
Customers from alarm dealers or other providers of alarm and/or security
services.
7.3 Consents
The Company shall use all commercially reasonable efforts (and
Shareholders shall cooperate with the Company) to obtain any and all consents,
approvals, authorizations and other actions by, and to complete any and all
filings or registrations with, all federal, state and local governmental
authorities and other third parties (including, without limitation, Sonitrol)
which are necessary to consummate the transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the Company will
make any and all filings required to be made on the Company's part under the
Hart-Scott-Rodino Act.
7.4 Disclosure of Changes
The Company shall promptly notify Buyer in writing of (i) the
commencement or overt threat of any lawsuit or claim against the Company or
affecting the Assets, the Stock or the financial condition or business of the
Company or challenging the validity or propriety of or seeking to enjoin or to
set aside the transactions contemplated by this Agreement; (ii) any material
adverse change in the financial condition or business of the Company; and (iii)
any adverse change in any of the representations or warranties of the Company
or any Shareholder set forth in this Agreement or in any exhibit, certificate
or schedule executed and delivered to Buyer by Shareholders or the Company
pursuant to this Agreement. Notice to Buyer of any of the foregoing shall not
be deemed an amendment to the representations and warranties of any Shareholder
or the Company set forth in this Agreement.
7.5 Bank Accounts
At Closing, the bank accounts and cash of the Company shall
have a positive balance and adequate funds to cover all outstanding checks and
drafts of the Company and have a balance of not less than $150,000. If the
Company anticipates that this covenant will not be satisfied, the Company shall
so inform Buyer not less than three (3) business days prior to the Closing
Date. Buyer, may at its sole option, elect to advance the shortfall of the
funds to Company, and deduct, to the extent of any such shortfall, the amount
advanced from the Closing Purchase Price and Cash Closing Payment.
- 27 -
<PAGE> 34
7.6 Payoff of Notes
Company shall cause Buyer to have received from each holder of
a Note a "payoff letter" or equivalent documentation in form satisfactory to
Buyer's counsel (whose approval shall not be unreasonably withheld), pursuant
to which such holder shall have agreed to accept from the Company at the
Closing payment in full of all amounts owed with respect to such Note and to
release all collateral, if any, for such obligation.
7.7 Collection of Certain Obligations.
Company shall cause all amounts shown on the Financial
Statements as "Employee Advances" to be collected or forgiven prior to the
Closing Date, and there shall be no such (or corresponding) line item on the
Current Financials.
7.8 Dictograph Agreement
Immediately after the Execution Date and prior to the Closing,
the Company shall use it best efforts to enter into a franchise agreement or a
letter of intent setting forth the material terms of a franchise agreement to
be entered into by the Company and Dictograph Security Systems, a division of
Holmes Protection Group, either in a form reasonably acceptable to Buyer and
substantially in accordance with the terms of that certain letter dated May 8,
1996 from George Flagg, CEO, on behalf of Holmes Protection Group to Mary E.
Schick on behalf of Metrol.
8. COVENANTS OF BUYER AND PARENT
8.1 Confidentiality
All information furnished by any Shareholder or the Company to
Buyer and Parent pursuant to this Agreement shall be treated as the property of
such Shareholder or the Company and shall be kept confidential by Buyer and
Parent until the Closing Date. In the event the Closing shall not occur, Buyer
and Parent shall return to Shareholders or the Company all documents and other
materials containing, reflecting or referring to such information, shall keep
confidential all such information, and shall not directly or indirectly use
such information for any competitive or other commercial purpose. Buyer's and
Parent's obligation to keep such information confidential and not to use such
information shall continue for a period of three (3) years from the date the
transactions contemplated by this Agreement are abandoned and shall extend to
the directors, officers, employees and agents of Buyer and Parent. Buyer and
Parent shall take all necessary action to inform such persons of the obligation
of confidentiality set forth in this Section and shall take all necessary
action to obtain their acknowledgment of and agreement to comply with this
Section. The obligation to keep such information confidential shall not apply
to any information which Buyer or Parent can demonstrate (a) was already in its
possession prior to the disclosure thereof by any Shareholder or the Company,
(b) was then generally known to the public, (c) became known to the public
through no fault of Buyer or Parent or any of their respective directors,
officers, employees or agents, or (d) is required by Federal or state law, rule
or regulation, or judicial process to be disclosed.
- 28 -
<PAGE> 35
8.2 Consents
Buyer and Parent shall use all commercially reasonable efforts
to obtain any and all consents, approvals, authorizations and other actions by,
and to complete any and all filings or registrations with, all federal, state
and local governmental authorities and other third parties (including, without
limitation, Sonitrol) which are necessary to consummate the transactions
contemplated by this Agreement. Parent or Buyer will make any and all filings
required to be made on Parent's or Buyer's part under the Hart-Scott-Rodino Act
and will pay all fees required to be paid in connection with such filing.
8.3 Stock Price
Between the date hereof and the Closing, none of Buyer, Parent
or any of their respective affiliates shall take any action to manipulate the
price of the Parent's Common Stock.
8.4 Registration Statement
As soon as practicable following the date hereof and assuming
Parent's receipt of the information required by the immediately following
sentence, Parent shall cause to be filed with the Securities and Exchange
Commission (the "Commission") a registration statement for the offer and sale
by Shareholders from time to time of the Parent's Shares, and Parent shall use
its best efforts to cause such registration statement to be declared effective
as of the Closing or as soon as practicable thereafter. Each Shareholders
shall provide to Parent, in writing duly executed by or on behalf of such
Shareholder, all such information with respect to such Shareholder and the
Parent's Shares to be issued to such Shareholder as shall be required by the
Commission's Form S-3 to be included in such registration statement, including
but not limited to the information required by Items 507 and 508 of the
Commission's Regulation S-K, and such writing shall specifically state that it
is being provided to Parent for such purpose.
9. CONDITIONS TO OBLIGATION OF BUYER TO PERFORM
The obligations of Buyer under this Agreement are subject to
the satisfaction, on or before the Closing Date, of the following conditions,
each of which may be waived by Buyer by delivery to Shareholders of a written
notice of such waiver:
9.1 Due Diligence Review
Buyer's due diligence review, described in Section 7.1, shall
fail to disclose, in the reasonable opinion of Buyer, that the financial and
operational condition of the Company is materially and adversely different than
as presented in (a) the representations and warranties of Company set forth in
Article 5, (b) in the schedules and exhibits delivered by the Company to Buyer
herewith, or (c) the drafts of the schedules to be delivered to Buyer pursuant
to the last paragraph of Article 3. If Buyer shall fail to give Shareholders
notice of a failure of this closing condition within one (1) business day after
completion of the Due Diligence Period, this closing condition shall be deemed
satisfied.
- 29 -
<PAGE> 36
9.2 Material Disclosures in Schedules
Nothing contained in any of the schedules prepared by
Shareholders or the Company and delivered for the first time at Closing shall
disclose that either: (a) the ownership of the Stock by the Shareholders, or
(b) the financial and operational condition of the Company, is materially and
adversely different than as presented in this Agreement or in the exhibits and
schedules provided herewith.
9.3 Representations and Warranties True on the Closing Date
The representations and warranties of each Shareholder and of
the Company contained in this Agreement, in the Schedules and Exhibits hereto,
and in any certificate, document or statement delivered pursuant to the
provisions hereof (including, but not limited to, the Investor Letters), shall
be true and correct, in all material respects, on and as of the Closing Date as
though such representations and warranties were made on and as of the Closing
Date, and Shareholders and the Company shall have delivered to Buyer
certificates in form satisfactory to Buyer (whose approval shall not be
unreasonably withheld), dated the Closing Date and signed by Shareholders and
the Company to such effect.
