<PAGE> 1
As filed with the Securities and Exchange Commission on December 18, 1996.
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PROTECTION ONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 93-1063818
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
---------------
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: From
time to time after the date 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]
(Facing page continued on next page)
<PAGE> 2
(Continuation of facing page)
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. [ ]_______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]_______________
____________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Shares Amount to be Aggregate Price Per Aggregate Offering Amount of
to be Registered Registered (1) Unit (2) Price (2) Registration Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 250,000 shares $9.50 $2,375,000.00 $719.70
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 250,000 shares represents the maximum number of shares expected to be
issued to the Selling Stockholder named herein in connection with the
acquisition by a wholly owned subsidiary of the Registrant of certain
assets of such Selling Stockholder. The actual number of shares
issued to the Selling Stockholder will be based on $2,000,000 divided
by an average of the closing prices of the Common Stock on the Nasdaq
National Market during a specified period prior to such acquisition,
as more fulled described herein.
(2) Pursuant to Rule 457(c) promulgated under the Securities Act of 1933,
the offering price per share, the aggregate offering price and the
registration fee were calculated based on the average of the high and
low sale prices of the Common Stock on the Nasdaq National Market on
December 17, 1996.
____________________
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> 3
EXPLANATORY NOTE
This Registration Statement on Form S-3 (the "Registration
Statement"), including the Prospectus forming a part hereof (the "Prospectus"),
relates to the offer and sale from time to time of shares of the Common Stock,
par value $.01 per share (the "Common Stock"), of Protection One, Inc. ("POI")
to be issued to Phillips Electronics, Inc. ("Phillips") in connection with the
acquisition (the "Acquisition") of certain assets of Phillips by Protection One
Alarm Monitoring, Inc., a wholly owned subsidiary of POI. Although it is a
condition precedent to the consummation of the Acquisition that the
Registration Statement be declared effective by the Securities and Exchange
Commission, no shares of Common Stock will be offered or sold by Phillips until
after the Acquisition has been consummated. Accordingly, the Prospectus has
been prepared as if the Acquisition has been consummated. No shares of Common
Stock will be issued by POI or offered or sold by Phillips if the Acquisition
is not consummated.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SECURITIES,
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
Subject to Completion - Issued December 17, 1996
PROTECTION ONE, INC.
Common Stock
($.01 par value per share)
The shares of Common Stock, $.01 par value per share ("Common Stock"),
of Protection One, Inc., a Delaware corporation ("POI"), offered hereby (the
"Shares") may be offered for sale from time to time by and for the account of
Phillips Electronics, Inc., an Oregon corporation (the "Selling Stockholder" or
"Phillips"). See "Selling Stockholder." The Selling Stockholder is acquiring
the Shares in connection with the acquisition by Protection One Alarm
Monitoring, Inc., a wholly owned subsidiary of POI ("Monitoring"), of the
security alarm accounts and certain other assets of Phillips (the "Acquisition")
pursuant to an Asset Purchase Agreement dated as of December 17, 1996 (the
"Purchase Agreement") among Monitoring, Phillips and, inter alia, the
stockholder of Phillips. Pursuant to the Purchase Agreement, the actual number
of shares of Common Stock to be issued by POI to the Selling Stockholder is
based on $2,000,000 divided by an average of the closing price of the Common
Stock on the Nasdaq National Market during the period of the 10 most recent
trading days ending on the second trading day prior to the Acquisition.
POI is registering the Shares as required by the Purchase Agreement.
POI will not receive any of the proceeds from the sale of Shares by the Selling
Stockholder, but will pay all expenses incident to this offering other than any
underwriting discounts or selling commissions, transfer taxes and fees and
expenses payable to third parties employed by the Selling Stockholder. See
"Plan of Distribution."
The distribution of the Shares by the Selling Stockholder is not
subject to any underwriting agreement. The Selling Stockholder may from time
to time offer and sell the Shares through the Nasdaq National Market System 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 or at negotiated prices, either through broker-dealers
acting as agents or brokers for the seller or through broker dealers acting as
agents or principals. Such broker-dealers may receive compensation in the form
of underwriting discounts, concessions or commissions from the Selling
Stockholder and/or the purchasers of the Shares for whom such broker-dealers
act as agent, which compensation may be in excess of customary commissions.
