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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 20, 1996
Commission File Number: 0-24780 Commission File Number: 33-73002-01
PROTECTION ONE, INC. PROTECTION ONE ALARM MONITORING, INC.
6011 Bristol Parkway 6011 Bristol Parkway
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Delaware Delaware
(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
93-1063818 93-1064579
(I.R.S. employer identification no.) (I.R.S. employer identification no.)
6011 Bristol Parkway 6011 Bristol Parkway
Culver City, California 90230 Culver City, California 90230
(Address of principal executive (Address of principal executive
offices, including zip code) offices, including zip code)
(310) 338-6930 (310) 338-6930
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
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Item 5. Other Events.
(a) Public Offering; Shares Outstanding. On September 20,
1996, Protection One Alarm Monitoring, Inc. ("Monitoring") completed an
underwritten public offering of $90 million aggregate principal amount of
Monitoring's 6-3/4% Convertible Senior Subordinated Notes due 2003 (the
"Convertible Notes") that was registered under the Securities Act of 1933, as
amended. On October 11, 1996, Monitoring issued an additional $13.5 million
aggregate principal amount of Convertible Notes in connection with the exercise,
in full, of the underwriters' over-allotment option. The net proceeds to
Monitoring of the offering, including the exercise of the over-allotment option,
were $99.6 million and were used to repay indebtedness outstanding under
Monitoring's revolving credit facility (the "Revolving Credit Facility") and for
general corporate purposes. The Convertible Notes are listed on the New York
Stock Exchange and trade under the symbol "ALRM 03."
The Convertible Notes were issued pursuant to that certain
Subordinated Debt Shelf Indenture dated as of August 29, 1996, among
Monitoring, Monitoring's parent Protection One, Inc. ("POI") and State Street
Bank and Trust Company, as Trustee, as supplemented and amended by a
Supplemental Indenture No. 1 dated as of September 20, 1996 (the "Supplemental
Indenture"). A copy of the Supplemental Indenture, which sets forth the terms
and form of the Convertible Notes, is attached hereto as Exhibit 4.1.
The Convertible Notes are fully and unconditionally guaranteed
by POI and are convertible into shares of the Common Stock, par value $.01 per
share ("Common Stock"), of POI at an initial price of $17.95 per share. At
October 16, 1996, there were 13,466,671 shares of Common Stock outstanding.
(b) Amendment of Credit Agreement. In connection with the
public offering of the Convertible Notes, the credit agreement governing the
Revolving Credit Facility was amended pursuant to the Consent and First
Amendment to Amended and Restated Credit Agreement dated September 16, 1996
among Monitoring, Heller Financial Inc. as Agent and lender and the other
lenders signatory thereto. A copy of said Consent and First Amendment is
attached as Exhibit 10.1 to this Current Report.
(c) PacifiCorp Agreement. On October 11, 1996, Monitoring
and PacifiCorp, a Portland-based utility ("PacifiCorp"), entered into an
agreement (the "PacifiCorp Agreement") pursuant to which Monitoring will offer
security alarm systems and monitoring services under a Protection One/PacifiCorp
"co-brand" (the "Co-Branded Program") to PacifiCorp's residential and small
business customers in PacifiCorp's service territories in the western United
States. Prospective subscribers generated through the Co-Branded Program's
marketing efforts, which may include television, radio and print advertising
displaying the co-brand, will be referred to participants in Monitoring' dealer
program, and Monitoring will purchase, subject to its customary due diligence,
the monitoring contracts obtained by the dealers in connection with the sale and
installation of the co-branded alarm system. Under the terms of the PacifiCorp
Agreement, Monitoring will remit to PacifiCorp a percentage of the monthly
recurring revenue from the subscriber accounts created in connection with the
use of PacifiCorp's trademarks, trade names and logos.
(d) Cautionary Statement. In connection with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, POI
and Monitoring (together and including
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Monitoring's subsidiaries, the "Company") are hereby filing, as Exhibit 99.1 to
this Current Report, which exhibit is incorporated herein by this reference, a
cautionary statement identifying important factors that could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company, whether oral
or written. Such cautionary statement also updates certain additional risk
factors contained or incorporated by reference in certain shelf registration
statements of the Company.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
4.1 Supplemental Indenture No. 1 dated as of September 20, 1996, among
Monitoring, POI and State Street Bank and Trust Company, as Trustee.
10.1 Consent and First Amendment to Credit Agreement dated as of September
16, 1996, among Monitoring, Heller Financial Inc. as Agent and lender
and the other lenders signatory thereto
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
3
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, each Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
PROTECTION ONE, INC.
PROTECTION ONE ALARM MONITORING, INC.
October 18, 1996 By: JOHN W. HESSE
--------------------------------
John W. Hesse
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
4.1 Supplemental Indenture No. 1 dated as of September 20, 1996,
among Protection One Alarm Monitoring, Inc. ("Monitoring"),
Protection One, Inc. and State Street Bank and Trust