9.4 Compliance with Agreement
Each Shareholder and the Company shall have performed and
complied in all material respects with all agreements, covenants and
obligations required by this Agreement to be performed or complied with by such
Shareholder or the Company, as applicable, prior to or on the Closing Date, and
Shareholders and the Company shall have delivered to Buyer certificates in form
satisfactory to Buyer (whose approval shall not be unreasonably withheld),
dated the Closing Date and signed by Shareholders and the Company to such
effect.
9.5 Tender of All Stock and Stock Powers
All Shareholders shall have delivered for sale to Buyer on or
before the Closing, stock certificates representing all shares of the Stock as
contemplated hereby and the stock powers provided for in Section 2.1 and
subsection 2.3.2 hereof. The signatures of the Shareholders on this Agreement
named in Section 9.7 shall be notarized or guaranteed by a bank.
9.6 Resignation of Directors and Certain Officers
The directors and officers of Metrol and the Subsidiaries,
listed in a letter to be delivered by Buyer to Shareholders not less than three
(3) business days prior to the Closing Date, shall, at the Closing, have
submitted their resignations in writing to Metrol or the Subsidiaries as
appropriate. Such resignations of officers and directors (in such capacity)
shall be effective as of the Closing.
- 30 -
<PAGE> 37
9.7 Opinion of Counsel
Buyer shall have received from counsel to the Company and all
Shareholders (except The Collins Family Partnership, Galbri Holdings, Inc.,
Jack Kadis, Martin C. Madden, Steven E. Wheeler and Arnold Zousmer), one or
more opinions dated the Closing Date, in form and substance substantially as
set forth in Exhibit 9.7.
9.8 Hart-Scott-Rodino
Any applicable waiting period under the Hart-Scott-Rodino Act
shall have expired or been terminated.
9.9 Approval of Revisions to Schedules
Buyer shall have approved any material adverse revisions to
any schedule made by Shareholders delivered prior to the Closing Date and
arising out of facts or circumstances occurring from the Execution Date to the
Closing Date.
9.10 No Material Adverse Changes
From the Execution Date to the Closing Date, there shall have
been no changes in the condition (financial or otherwise), business, property,
Assets, obligations or liabilities of the Company which in the aggregate have
had, or are reasonably likely to have, a materially adverse effect on the
Stock, on the Assets, or on the liabilities of Company existing as of the
Closing Date.
9.11 No Pending Litigation
There shall not be any pending, or to Company's knowledge,
overtly threatened, claim, proceeding, investigation or inquiry, by any person,
governmental body or authority, seeking to prevent or change the terms of, or
obtain damages in connection with, this Agreement or the transaction
contemplated hereby or which questions the validity or legality of the
consummation of the transaction contemplated hereby. No action or proceeding
relating to any item that is not disclosed in Schedule 5.17 shall have been
instituted, or to Company's knowledge, overtly threatened, to the Company's
officers or Shareholders prior to the Closing Date that, if concluded adversely
to the Company or Shareholders, would be materially adverse to Buyer's
ownership of the Stock, the operation of the Business, or to the Assets taken
as a whole.
9.12 Consents
The Company and Shareholders shall have received all material
consents and other approvals of and actions by governmental authorities or
other third parties (including, without limitation, Sonitrol Corporation, and
any probate court having jurisdiction over the Galen and Charla Buckey estate)
necessary for Company and Shareholders to consummate the transactions
contemplated hereby, including but not limited to those consents, approvals and
actions referenced in Sections 4.3 and 5.4 or listed on Schedules 4.3 and 5.4.,
and the Company, Sonitrol and Buyer shall have done all things necessary to
effectuate Sonitrol Corporation's consent to this transaction.
- 31 -
<PAGE> 38
9.13 Deliveries
Shareholders shall have complied with the provisions of
Section 12.1.
10. CONDITIONS TO OBLIGATION OF SHAREHOLDERS TO PERFORM
The obligations of Shareholders under this Agreement are
subject to the satisfaction, on or before the Closing Date, of the following
conditions, each of which may be waived by Shareholders by delivery to Buyer of
a written notice of such waiver:
10.1 Representations and Warranties True on the Closing Date
The representations and warranties of Buyer and Parent
contained in this Agreement, in the Exhibits hereto, and in any certificate,
document or statement delivered pursuant to the provisions hereof, shall be
true and correct on and as of the Closing Date as though such representations
and warranties were made on and as of the Closing Date, and Buyer and Parent
shall have delivered to Shareholders a certificate in form satisfactory to
Shareholders (whose approval shall not be unreasonably withheld), dated the
Closing Date and signed by Buyer and Parent to such effect.
10.2 Compliance with Agreement
Buyer and Parent shall have performed and complied in all
material respects with all agreements, covenants and obligations required by
this Agreement to be performed or complied with by Buyer or Parent prior to or
on the Closing Date. Buyer and Parent shall have delivered to Shareholders a
certificate in form satisfactory to Shareholders (whose approval shall not be
unreasonably withheld), dated the Closing Date and signed by Buyer and Parent
to such effect.
10.3 No Pending Litigation
There shall not be pending, or to Buyer's knowledge overtly
threatened, any claim, proceeding, investigation or inquiry, by any person,
governmental body or authority, seeking to prevent or change the terms of, or
obtain damages in connection with, this Agreement or the transaction
contemplated hereby or which questions the validity or legality of the
consummation of the transaction contemplated hereby. No action or proceeding
shall have been instituted, or to Buyer's knowledge overtly threatened, against
Buyer or Parent prior to the Closing Date that, if concluded adversely to Buyer
or Parent, would be materially adverse to Buyer's or Parent's ability to
perform its obligations under this Agreement.
10.4 Opinion of Counsel
Shareholders shall receive at the Closing from Mitchell,
Silberberg & Knupp LLP, counsel to Buyer and Parent, an opinion dated the
Closing Date, in form and substance substantially as set forth in Exhibit 10.4.
- 32 -
<PAGE> 39
10.5 Hart-Scott-Rodino
Any applicable waiting period under the Hart-Scott-Rodino Act
shall have expired or been terminated.
10.6 Consents
The Buyer and Parent shall have received all material consents
and other approvals of and actions by governmental authorities or other third
parties (including, without limitation, Sonitrol Corporation) necessary for
Buyer and Parent to consummate the transactions contemplated hereby, including
but not limited to those consents, approvals and actions referenced in Sections
4.3 or 5.4, or listed on Schedules 4.3 or 5.4.
10.7 No Material Adverse Changes
From the Execution Date to the Closing Date, there shall have
been no changes in the condition (financial or otherwise), business property,
assets obligations or liabilities of Parent which in the aggregate have had, or
are reasonably likely to have a materially adverse effect on the Parent's
Shares, or on the assets or liabilities of Parent existing as of the Closing
Date.
10.8 Deliveries
Buyer and Parent shall have complied with the provisions of
Section 12.3.
11. REMEDIES
11.1 Termination
11.1.1 This Agreement and the transactions contemplated by
this Agreement may be terminated at any time prior to the Closing as follows
and in no other manner:
(a) By mutual consent in writing of a Majority in
Interest of Shareholders and Buyer.
(b) By Buyer, by written notice given to
Shareholders, if all of the conditions set forth in Article 9 have not been
satisfied or waived by the scheduled Closing Date (and so long as the failure
of such condition to have been satisfied was not the result of a material
breach hereunder by Buyer).
(c) By a Majority in Interest of Shareholders, by
written notice given to Buyer, if all of the conditions set forth in Article 10
have not been satisfied or waived by Shareholders by the scheduled Closing Date
(and so long as the failure of such condition to have been satisfied was not
the result of a material breach hereunder by Shareholders).