The price at which any Shares may be sold, and the underwriting discounts and
agent's commissions, if any, paid in connection with any such sale, are unknown
and may vary from transaction to transaction. To the extent required, the
purchase price, the name of any such underwriter, dealer or agent and
applicable underwriter's discount, dealer's purchase price or agent's
commission with respect to a particular offering, if any, will be set forth in
an accompanying supplement to this Prospectus. The aggregate net proceeds to
the Selling Stockholder from the sale of any Shares will be the price thereof
less the aggregate underwriter's discount or agent's commissions, if any. See
"Plan of Distribution."
The Selling Stockholder and any agent, broker, dealer or underwriter
that participates with the Selling Stockholder in the distribution of the
Shares may be deemed to be an "underwriter" within the meaning of 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. See "Plan of Distribution."
(Cover page continues on next page)
<PAGE> 5
(Continuation of cover page)
The Common Stock is traded on the Nasdaq National Market under the
symbol "ALRM." On December 17, 1996, the last reported sale price for the
Common Stock was $9.25 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.
The date of this Prospectus is _______________, 199__.
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN
MADE 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 POI, THE SELLING STOCKHOLDER
OR ANY UNDERWRITER, DEALER OR AGENT. 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 POI OR ITS
SUBSIDIARIES 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by POI with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), are incorporated in this
Prospectus by reference:
A. POI'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. POI's Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1995 and March 31, 1996;
C. POI's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, as amended by Amendment No. 1 on Form 10-Q/A
filed with the Commission on September 4, 1996;
D. POI's Current Reports on Form 8-K reporting events
dated December 18, 1995, May 23, 1996, September 16, 1996, October 18,
1996 and October 30, 1996;
E. POI's Current Report on Form 8-K reporting an event
dated June 7, 1996, as amended by an amendment on Form 8-K/A filed
with the Commission on July 2, 1996 and Amendment No. 2 on Form 8-K/A
filed with the Commission on August 27, 1996; and
F. The description of the Common Stock contained in
POI's Registration Statement on Form 8-A dated September 8, 1994.
All documents filed by POI pursuant to Sections 13(a), 13(c), 14 or
15(d) of 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 this Prospectus or 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.
POI 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 documents
referred to above that have been or hereafter are 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,
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<PAGE> 7
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
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Selling Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
AVAILABLE INFORMATION
POI is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected without charge and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, Suite 1400, 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 Commission also maintains a Web
Site at http://www.sec.gov. that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
The Common Stock is traded on the Nasdaq National Market (Symbol: ALRM).
Reports, proxy statements and other information concerning POI 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.
POI has filed with the Commission a Registration Statement on Form S-3
under the Securities Act with respect to the shares of Common Stock offered
hereby (including all amendments an supplements thereto, the "Registration
Statement"). This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits filed therewith, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to POI and the Common Stock offered hereby,
referenced is made to the Registration Statement and the exhibits and schedules
thereto.
Statements contained in this Prospectus as to the contents of any
agreements, instrument or other document referred to are not necessarily
complete, and with respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of such document. Each such statement
is qualified in its entirety by such reference.
3
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FORWARD-LOOKING STATEMENTS
This Prospectus and the materials incorporated by reference
herein 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. Such statements include, but are not limited to,
statements of the Company's or management's intentions, expectations, beliefs
or hopes, strategies regarding the future and statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. Forward
looking statements are inherently subject to risks and uncertainties, many of
which cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, financial and otherwise, could
differ materially from those set forth in or contemplated by the forward-
looking statements herein as a result of the factors set forth below under the
caption "Risk Factors" and elsewhere in this Prospectus and the materials
incorporated by reference herein. Each forward-looking statement set forth or
incorporated by reference in this Prospectus are based on information available
to the Company at the time such statement was made, and the Company the Company
assumes no obligation to update any such forward-looking statement.
THE COMPANY
Protection One, Inc. and its subsidiaries (collectively the "Company")
provide security alarm monitoring services for residential and small business
subscribers. 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. The Company also sells
enhanced security services, patrol and alarm response services and alarm
systems and provides local field repair services through 11 branch offices.