(d) By a Majority in Interest of Shareholders or
Buyer, by written notice to the other, if the transactions contemplated by this
Agreement have not closed on or before July 31,
- 33 -
<PAGE> 40
1996, provided, however, that the party giving such notice is not in default or
material breach of this Agreement, which default or material breach has
prevented the transaction from closing in the normal course.
11.1.2 Upon termination, Buyer shall deliver to Shareholders,
and Shareholders and the Company shall deliver to Buyer, the originals and any
copies of any and all documentation containing confidential information
provided by each party to the other pursuant to the terms of this Agreement.
11.1.3 In the event of termination of this Agreement by
either Buyer or Shareholders as provided in this Section 11.1, the obligations
of Buyer, Shareholders and the Company under this Agreement shall terminate
without further liability of any party to another; provided, however, that:
(a) the obligations of the parties under
subsection 2.7.3, Section 8.1, subsection 11.1.2, this subsection 11.1.3 and
Sections 17.2, 17.3 and 17.2, 17.3 shall remain in full force and effect; and
(b) a termination under this Section 11.1 shall
not relieve any party of any liability for a breach of, or for any
misrepresentation made in, this Agreement, or be deemed to constitute a waiver
of any available remedy (including specific performance if otherwise available)
for any such breach or misrepresentation.
11.2 Other Remedies
Except as limited by Articles 13 and 14, in the event of any
breach or default of any representation, warranty, covenant, agreement,
condition or other obligation by any party hereto, then whether or not this
Agreement is terminated pursuant to Section 11.1 above, any other party
affected by such breach or default may pursue whatever other rights and
remedies are available to such party at law or in equity for any such breach or
default, whether occurring before or after Closing. Buyer, Parent,
Shareholders and the Company each acknowledge that, in view of the uniqueness
of the Business and the transactions contemplated by this Agreement, the other
party would not have an adequate remedy at law for money damages in the event
that this Agreement has not been performed in accordance with its terms. Each
party therefore agrees that each other party shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which such
party may be entitled, at law or in equity.
12. CLOSING
12.1 Shareholders' Obligations at Closing
At the Closing, Shareholders shall deliver or cause to be
delivered to Buyer the following:
12.1.1 All schedules required to be delivered hereunder;
- 34 -
<PAGE> 41
12.1.2 The stock certificates, stock powers, and other
certificates contemplated by this Agreement to be delivered by Shareholders or
the Company;
12.1.3 A Copy of the Registration Rights Agreement duly
executed by Shareholders;
12.1.4 All documents evidencing any and all consents,
approvals, authorizations, actions, filings or registrations described in
Sections 4.3 and 5.4, including without limitation evidence of approval by
Sonitrol Corporation of the sale of the Company to Buyer and evidence of
approval by the probate court having jurisdiction over the estate of Galen and
Charla Buckey, if applicable; and
12.1.5 The closing certificates required by Article 9.
12.2 Shareholders' Release
12.2.1 Effective as of the Closing, each Shareholder agrees
not to sue and fully releases and discharges Metrol and the Subsidiaries, past
and present, including, without limitation, each of their respective directors,
officers, employees, shareholders, representatives, agents, assigns and
successors, past and present (collectively "Metrol Releasees"), with respect to
and from any and all claims, issuances of Metrol's or such Subsidiary's stock,
notes or other securities, demands, rights, liens, agreements, contracts,
covenants, actions, suits, causes of action, obligations, debts, costs,
expenses, damages, judgments, orders and liabilities of whatever kind or nature
in law, equity or otherwise, whether now known or unknown, and whether or not
concealed or hidden, all of which such Shareholder now owns or holds or has at
any time owned or held against the Metrol Releasees.
12.2.2 It is the intention of each Shareholder that the
release contained in Section 12.2.1 be effective as a bar to each and every
claim, demand and cause of action hereinabove specified. In furtherance of
this intention each Shareholder hereby expressly agrees that this release shall
be given full force and effect according to each and all of its express terms
and provisions, including as well, those related to unknown and unsuspected
claims, demands and causes of action, if any, as those relating to any other
claims, demands and causes of action hereinabove specified.
12.3 Buyer's and Parent's Obligations at Closing
On the Closing Date, Buyer and, as to subsections 12.3.2,
12.3.3 and 12.3.4, Parent shall deliver or cause to be delivered to
Shareholders the following:
12.3.1 The Cash Closing Payment by wire transfer or other
form of immediately available or same-day funds acceptable to Buyer;
12.3.2 Certified resolutions of Buyer's and Parent's
respective Boards of Directors authorizing the execution and performance of
this Agreement and all actions taken by Buyer or Parent in furtherance of this
Agreement;
12.3.3 A Copy of the Registration Rights Agreement each duly
executed by Parent;
12.3.4 Certificates evidencing the Parent's Shares; and
- 35 -
<PAGE> 42
12.3.5 The closing certificates required by Article 10.
In addition, Buyer shall cause the Deferred Payment (other
than the Deposit which shall have been previously delivered) to be delivered to
the Escrow Agent.
12.4 The Company's Release
12.4.1 Effective as of the Closing, the Company agrees not to
sue and fully releases and discharges Shareholders and each of them, in their
respective capacities as such, and including, without limitation, each of their
respective directors, officers, employees, shareholders, representatives,
agents, assigns and successors, past and present, in their respective
capacities as such (collectively "Shareholder Releasees"), with respect to and
from any and all claims, demands, rights, liens, agreements, contracts,
covenants, actions, suits, causes of action, obligations, debts, costs,
expenses, damages, judgments, orders and liabilities of whatever kind or nature
in law, equity or otherwise, whether now known or unknown, and whether or not
concealed or hidden, all of which the Company now owns or holds or has at any
time owned or held against the Shareholder Releasees.
12.4.2 It is the intention of the Company that the release
contained in Section 12.4.1 be effective as a bar to each and every claim,
demand and cause of action hereinabove specified. In furtherance of this
intention the Company expressly agrees that this release shall be given full
force and effect according to each and all of its express terms and provisions,
including as well, those related to unknown and unsuspected claims, demands and
causes of action, if any, as those relating to any other claims, demands and
causes of action hereinabove specified.
13. INDEMNIFICATION BY SHAREHOLDERS
13.1 Scope of Indemnification
Subject to the limitations set forth in Sections 13.3, 13.5
and 13.6, 13.7, or otherwise in this Article 13, Shareholders covenant and
agree, from and after the Closing, to indemnify, defend and hold harmless the
Company and Buyer from, for and against any loss, damage, liability or
deficiency (including without limitation reasonable attorneys' fees and other
costs and expenses incident to any suit, action, investigation or other
proceeding) arising out of or resulting from, and, except as hereinafter
limited, will pay Buyer on demand the full amount of any sum Buyer may pay or
become obligated to pay on account of, or reimburse Buyer for any loss suffered
on account of:
13.1.1 any material inaccuracy or breach of any
representation or warranty made hereunder (as set forth in Articles 4 and 5) by
the Company or Shareholders;
13.1.2 any failure of Shareholders or the Company to duly
perform or observe any covenant or agreement hereunder on the part of
Shareholders or the Company to be performed or observed;
13.1.3 any federal, state, local or other tax of any nature
imposed on the Company with respect to any period of time prior to the Closing
Date, arising out of actions or omission by the Company prior to the Closing
(but excluding any such taxes that arise as of result of actions,
- 36 -
<PAGE> 43
omissions or elections made by the Company or Buyer after the Closing, unless
such actions or elections are required to be made by Company or Buyer pursuant
to any tax law, ruling or regulation) including, but not limited to, any sales,
excise or use tax due on services provided or equipment purchased, sold or
leased by the Company prior to the Closing Date, any penalty assessed against
the Company, and/or any interest assessed on deficiencies but excluding any tax
liabilities in the amounts set forth on the Closing Financials;
13.1.4 any claim against the Company by, or liability of the
Company to, a third party, (including without limitation, employees (other than
claims described in subsection 13.1.5 below), brokers, customers and suppliers
of the Company) of any nature arising out of an event or occurrence wherein the
loss or damage asserted by the third party occurred prior to the Closing Date,
other than claims or liabilities: (a) in the amounts set forth in Closing
Financials, or (b) disclosed in any Schedule hereto.
13.1.5 any claim of any employee of the Company or of any
other person, with respect to the Company's obligations under the Plans or Cash
Bonus Plan, except for Company's obligation to pay two (2) weeks severance
pursuant to subsection 15.2.3, to the extent not paid to such employee or other
person from the Deferred Payment pursuant to the Escrow Agreement.
In addition, subject to the terms of this Article 13, Shareholders
will indemnify and hold harmless Buyer from, for and against any costs and
expenses (including reasonable attorneys' fees) which Buyer may suffer or
sustain in any successful effort to enforce the indemnification obligations of
the Shareholders hereunder.
Any claim for indemnification by Buyer or the Company pursuant to this
Section 13.1 shall hereinafter be referred to as a "Buyer's Claim."
13.2 Notice; Tendering Defense to Shareholders for Third Party Claims
Shareholders' obligation to indemnify, defend and reimburse
the Company and Buyer for a claim alleged by a third party hereunder (a
"Third-Party Claim") is subject to a prior written thirty (30) day notice by
Buyer of such Third Party Claims unless the Third-Party Claim involves
litigation, in which case Buyer shall provide the Shareholders' Representatives
with notice of such litigation within ten (10) business days after receipt of
such complaint by Buyer or the Company, and provided further, that Shareholders
(acting through the Shareholders' Representatives for purposes of this Section
13.2 and Section 13.4) shall have the right to defend, at their expense, any
Third-Party Claim (other than a claim regarding taxes, which shall be governed
solely by Section 13.4), and Shareholders shall have the right to control the
defense, settlement or compromise of such Third-Party Claim and Buyer and/or
the Company shall have the right to be kept currently informed and to
participate in all aspects of such litigation. In no event may Shareholders
consent to the entry of any judgement against the Company or Buyer or enter
into any settlement or compromise that includes any injunction, restraining
order or similar restriction on the future actions of the Company or Buyer or
that does not include, as an unconditional term thereof, the giving by the
claimant or plaintiff to the Company and Buyer of a release from all liability
in respect of such claim or litigation. If Shareholders choose not to defend a
Third Party Claim, Shareholders acknowledge that they may be bound by any
judgment, settlement or compromise resulting from such claim.
- 37 -
<PAGE> 44
13.3 Buyer's Claim Basket and Liability Cap.
Other than with respect to Buyer's Claims (a) asserting a
Shareholder's fraud, (b) challenging the Shareholders' title to the Stock, or
(c) brought under subsection 13.1.5, Shareholders' obligations with respect to
indemnity pursuant to this Article 13 shall be limited to the extent that the
aggregate of such obligation must first exceed $100,000.00 after giving credit
for any insurance proceeds received by the Company or Buyer as a result of
coverage by insurance of Buyer or the Company ("Buyer's Claim Basket"). Except
as provided hereinafter, in no event shall the total liability of all
Shareholders for all Buyer's Claims exceed $7,500,000.00 (the "Liability Cap").
Notwithstanding anything herein to the contrary, the total liability
of any single Shareholder shall not exceed that portion of the Final Purchase
Price received by such Shareholder. Notwithstanding the limitation of
liability set forth above, any Buyer's Claim asserting a Shareholder's (or its
designee's) fraud, or asserting a claim as to the title of the Stock shall not
be included in the Liability Cap described in this Section 13.3.
13.4 Tax Buyer's Claim Defense
Promptly after receipt by Buyer or the Company of notice of
the commencement of any action or proceeding which could result in a Buyer's
Claim as to any tax liability (including, without limitation, penalties,
assessments or fines) under subsection 13.1.3, Buyer or the Company will give
prompt notice of such commencement to the Shareholders' Representatives. If
with respect to any such Buyer's Claim, the Shareholders' Representatives shall
request, in writing, the right to defend such action, Buyer and the Company
will permit Shareholders to do so (subject to Buyer's and the Company's right
to be kept currently advised and to participate in the defense) if (i) the
Shareholders' Representatives, in writing, shall have confirmed to Buyer,
without any qualifications, (other than with respect to any limitations to
Shareholders' obligations set forth herein) that such Buyer's Claim is within
the scope of the provisions of subsection 13.1.3 and (ii) the Shareholders
shall have paid such tax liability (including, without limitation, penalties,
assessments or fines) under protest, or shall have furnished an appropriate
bond or other form of security as required (but only if and to the extent so
required) by the taxing authority or pursuant to applicable law, or have taken
such other action as Buyer may reasonably request in order to prevent the
imposition of any fines, penalties, forfeitures, liens or other like charges
against Buyer and/or the Company and/or their respective assets or properties.
13.5 Other Limitations
After the Closing, Buyer will not be entitled to
indemnification with respect to any matter which arises after the date of this
Agreement if (i) such matter is disclosed in a revised schedule delivered to
Buyer at or prior to the Closing, or (ii) Buyer was fully compensated for such
matter pursuant to an adjustment in the Purchase Price pursuant to Section 2.3.
In no event shall any Shareholder be liable for any amount as a result of any
breach of a representation or warranty in Article 4 hereof or any other breach
of this Agreement by another Shareholder, unless such breach is a joint
obligation of all of the Shareholders.
- 38 -
<PAGE> 45
13.6 Sole and Exclusive Remedy
After the Closing, the indemnification provided in this
Article 13 shall be the sole and exclusive remedy of Buyer with respect to the
matters described in this Article 13 without regard to whether such matter
involves claims framed in contract, tort, equity or otherwise, provided,
however, that Buyer and Parent also shall be entitled to exercise all rights
and remedies available to them under the Registration Rights Agreement or
related to the Investor Letters.
13.7 Survivability of a Buyer's Claim
In order for Buyer to be entitled to indemnification for a
Buyer's Claim as provided for in Section 13.1, a notice of a Buyer's Claim(s)
must be submitted to the Shareholders' Representatives within eighteen (18)
months after the Closing Date; except that a Buyer's Claim asserting a
Shareholder's fraud, or related to the Shareholders' title to the Stock must be
submitted to the Shareholders' Representatives prior to the expiration of the
applicable statute of limitations.
13.8 Payment of Buyer's Claims
Any Buyer's Claims resolved in favor of Buyer shall first be paid out
of the Deferred Payment pursuant to the procedures set forth in the Escrow
Agreement, and thereafter by Shareholders. If any Buyer's Claims are
unresolved or in dispute as of the date the Deferred Payment is to be delivered
to Shareholders by Escrow Agent, Buyer may demand that Escrow Agent retain from
the Deferred Payment an amount equal to any unresolved or disputed Buyer's
Claims pending resolution.