Enhanced security services provided by the Company include two-way voice
communication, supervised monitoring services, pager services, wireless backup
services and extended service protection. Based on the Company's 196,531
subscribers as of September 30, 1996 (approximately 80% of which are
residential), the Company believes it is the fourth largest residential
security alarm monitoring company in the United States and the largest in the
seven western states of Arizona, California, Nevada, New Mexico, Oregon, Utah
and Washington.
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 systems dealers with whom the Company
has exclusive purchase agreements (the "Dealer Program"), acquisitions of
portfolios of subscriber accounts, the sale of enhanced security services and
new alarm systems and possible joint ventures and other strategic alliances.
The Company's executive offices are located at 6011 Bristol Parkway,
Culver City, California 90230 and its telephone number is 310-338- 6930.
Protection One(R) is a trademark of Protection One, Inc.
4
<PAGE> 9
RISK FACTORS
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
September 30, 1996, the Company's consolidated indebtedness was $225.7 million
(excluding $0.8 million of contingent reimbursement obligations under
outstanding letters of credit), and Monitoring had unused borrowing capacity
under its revolving credit facility (the "Revolving Credit Facility") of $94.7
million. (POI is a holding company with no operations of its own and no
significant assets other than POI's ownership of the capital stock of
Monitoring.) Future additions of subscriber accounts through the purchases
from Company's independent dealers (the "Dealer Program") and future
acquisitions of subscriber account portfolios will require additional
borrowings under Monitoring's revolving credit facility (the "Revolving Credit
Facility"), thereby further increasing the Company's leverage. See "-- Risks
Related to Acquisitions." All borrowings then outstanding under the Revolving
Credit Facility are currently due in full on January 3, 2000. Although
Monitoring believes that it will be able to obtain further 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 present maturity
date, there can be no assurance that Monitoring will be able to do so.
Monitoring will be required to make semiannual cash payments of
interest on Monitoring's 6-3/4% Convertible Senior Subordinated Notes due 2003
(the "Convertible Notes") of $3.5 million beginning March 15, 1997; in
addition, the principal amount of Monitoring's 13-5/8% Senior Subordinated
Discount Notes due 2005 (the "Discount Notes") will accrete in value until June
30, 1998, and Monitoring will be required to make cash payments of interest on
the Discount Notes beginning on December 31, 1998. Based on the Discount
Notes' interest rate of 13-5/8%, such interest payment will be $11.3 million
semiannually, or $22.6 million per year. There can be no assurance that
Monitoring's cash flows from operations will be sufficient to make the required
interest payments on the Convertible Notes, the Discount Notes and borrowings
under the Revolving Credit Facility.
The indentures pursuant to which the Convertible Notes and the
Discount Notes were issued (the "Convertible Notes Indenture" and the "Discount
Notes Indenture," respectively ) do not provide for any current amortization of
principal or require the establishment of any reserves or sinking funds in
respect of the payment of principal. As a result, Monitoring will be required
to repay the full principal amount of the Convertible Notes ($103.5 million) on
September 15, 2003 and the full principal amount of the Discount Notes ($166.0
million) on June 30, 2005. There can be no assurance that Monitoring will have
the cash necessary to repay the Convertible Notes and the Discount Notes at
maturity or will be able to refinance such obligations.
Monitoring's ability to pay the principal of and interest on the
Convertible Notes and the Discount Notes and continue to service its other
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
Discount Notes Indenture, the agreement governing the Revolving Credit Facility
(the "Credit Agreement") and, to a lesser extent, the Convertible Notes
Indenture 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 Convertible Notes or the Discount
Notes or the lenders under the Revolving Credit Facility to accelerate the
maturity of Monitoring'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
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 Convertible Notes Indenture, the Discount Notes Indenture
and the Credit Agreement contain, and are expected to continue
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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)
Monitoring'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 fiscal 1992-1996 period, the Company completed 117 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 Dealer Program is anticipated to be an increasingly
important component of the Company's growth, 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; thus, in making acquisitions the Company
generally 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 damages from the seller in an amount sufficient to fully
compensate the Company for any resulting losses. The Company expects that
future acquisitions will present at least 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 $15.7 million for fiscal 1996, $18.5 million for 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
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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 and fiscal
1996, the Company increased its emphasis on the Dealer Program, which became a
more significant source of growth than in prior years. The Company expects
that this emphasis will continue. 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 dealers generated 45.2% of the total subscriber accounts
purchased by the Company through the Dealer Program in the fiscal 1996. The
loss of any of such dealers would negatively impact the Company's subscribers,
revenues and cash flows from operations.
Need for Additional Capital. In fiscal 1995 and fiscal 1996, the
Company spent a total of $167.0 million in investing activities, including
acquisitions of portfolios of subscriber accounts and purchases of subscriber
accounts through the Dealer Program. Net cash provided by operating activities
during such period totaled $32.6 million, and 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. 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 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 its subscribers, revenues and cash
flows from operations. 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 and system of financial and internal controls. 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 seeks to withhold a portion of
the purchase price as a partial reserve against excess subscriber attrition.
If the actual attrition rate for the accounts acquired is greater than the 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 or results of operations. There can be no
assurance that the Company will be able to obtain purchase price holdbacks in
future acquisitions, particularly acquisitions of large portfolios. 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
7
<PAGE> 12
acquired accounts are prepaid on an annual, semiannual or quarterly basis,
attrition may not become evident for some time after an acquisition is
consummated.
At September 30, 1996, the cost of subscriber accounts and intangible
assets, net of previously accumulated amortization, was $257.4 million, which
constituted 88.7% 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 19.3% and 18.3% for fiscal 1995 and
fiscal 1996, respectively. The Company offsets gross attrition by adding new
accounts from subscribers who move into premises previously occupied by Company
subscribers and in which security alarm systems are installed, conversions of
accounts that were previously monitored by other alarm companies to the
Company's monitoring services 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. 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 and financial condition 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, fiscal 1995 and fiscal 1996. See "--Risks Related to Acquisitions." In
addition, during those periods the Company reduced 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 improve operating results during the three years ended
September 30, 1996. The Company does not expect to further reduce sales of new
systems by Company personnel and related marketing expenditures in fiscal 1997.
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,
particularly in connection with a joint venture or other strategic alliance;
any such increase could adversely affect results of operations. The Company
anticipates that subscriber accounts added through the co-branded program with
PacifiCorp will be purchased through the Dealer Program rather than generated
through sales of new alarm systems by Company personnel.
Possible Adverse Effect of "False Alarm" Ordinances. According to
certain data concerning the residential security alarm market prepared in
December 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
8
<PAGE> 13
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 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 restitution to subscribers in the amount of
$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 adverse effect on the Company.
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
9
<PAGE> 14
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 in the seven western states in which the Company operates.
Accordingly, the performance of the Company may be adversely affected by
regional or local economic conditions.
As a result of acquisitions or strategic alliances, the Company may
from time to time expand its operations into regions outside of the Company's
current operating area. The acquisition of subscriber accounts in other
regions, or in metropolitan areas in which the 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.
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.
Effect of Change of Control, Fundamental Change and Delaware
Anti-takeover Law. At the option of the holders of the Convertible Notes,
Monitoring is required to purchase the Convertible Notes at a price initially
equal to 106.75% of the principal amount thereof plus accrued and unpaid
interest upon the occurrence of any "Fundamental Change" as defined in the
Convertible Notes Indenture. In addition, 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 Discount Notes 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 Discount Notes Indenture. A "Fundamental Change" and a
"Change of Control" also constitute events of default under the Revolving
Credit Facility. If such an 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
10
<PAGE> 15
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, without
further stockholder approval, may issue preferred stock, which could have the
effect of delaying, deferring or preventing a change in control of POI. 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.