14. INDEMNIFICATION BY BUYER AND PARENT OF SHAREHOLDERS
14.1 Scope of Indemnification
Buyer and Parent covenant and agree that, from and after the
Closing they shall indemnify, defend and hold harmless Shareholders from, for
and against any loss, damage, liability or deficiency (including without
limitation attorneys' fees and other costs and expenses incident to any suit,
action, investigation or other proceeding) arising out of or resulting from,
and will pay Shareholders on demand the full amount of any sum which
Shareholders may pay or become obligated to pay on account of, or reimburse
Shareholders for any loss suffered on account of:
14.1.1 any material inaccuracy or breach of any
representation or warranty made hereunder (as set forth in Article 6) by Buyer
or Parent;
14.1.2 any failure of Buyer or Parent to duly perform or
observe any covenant or agreement to be performed or observed hereunder on the
part of Buyer or Parent, including, but not limited to, payment or satisfaction
of the liabilities included on the Closing Financials;
14.1.3 any claim or liability of the Company to employees or
other third parties, including but not limited to any litigation or other
action, of any nature arising out of any act performed, or state of facts
suffered to exist by Buyer, Parent or the Company subsequent to the Closing
Date; and
- 39 -
<PAGE> 46
14.1.4 any claim or liability of any nature in connection
with the payment of any broker's fees, finder's fees or commission in
connection with any broker, finder or agent or anyone dealt with by Buyer in
connection herewith.
In addition, subject to the terms of this Article 14, Buyer
and Parent will indemnify and hold harmless Shareholders from, for and against
any costs and expenses (including reasonable attorneys' fees) which it may
suffer or sustain in seeking to enforce the indemnification obligation of Buyer
and Parent hereunder.
Any claim for indemnification by Shareholders pursuant to this
Section 14.1 shall hereinafter be referred to as a "Shareholders' Claim."
14.2 Notice; Tendering Defense to Shareholders
Buyer's and Parent's obligation to indemnify, defend and
reimburse Shareholders for a Third-Party Claim is subject to prior written
thirty (30) day notice by Shareholders of a Third-Party Claim unless the
Third-Party Claim involves litigation, in which case Shareholders shall provide
Buyer with notice of such litigation within ten (10) business days after
receipt of such complaint by Shareholders, and provided further, Buyer and/or
Parent shall have the right to defend, at its expense, any Third-Party Claim,
and Buyer, Parent and the Company shall have the right to control the defense,
settlement or compromise of such Third-Party Claim and Shareholders shall have
the right to be kept currently informed and to participate in all aspects of
such litigation. In no event may Buyer, Company or Parent consent to the entry
of any judgement against Shareholders or enter into any settlement or
compromise that includes any injunction, restraining order or similar
restriction on the future actions of Shareholders or that does not include, as
an unconditional term thereof, the giving by the claimant or plaintiff to the
Shareholders of a release from all liability with respect to such claim or
litigation. If Buyer, Parent and Company choose not to defend a Third-Party
Claim, they acknowledge that they may be bound by any judgment, settlement or
compromise resulting from such claim.
14.3 Buyer's Claim Basket
Other than with respect to Shareholders' Claims (a) asserting
Buyer's fraud, or (b) brought under subsections 14.1.3 or 14.1.4, Buyer's
obligations with respect to indemnity pursuant to this Article 14 shall be
limited to the extent that the aggregate of such obligations must first exceed
$100,000 after giving credit to any insurance proceeds received by Shareholders
as a result of coverage by insurance of Shareholders or the Company
("Shareholders' Claim Basket").
14.4 Survivability of a Shareholders' Claims
In order for Shareholders to be entitled to indemnification
for a Buyer's Claim as provided for in Section 14.1, a notice of a Buyer's
Claim(s) must be submitted to Stockholders within the following applicable time
limitations:
14.4.1 a Shareholders' Claim brought under Sections 14.1.1,
and 14.1.2 must be submitted to Buyer within eighteen (18) months after the
Closing Date; and
- 40 -
<PAGE> 47
14.4.2 any other Shareholders' Claim must be submitted to
Buyer prior to the expiration of the applicable statute of limitations relative
to such matter.
14.5 Sole and Exclusive Remedy
After the Closing, the indemnification provided in this
Article 14 shall be the sole and exclusive remedy of Shareholders with respect
to the matters described in this Article 14 without regard to whether such
matter involves claims framed in contract, tort, equity or otherwise, provided,
however, that Shareholders also shall be entitled to exercise all rights and
remedies available to them under the Registration Rights Agreement.
15. OBLIGATIONS AFTER CLOSING
15.1 Transition
Shareholders shall render reasonable cooperation to Buyer to
effectuate a smooth and orderly transition in the operation and conduct of the
Business following the Closing Date.
15.2 Retention of Company's Employees
15.2.1 The Company has adopted or will adopt prior to Closing
a Termination Allowance Plan No. 1, a Termination Allowance Plan No. 2
(collectively the "Plans"), and a Cash Stay Bonus Plan (the "Bonus Plan"),
drafts of which are attached hereto as Exhibit 15.2.1.
15.2.2 Payments due under the Bonus Plan shall be included in
the line-item identified as "Accrued Liabilities" on the Current Financials and
Closing Financials, and Buyer agrees to cause the Company to pay the amounts
due to employees under the Bonus Plan immediately after the Closing.
15.2.3 Buyer agrees that it shall cause the Company to
retain, on an at-will basis, all employees of the Company as of the Closing
Date. Buyer further agrees that it shall cause the Company to pay two (2)
weeks' severance pay for any employee terminated by the Company within one
hundred eighty (180) days after the Closing Date unless such employee is
terminated for "Just Cause" as defined in the Plans, in accordance with the
Plans, which payment shall not be the obligation of Shareholders. Any
additional payments required to be paid to employees by the Company pursuant to
the Plans shall be the obligation of Shareholders and shall be repaid to the
Company by Shareholders from the Deferred Payment pursuant to the Escrow
Agreement.
15.2.4 The payment of two (2) weeks' severance pay and the
payment of other benefits earned in the ordinary course of the Company's
business under the plans and programs described in Schedule 5.19 shall be the
Company's only obligations to such terminated employees.
15.3 Stub Tax Year Filing
Shareholders agree to prepare and to file, at their cost and
expense, within the applicable filing time limits all federal, state and local
tax returns of the Company for all periods
- 41 -
<PAGE> 48
prior to the Closing Date which are required to be filed and shall provide
Buyer with copies of all such returns and related work papers. Buyer shall
cause the Company to give Shareholders and their accountants reasonable access
to all records and documents Shareholders may require to fulfill their
obligations hereunder. The tax liabilities for the Short Period for Metrol
and the Subsidiaries shall be determined by closing the Company's books and
records as of the close of business on the Closing Date, by treating the Short
Period as a separate taxable year, and by employing accounting methods which
are consistent with those employed in preparing the tax returns for Metrol and
the Subsidiaries in prior taxable years and which do not have the effect of
distorting income or expenses, except that state, local or other taxes based on
items other than income or sales shall be computed for twelve (12) months
beginning January 1, 1996 by prorating on a time basis between the Short Period
and the period beginning on the date after the Closing Date and ending December
31, 1996; provided that with respect to any taxes which are not in effect
during the entire Short Period, Shareholders' allocable portion of such taxes
shall be based on the period of time during the Short Period that such tax was
in effect.
16. ARBITRATION
16.1 Submission
In the event any dispute or controversy arising out of this
Agreement (including without limitation any dispute regarding the determination
of the Final Purchase Price) or the parties' performance hereunder cannot be
settled by the parties, the parties hereby agree to resolve the controversy or
dispute by submission to arbitration in Phoenix, Arizona.
16.2 Selection of Arbitrator
In the event the parties have not agreed upon an arbitrator
within fifteen (15) business days after either party files a demand for
arbitration with the Phoenix regional office of the American Arbitration
Association ("AAA"), an arbitrator shall be appointed in accordance with the
then existing Commercial Arbitration Rules of the AAA; provided, however, that
persons eligible to be selected as an arbitrator shall be limited to attorneys
at law who (i) are on the AAA's Large, Complex Case Panel, and (ii) have
practiced law for at least fifteen (15) years as an attorney specializing in
either general commercial litigation or general corporate and commercial
matters.