Shares Eligible for Future Sale. Of the 13,466,671 shares of Common
Stock outstanding at December 15, 1996, 9,797,136 shares were freely
tradeable in the public market without any restriction whatsoever, an
additional 2,950,000 shares were eligible for sale subject to the
volume limitations of Rule 144 under the Securities Act and 719,935
additional shares were subject to contractual restrictions on transfer expiring
on January 6, 1997. In addition, as of December 15, 1996, (i) an aggregate of
5,766,017 shares of Common Stock were issuable after December 19, 1996 upon
conversion of the Convertible Notes at a conversion price of $17.95 per share,
(ii) an aggregate of 1,351,158 shares of Common Stock were issuable upon the
exercise of outstanding warrants with a weighted average exercise price of
$3.19 per share, (iii) an aggregate of 1,272,060 shares of Common Stock were
issuable upon the exercise of outstanding options and management performance
warrants with a weighted average exercise price of $5.79 per share, and (iv) an
aggregate of 34,265 shares were issuable in connection with certain
acquisitions of portfolios of alarm accounts, all of which shares are currently
registered for sale or resale under the Securities Act. Certain stockholders
of the Company also have certain demand and "piggyback" registration rights
pursuant to a stockholders' agreement among such stockholders and POI. Sales
and potential sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market price of the Common Stock.
Dividend Policy, Restrictions on Dividends. POI has never paid any
cash dividends on the Common Stock and does not intend to pay any cash
dividends in the foreseeable future. POI is dependent upon the receipt of
dividends or other distributions from Monitoring to fund POI's operations, and
the Credit Agreement and the Discount Notes Indenture restrict POI's ability to
declare or pay any dividend on, or make any other distribution in respect of,
the Common Stock and do not permit distributions from Monitoring to POI other
than for certain specified purposes.
Possible Volatility of Prices of the Common Stock. 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 prices of the Common Stock may be significantly affected by quarterly
variations in the Company's operating results, 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. Due to all
of the foregoing factors, it is likely that the Company's operating results
will fall below the expectations of the Company, securities analysts or
investors in some future quarter. In such event, the trading price of the
Common Stock would likely be materially and adversely affected.
11
<PAGE> 16
THE ACQUISITION
On December 17, 1996, Monitoring entered into the Purchase Agreement,
which provides for the acquisition by Monitoring of the security alarm
accounts, equipment, telephone lines and certain other assets of Phillips.
Pursuant to the Purchase Agreement, in consideration of the Acquisition,
Monitoring (i) will assume certain operating obligations of Phillips, (ii) will
pay to Phillips approximately $12.5 million in cash, 11.6% of which will be held
in escrow for 90 days pending certain purchase price adjustments, (iii) will
deliver to Phillips that number of shares of Common Stock equal to $2,000,000
divided by an average of the closing price of the Common Stock on the Nasdaq
National Market during the period of the 10 most recent trading days ending on
the second trading day prior to the Acquisition. Pursuant to the Purchase
Agreement, the consummation of the Acquisition is conditioned upon, among other
things, the Registration Statement having been declared effective by the
Commission. The parties anticipate that the Acquisition will be consummated on
or shortly after the date on which the Registration Statement is so declared
effective.
In connection with the Acquisition, POI and the Selling Stockholder
entered into Registration Rights Agreement (the "Registration Rights
Agreement") that provides for the filing of the Registration Statement of which
this Prospectus is a part and for the payment by POI of the expenses incurred
in connection therewith, other than underwriting discounts and selling
commissions, if any, transfer taxes and fees and expenses payable to third
parties employed by the Selling Stockholder.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale from time to
time of any of the Shares. All proceeds from the sale of the Shares will be
for the account of the Selling Stockholder, as described below. See "Selling
Stockholder" and "Plan of Distribution."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of POI 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 December 15, 1996, there were 13,466,671 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 of POI 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 of POI 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 of POI 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 POI, the assets of
POI 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 POI 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 outstanding shares of Common Stock are fully paid
and nonassessable.
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, Seattle, Washington.
12
<PAGE> 17
PREFERRED STOCK
POI is authorized to issue up to an aggregate of 5,000,000 shares of
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 of
POI. 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 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 POI. As of the
date of this Prospectus, there are no shares of Preferred Stock outstanding,
and POI has no present intention to issue any additional such shares.
DELAWARE ANTI-TAKEOVER LAW
POI 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.
SELLING STOCKHOLDER
All of the Shares are owned, and may offered and sold from time to
time, by the Selling Stockholder. The Selling Stockholder has advised the
Company that as of the date of this Prospectus, the Selling Stockholder does
not own any shares of Common Stock other than the Shares and that if all of the
Shares are sold as described herein, the Selling Stockholder will not own any
shares of Common Stock.