16.3 Discovery
Discovery may be conducted either upon mutual consent of the
parties, or by order of the arbitrator upon good cause being shown. In ruling
on motions pertaining to discovery, the arbitrator shall consider that the
purpose of arbitration is to provide for the efficient and inexpensive
resolution of disputes, and the arbitrator shall limit discovery whenever
appropriate to ensure that this purpose is preserved.
- 42 -
<PAGE> 49
16.4 Time Requirements
The dispute or controversy shall be submitted for
determination within sixty (60) days after the arbitrator has been selected.
The arbitrator shall render his or her decision within thirty (30) days after
the conclusion of the arbitration hearing. Upon stipulation of the parties, or
upon a showing of good cause by either party, the arbitrator may lengthen or
shorten the time periods set forth herein for conducting the hearing or for
rendering a decision.
16.5 General
The award of the arbitrator shall be final and binding upon
the parties. The arbitrator shall base his or her decision on the terms of
this Agreement and applicable law and judicial precedent that a United States
District Court sitting in Arizona would apply in the event the dispute were
litigated in such court, and shall render his or her decision in writing and
include in such decision a statement of the findings of fact and conclusions of
law upon which the decision is based. Each party agrees to cooperate fully
with the arbitrator to resolve any controversy, claim or dispute. The
arbitrator shall not be empowered to award punitive damages or damages in
excess of actual damages. Judgment to enforce the arbitrator's award, whether
for legal or equitable relief, may be entered in the Superior Court of Maricopa
County, Arizona, and the parties hereto expressly and irrevocably consent to
the jurisdiction of such Court for such purpose.
16.6 Applicable Rules
The arbitrator shall conduct all proceedings pursuant to the
Uniform Arbitration Act (the "Act") as adopted in the State of Arizona and the
then existing Commercial Arbitration Rules of the AAA, to the extent such rules
are not inconsistent with the Act or the provisions of this Article 16. The
Uniform Rules of Procedure for Arbitration shall not apply to any arbitration
proceeding relating to the subject matter or terms of this Agreement.
16.7 Injunctive and Provisional Remedies
This Article 16 shall not be construed to limit or restrict
the right of any party to seek specific performance of this Agreement pursuant
to Section 11.2 hereof, obtain temporary or preliminary injunctive relief or to
seek provisional remedies from a court of competent jurisdiction under
generally applicable principles of law and equity.
17. GENERAL PROVISIONS
17.1 Publicity
All notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and between Buyer and Shareholders. All such
notices or other publicity shall, prior to publication, be approved in writing
by Buyer and a Majority in Interest of Shareholders, which approvals shall not
be unreasonably withheld.
- 43 -
<PAGE> 50
17.2 Expenses
Except as otherwise specifically provided, each party shall be
responsible for its own fees, costs and other expenses incurred in negotiating
and preparing this Agreement and in closing and carrying out the transactions
contemplated hereunder. No professional fees or other costs incurred on behalf
of Shareholders or Company (including preparation of the Closing Financials and
stub tax year filing) and associated with this transaction shall be charged to
Company or paid by Company. In addition, any such fees or costs of Company
arising out of professional services performed or costs incurred on or prior to
the Closing Date shall be the sole responsibility of Shareholders, shall be
excluded from any liabilities of Company as of the Closing Date, shall not be
included in the Current Financials or Closing Financials, and shall not be
charged to Company after the Closing Date.
17.3 Survival of Representations, Warranties and Covenants
The respective representations, warranties and covenants of
Buyer, Parent, the Company and each Shareholder made herein or in any
certificate or other document delivered pursuant to this Agreement, including
without limitation the obligations of indemnity hereunder, shall, except as
limited by Articles 13 and 14, survive the Closing Date and the consummation of
the transactions contemplated hereby, notwithstanding any examination made by
or for the party to whom such representations, warranties or covenants were
made, the knowledge of any officers, directors, shareholders, employees or
agents of the party, or the acceptance of any certificate or opinion.
17.4 Notices
All notices, requests, demands and other communications
required under this Agreement shall be in writing and shall be deemed duly
given and received (i) if personally delivered or sent by confirmed facsimile,
on the date of delivery, (ii) if mailed, three (3) days after deposit in the
United States Mail, registered or certified, return receipt requested, postage
prepaid and addressed as provided below, or (iii) if deposited with a courier
delivery service for overnight or "next- day" delivery, on the next business
day after deposit with such service, addressed as follows:
If to Shareholders: Sandler Mezzanine General
Partnership
767 Fifth Avenue
45th Floor
New York, New York 10153
Attention: Ms. Hannah C. Stone
Facsimile: 212-826-0280
Bariston Associates, Inc.
One International Place
Boston, Massachusetts 02110
Attention: John B. Frieling
Facsimile: 617-330-8951
- 44 -
<PAGE> 51
Ms. Mary Schick
630 E. Harmont Drive
Phoenix, Arizona 85020
Facsimile: None
with a copy to each of:
Edward J. O'Connell, Esq.
Dow, Lohnes & Albertson
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Facsimile: 202-776-2222
John G. Sestak, Jr., Esq.
Jennings, Strouss & Salmon, P.L.C.
2 North Central, Suite 1600
Phoenix, Arizona 85004-2393
Facsimile: 602-253-3255
If to the Company: Ms. Mary Schick
630 E. Harmont Drive
Phoenix, Arizona 85020
Facsimile: None
and
Mr. Michael G. Brady
6902 S. Butte Avenue
Tempe, Arizona 85283
Facsimile: None
with a copy to:
John G. Sestak, Jr., Esq.
Jennings, Strouss & Salmon, P.L.C.
2 North Central, Suite 1600
Phoenix, Arizona 85004-2393
Facsimile: 602-253-3255
If to Buyer or Parent: John E. Mack III, Vice President
Protection One Alarm
Monitoring, Inc.
6011 Bristol Parkway
Culver City, California 90230
Facsimile: 310-649-3855
- 45 -
<PAGE> 52
and
John W. Hesse,
Executive Vice President
Protection One, Inc.
3900 S.W. Murray Blvd.
Beaverton, Oregon 97005
Facsimile: 503-520-6099
with a copy to:
Alan L. Pepper, Esq.
Mitchell, Silberberg & Knupp LLP
11377 W. Olympic Blvd.
Los Angeles, California 90064
Facsimile: (310) 312-3798
Any party may change its above-designated address by giving the other party
written notice of such change in the manner set forth herein.
17.5 Headings
Headings contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit, extend or describe the scope
of this Agreement or of any provision hereof.
17.6 Entire Agreement: Modification
This Agreement constitutes the entire agreement among the
parties and supersedes all prior and contemporaneous agreements and
undertakings of the parties with respect to the subject matter hereof. No
supplement, modification or amendment of this Agreement shall be binding and
enforceable unless executed in writing by the parties hereto.
17.7 Waiver
No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver, and no
waiver shall be binding unless executed in writing by Buyer if it is making the
waiver or by a Majority in Interest of Shareholders if they are making the
waiver.
17.8 Exhibits
Exhibits attached hereto or contained in an accompanying book
of Exhibits and referred to in this Agreement are hereby incorporated into this
Agreement and made a part hereof.
- 46 -
<PAGE> 53
17.9 Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17.10 Governing Law; Jurisdiction
Except as expressly provided herein, this Agreement shall be
construed in accordance with, and governed by, the laws of the State of
Arizona, without regard to the application of conflicts of law principles.
17.11 Attorneys' Fees
In the event an arbitration claim, action or suit is brought
by any party hereto to enforce the terms of this Agreement, the prevailing
party shall be entitled to the payment of its reasonable attorneys' fees and
costs, as determined by the arbitrator or the judge of the court.