The parties to the Purchase Agreement have agreed that upon
consummation of the Acquisition, a company formed by the Selling Stockholder
will become a participant in the Company's independent dealer program. Subject
to the foregoing and except for the transactions contemplated by the Purchase
Agreement, the Selling Stockholder has not had any material relationship with
the Company or any of its affiliates within the three-year period ending on the
date of this Prospectus.
PLAN OF DISTRIBUTION
The Selling Stockholder may from time to time sell the shares of
Common Stock covered by this Prospectus in one or more of the following
transactions: (i) to underwriters who will acquire the shares
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<PAGE> 18
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; (ii) 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 (iii) directly or indirectly through
brokers or agents in private sales at negotiated prices, or in any combination
of such methods of sale. This Prospectus may be supplemented or amended from
time to time to describe a specific plan of distribution.
In connection with the distribution of the Shares or otherwise, the
Selling Stockholder may: (a) enter into hedging transactions with
broker-dealers or other financial institutions, and 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 the Selling Stockholder; (b) sell shares of Common Stock short and
redeliver the Shares to close out such short positions; and/or (c) enter into
option or other transactions with broker-dealers or other financial
institutions that require the delivery to such broker-dealer or other financial
institution of the Shares, which Common Stock such broker-dealer or other
financial institution may (subject to any applicable transfer restriction
contained in an agreement between the Selling Stockholder and the Company)
resell pursuant to this Prospectus as supplemented or amended to reflect such
transaction. The Selling Stockholder also may loan or pledge the Shares to a
broker-dealer or other financial institution and, upon a default, such broker-
dealer or other financial institution may effect sales of the pledged Shares
pursuant to this Prospectus as supplemented or amended to reflect such
transaction. In addition to the foregoing, the Selling Stockholder may, from
time to time, enter into other types of hedging transactions.
Underwriters participating in any offering may receive underwriting
discounts and commissions, 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, all in
amounts to be negotiated in connection with sales pursuant hereto. The
underwriter, agent or dealer utilized in the sale of Common Stock will not
confirm sales to accounts of which such persons exercise discretionary
authority. In effecting sales of the Shares, brokers or dealers engaged by the
Selling Stockholder may arrange for other brokers or dealers to participate.
Brokers or dealers may receive compensation in the form of commissions or
discounts from the Selling Stockholder and may receive commission from the
purchases of Shares for whom such broker-dealers may act as agents, all in
amounts to be negotiated, including immediately prior to the sale.
The Selling Stockholder and all underwriters, 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 profit on the sale of such Shares by such stockholders, and all
discounts, commissions or concessions received by such underwriters, dealers or
agents, if any (whether received from the Selling Stockholder 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 engage in transactions with, or perform services for, with the
Company and its affiliates in the ordinary course of business.
Upon POI being notified by the Selling Stockholder that any
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(s) of the
participating underwriters, dealers or agents, the aggregate amount of Shares
being so offered and the terms of the offering, including all underwriting
discounts, commissions and other items constituting compensation from, and the
resulting net proceeds to, the Selling Stockholder, all discounts, commissions
or concessions allowed or re-allowed or paid to
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<PAGE> 19
dealers, if any, and, if applicable, the purchase price to be paid by any
underwriter for shares of Common Stock purchases from the Selling Stockholder.
The Selling Stockholder 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 Stockholder.
Shares that qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for POI by Mitchell, Silberberg & Knupp LLP, Los
Angeles, California.
EXPERTS
The consolidated balance sheets of Protection One, Inc. and
subsidiaries as of September 30, 1995 and 1994 and the related consolidated
statements of operations, cash flows and changes in stockholders' equity
(deficit) 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, which includes an explanatory paragraph with respect to
a change in method of accounting for certain subscriber account acquisition and
transition costs, of Coopers & Lybrand L.L.P., independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Metrol Security Services,
Inc. and its subsidiaries as of December 31, 1995, 1994 and 1993, and for each
of the years in the three-year period ended December 31, 1995, have been
included herein and in the Registration Statement in reliance on the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
Nature of Expense
-----------------
<S> <C> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 719.70
Legal (Including blue sky) fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . 3,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500.00
----------
Total $ 8,219.70
==========
</TABLE>
All of the foregoing expenses other than the SEC registration fee are
estimates.