17.12 Parties in Interest
Nothing in this Agreement, whether expressed or implied, is
intended to confer upon any person other than the parties hereto and their
respective heirs, representatives, successors and permitted assigns, any rights
or remedies under or by reason of this Agreement, nor is anything in this
Agreement intended to relieve or discharge the liability of any party hereto,
nor shall any provision hereof give any person any right of subrogation against
or action over or against any party.
17.13 Successors in Interest
Except as otherwise provided herein, all provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
and against the respective heirs, executors, administrators, personal
representatives, successors and assigns of any of the parties to this
Agreement.
17.14 Severability
The invalidity or unenforceability of any particular
provision, or any part thereof, of this Agreement shall not affect the other
provisions hereof and this Agreement shall be continued in all respects as if
such invalid or unenforceable provision were omitted.
17.15 Further Assurances
Each party will execute and deliver such further documents and
take such further actions as may be required to carry out the intent and
purpose of this Agreement.
- 47 -
<PAGE> 54
17.16 Preparation of Escrow Agreement
Buyer and Shareholders agree to use their best efforts to
finalize the terms of the Escrow Agreement and to cause the Escrow Agreement to
be executed by the Company, Buyer, the Shareholders' Representatives, on behalf
of the Shareholders, and the Escrow Agent within five (5) business days after
the Execution Date.
17.17 Interpretation
The parties hereto agree that each party and its counsel have
reviewed this Agreement and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply in
the interpretation of this Agreement.
17.18 Joint and Several Obligations
All obligations of Buyer and/or Parent in this Agreement shall
be joint and several.
17.19 Action by the Shareholders' Representatives
Prior to the Closing Date the Shareholders Representatives
shall have proposed a methodology for resolving a disagreement between the
Shareholders' Representatives arising out of their failure to agree on taking
any action or fulfilling any obligation or covenant required of them pursuant
to this Agreement which shall be incorporated into this Agreement.
- 48 -
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first set forth above.
BUYER:
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ JOHN E. MACK
-----------------------------------------------
John E. Mack III, Vice President
COMPANY:
METROL SECURITY SYSTEMS, INC.
By: /s/ MICHAEL G. BRADY
-----------------------------------------------
Michael G. Brady, CEO
SHAREHOLDERS:
THE BUCKEY FAMILY TRUST
By: /s/ MARY SCHICK, TRUSTEE
------------------------------------------------
Mary Schick, Trustee
THE COLLINS FAMILY PARTNERSHIP
By: /s/ DAVID S. COLLINS, TRUSTEE
------------------------------------------------
David S. Collins, Trustee
GALBRI HOLDINGS, INC.
By: /s/ BRIAN O. 'N GALLERY
------------------------------------------------
Brian O. 'N Gallery, President
/s/ JACK KADIS
- ---------------------------------------------------
JACK KADIS
/s/ MARTIN C. MADDEN
- ---------------------------------------------------
MARTIN C. MADDEN
/s/ STEVEN E. WHEELER
- ---------------------------------------------------
STEVEN E. WHEELER
- 49 -
<PAGE> 56
/s/ ARNOLD ZOUSMER
- ---------------------------------------------------
ARNOLD ZOUSMER
SANDLER MEZZANINE PARTNERS, L.P.
By: Sandler Mezzanine General Partnership, General Partner
By: MJM Media Corp., General Partner
By: /s/ MICHAEL J. MAROCCO
----------------------------------------------
Michael J. Marocco, President
SANDLER MEZZANINE FOREIGN PARTNERS
By: Sandler Mezzanine General Partnership, General Partner
By: MJM Media Corp., General Partner
By: /s/ MICHAEL J. MAROCCO
----------------------------------------------
Michael J. Marocco, President
SANDLER MEZZANINE T-E PARTNERS, L.P.
By: Sandler Mezzanine General Partnership, General Partner
By: MJM Media Corp., General Partner
By: /s/ MICHAEL J. MAROCCO
----------------------------------------------
Michael J. Marocco, President
BHI ASSOCIATES IX, L.P.
By: Bariston Communications, Inc.,
General Partner
By: /s/ JOHN B. FRIELING
----------------------------------------------
John B. Frieling, Vice President
PARENT:
PROTECTION ONE, INC.
By: /s/ JOHN E. MACK, III
-----------------------------------------------------------------
John E. Mack III, Vice President
- 50 -
<PAGE> 57
Agreement for Purchase and Sale of Stock
Exhibits and Schedules List
The following Exhibits and Schedules have been omitted from this
filing, but will be furnished supplementally to the Securities and Exchange
Commission on request:
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
1.20 Escrow Agreement
1.23 Financial Statements
1.35 Registration Rights Agreement
4.6 Investment Letter
9.7 Form of Company's and Shareholders' Counsel's Opinion
Letter
10.4 Form of Buyer's and Parent's Counsel's Opinion Letter
15.2.1 Severance Plans and Cash Bonus Plan
SCHEDULES
- ---------
1.12 Company Representatives
2.3 Closing Purchase Price Calculation
3.1 Alarm Accounts List and RMR
3.2 Asset List
3.3 Customer Accounts List
3.4 Excluded Assets List
3.5 Closing Work in Process (To be delivered at Closing)
3.6 Suppliers and Open Purchase Orders (To be delivered at
Closing)
4.3 Consents Required of Shareholders
5.1 Metrol's Capital Structure
5.2 Metrol's Organization and Standing and List of
Officers and Directors of Metrol and Subsidiaries
5.4 Consents Required of Company
5.7 Absence of Specific Changes
5.11 Personal Property Leases
5.12 Alarm Systems and Equipment
5.14 Real Property Leases
5.15 Material Contracts
5.17 Litigation and Claims
5.17.5 Claims
5.19 Employee Agreements and Benefit Plans
5.20 Forms of Subscriber and Customer Agreements
5.21 Compliance with Laws
5.22 Insurance Policies
5.25 Tax Matters
</TABLE>
<PAGE> 1
Exhibit 2.2
AMENDMENT #1 TO AGREEMENT
This Amendment # 1 to Agreement dated June 28, 1996 amends
and supplements that certain Agreement for Purchase and Sale of Stock (the
"Agreement") executed as of the 23rd day of May, 1996 (the "Purchase
Agreement"), by and among the persons and entities described in Section 2.1
of the Agreement (individually a "Shareholder" and collectively, the
"Shareholders"), Metrol Security Services, Inc., a Delaware corporation
("Metrol"), Protection One Alarm Monitoring, Inc., a Delaware corporation
("Buyer"), and Protection One, Inc., a Delaware corporation ("Parent").
Capitalized terms used but not defined herein are used as defined in the
Purchase Agreement.
1. As a result of the exercise by BHI Associates IX, L.P.
("BHI") of such Shareholder's warrants to purchase shares of the Company's
common stock on a "net issue" basis:
(a) The number of shares of Stock owned by BHI as of
the Closing is 10,237.
(b) The description of the Shareholders, the number
of shares of Stock held by each Shareholder and the percent of Stock
attributable to each Shareholder set forth in Section 2.1 of the
Purchase Agreement therefore are hereby amended to the following:
<TABLE>
<CAPTION>
Shareholder Number of Shares Percent of Stock
----------- ---------------- ----------------
<S> <C> <C>
The Buckey Family Trust 287,634 52.5003
Sandler Mezzanine Partners, L.P. 141,260 25.7834
Sander Mezzanine T-E Partners, L.P. 63,330 11.5593
Sandler Mezzanine Foreign Partners, L.P. 30,410 5.5506
Steven Wheeler 2,500 0.4563
Galbri Holding, Inc. 2,500 0.4563
Collins Family Partnership 5,000 0.9126
Martin C. Madden 1,250 0.2282
Arnold Zousmer 2,500 0.4563
Jack Kadis 1,250 0.2282
BHI Associates IX, L.P. 10,237 1.8685
------- --------
TOTAL 547,871 100.0000%
</TABLE>
(c) The cash to be paid and the number of the
Parent's Shares to be issued to each Shareholder at the Closing are as
set forth on Exhibit A attached hereto.