Item 15. Indemnification of Directors of and Officers.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") 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 Fifth Restated
Certificate of Incorporation of the Registrant, as amended (the "Certificate of
Incorporation") provides that the Registrant shall indemnify its directors and
officers to the fullest extent permitted the DGCL.
The Certificate of Incorporation also provides, as permitted by
Section 102(b) of the DGCL, 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.
The Registrant maintains a directors and officers liability insurance
policy providing for the insurance on behalf of any person who is or was a
director or officer of the Registrant and its subsidiary companies against any
liability incurred by such person in any such capacity or arising out of such
person's status as such. The insurer's limit of liability under the policy is
$5 million in the aggregate for all insured
II-1
<PAGE> 21
losses. The policy contains various reporting requirements and is subject to
certain exclusions and limitations.
Item 16. Exhibits.
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement dated as of December 17, 1996, among
Protection One Alarm Monitoring, Inc. and, inter alia,
Phillips Electronics, Inc. ("Phillips Electronics")*
4.1 Fifth Restated Certificate of Incorporation of Protection One,
Inc. ("POI"), as amended (1)
4.2 Bylaws of POI, as amended (2)
4.3 Registration Rights Agreement dated as of December 17, 1996,
between POI and Phillips Electronics*
5.1 Opinion of Mitchell, Silberberg & Knupp LLP*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of KPMG Peat Marwick LLP*
23.3 Consent of Mitchell, Silberberg & Knupp LLP (included in
Exhibit 5.1)*
24.1 Power of attorney (included on signature page)
_______________
* To be filed by amendment.
(1) Incorporated by reference to Exhibit 3.1 to the Annual Report
on Form 10-K filed by Protection One, Inc. for the year ended
September 30, 1994.
(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. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement.
II-2
<PAGE> 22
(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 this
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission 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 purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the Registrant is a foreign private issuer, to file a
post-effective amendment to the Registration Statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the Registrant includes in the prospectus, by means
of a post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
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 of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 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 Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Beaverton, State of Oregon, on December 17,
1996.
PROTECTION ONE, INC.
By: JOHN W. HESSE
------------------------------------
John W. Hesse
Executive Vice President
and Chief Financial Officer
Power of Attorney. KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below 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 and each with power to act alone, for the undersigned and in
his name, place and stead, and in any and all capacities, to sign and execute
any and all amendments (including post-effective amendments) to this
Registration Statement on Form S-3 and to file the same with all exhibits
thereto, and all 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.
Pursuant to the requirements of the Securities Act of 1933, this
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>
JAMES M. MACKENZIE, JR.
President, Chief Executive December 17, 1996
- ---------------------------------------
James M. Mackenzie, Jr. Officer and Director
JOHN W. HESSE
Executive Vice President, December 17, 1996
- ---------------------------------------
John W. Hesse Chief Financial Officer
(principal financial officer)
and Secretary
ROBERT M. CHEFITZ
Director December 17, 1996
- ----------------------------------------
Robert M. Chefitz
BEN ENIS
Director December 17, 1996
- ----------------------------------------
Ben Enis
JAMES Q. WILSON
Director December 14, 1996
- ----------------------------------------
James Q. Wilson
</TABLE>
II-4
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.1 Asset Purchase Agreement dated as of December 17, 1996, among
Protection One Alarm Monitoring, Inc. and, inter alia, Phillips
Electronics, Inc. ("Phillips Electronics")*
4.1 Fifth Restated Certificate of Incorporation of Protection One,
Inc. ("POI"), as amended (1)
4.2 Bylaws of POI, as amended (2)
4.3 Registration Rights Agreement dated as of December 17, 1996,
between POI and Phillips Electronics*
5.1 Opinion of Mitchell, Silberberg & Knupp LLP *
23.1 Consent of Coopers & Lybrand L.L.P. *
23.2 Consent of KPMG Peat Marwick LLP *
23.3 Consent of Mitchell, Silberberg & Knupp LLP
(included in Item 5.1) *
</TABLE>
_______________
* To be filed by amendment.
(1) Incorporated by reference to Exhibit 3.1 to the Annual Report
on Form 10-K filed by Protection One, Inc. for the year ended
September 30, 1994.
(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.
II-5