<PAGE> 2
2. The following sentence is added at the end of subsection
2.3.3 of the Purchase Agreement:
"$60,000.00 shall be added to the Base Purchase
Price, and set forth on the Purchase Price Schedule 2.3 as "Additional
Purchase Price."
3. The Purchase Price Schedule is as shown on Schedule 2.3
attached hereto.
4. Notwithstanding anything to the contrary in the
Purchase Agreement (and in particular subsection 13.1.4(b) thereof), the
parties agree that Shareholders shall indemnify, defend and hold Buyer and
Company harmless from, for and against all liabilities, costs and expenses
incurred in connection with (i) the claims described in Items 1 through 3 on
Schedule 5.17.5 (which claims also listed as Items 1, 2 and 8 on Schedule
5.17), and (ii) any and all claims made against the Company by David G. Green
(the "Green Claim") and/or National Employment Information Services (the
"NEIS Claim"), and that all such matters are excluded from the Buyer's Claim
Basket and shall not be subject to any such "deductible"; provided, however,
that Shareholders' aggregate liability for all such matters other than the
Green Claim and the NEIS Claim shall not exceed $50,000.
SIGNATURES BEGIN ON FOLLOWING PAGE
2
<PAGE> 3
Executed this 28th day of June, 1996.
COMPANY:
METROL SECURITY SERVICES, INC.
By: /s/ MICHAEL G. BRADY
-----------------------------------------------
Michael G. Brady, Chief Executive Officer
SHAREHOLDERS:
THE BUCKEY FAMILY TRUST
By: /s/ MARY SCHICK
-----------------------------------------------
Mary Schick, Trustee
THE COLLINS FAMILY PARTNERSHIP
By: /s/ DAVID S. COLLINS
-----------------------------------------------
David S. Collins, Trustee
GALBRI HOLDINGS, INC.
By: /s/ BRIAN O. 'N GALLERY
-----------------------------------------------
Brian O. 'N Gallery, President
/s/ JACK KADIS
- --------------------------------------------------
JACK KADIS
/s/ MARTIN C. MADDEN
- --------------------------------------------------
MARTIN C. MADDEN
/s/ STEVEN E. WHEELER
- --------------------------------------------------
STEVEN E. WHEELER
/s/ ARNOLD ZOUSMER
- --------------------------------------------------
ARNOLD ZOUSMER
3
<PAGE> 4
SANDLER MEZZANINE PARTNERS, L.P.
By: Sandler Mezzanine General Partnership, General Partner
By: MJM Media Corp., General Partner
By: /s/ MICHAEL J. MAROCCO
------------------------------------------
Michael J. Marocco, President
SANDLER MEZZANINE FOREIGN PARTNERS
By: Sandler Mezzanine General Partnership, General Partner
By: MJM Media Corp., General Partner
By: /s/ MICHAEL J. MAROCCO
------------------------------------------
Michael J. Marocco, President
SANDLER MEZZANINE T-E PARTNERS, L.P.
By: Sandler Mezzanine General Partnership, General Partner
By: MJM Media Corp., General Partner
By: /s/ MICHAEL J. MAROCCO
------------------------------------------
Michael J. Marocco, President
BHI ASSOCIATES IX, L.P.
By Bariston Communications, Inc.
General Partner
By: /s/ JOHN B. FRIELING
------------------------------------------
John B. Frieling, Vice President
BUYER:
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ JOHN E. MACK, III
--------------------------------------------
John E. Mack, III,
Vice President - Business Development
PARENT:
PROTECTION ONE, INC.
By: /s/ JOHN E. MACK, III
--------------------------------------------
John E. Mack, III,
Vice President - Business Development
4
<PAGE> 5
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A - Statement of Cash and Number of Shares of Protection One,
Inc. Common Stock to be paid to each Shareholder
Schedule 2.3 - Calculation of Purchase Price
</TABLE>
Each of the above-described documents has been omitted from this
filing, but will be furnished supplmentally to the Securities and Exchange
Commission upon request.
5
<PAGE> 1
Exhibit 5.1
[MITCHELL, SILBERBERG & KNUPP LLP LETTERHEAD]
June 14, 1996
Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Re: Registration Statement on Form S-3
-- Commission File No. 333-5849
----------------------------------
Gentlemen:
We have acted as counsel for Protection One, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, pursuant to the above-captioned registration
statement, as amended (the "Registration Statement"), of the offer and sale of
up to 450,000 shares of the Common Stock, par value $.01 per share, of the
Company ("Common Stock") to be issued pursuant to an Agreement for Purchase and
Sale of Stock dated as of May 23, 1996 (the "Purchase Agreement"), among Metrol
Security Services, Inc., its securityholders, Protection One Alarm Monitoring,
Inc. and the Company. Such shares of Common Stock are hereinafter referred to
as the "Shares."
In our capacity as counsel for the Company and for purposes of this
opinion letter, we have examined the originals, or copies identified to our
satisfaction as being true copies of the originals, of the Purchase Agreement,
the Registration Statement, the Fifth Amended and Restated Certificate of
Incorporation of the Company as presently in effect, the By-laws of the Company
as presently in effect, and certain resolutions of the Board of Directors of the
Company relating the issuance and sale of the Shares and related matters. We
have also examined originals, or copies certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such instruments and documents as we have considered
necessary or appropriate to enable us to render the opinions expressed below.
In the course of our examinations and investigations, we have assumed
the legal capacity of all natural persons, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified, conformed or photostatic copies and the authenticity of the
originals of such latter documents. In making our examination of documents
executed or to be executed by parties other than the Company, we have assumed
that such parties had or will have the power, corporate, partnership or other,
to enter into and perform all obligations thereunder and we have also assumed
the due authorization by all requisite action, corporate, partnership or other,
<PAGE> 2
Protection One, Inc.
June 14, 1996
Page 2
the due execution and delivery by such parties of such documents and the
validity, binding effect and enforceability thereof. As to all facts material
to the opinions expressed herein that we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Company and others.
Based upon and subject to the foregoing, it is our opinion that the
Shares have been duly authorized, and when issued and delivered in accordance
with the terms of the Purchase Agreement will be legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion letter as an exhibit
to the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In giving such consent, we do
not hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations thereunder. The opinions expressed herein are given as of the
date hereof, and we assume no obligation to advise you of changes that may
hereafter be brought to our attention.
Very truly yours,
/s/ MITCHELL, SILBERBERG & KNUPP LLP
-------------------------------------
MITCHELL, SILBERBERG & KNUPP LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Protection One, Inc. on Form S-3 (File No. 33-05849) of our report, which
includes an explanatory paragraph with respect to a change in method of
accounting for certain subscriber account acquisition and transition costs,
dated December 12, 1995, on our audits of the consolidated financial statements
and financial statement schedule of Protection One, Inc. and Subsidiaries as of
September 30, 1995 and 1994, and for each of the three years in the period ended
September 30, 1995, which report is included in the Protection One, Inc. 1995
Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A. We
also consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Portland, Oregon
June 19, 1996
<PAGE> 1
Exhibit 24.2
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints James M. Mackenzie, Jr.
and John W. Hesse, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and re-substitution in each of them, for
him and in his name, place and stead, and in any and all capacities, to sign any
and all amendments (including post-effective amendments) to the Registration
Statement on Form S-3 (Registration No. 333-05849) of Protection One, Inc. and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Date: June 28, 1996
/s/ JAMES Q. WILSON
-----------------------
JAMES Q. WILSON
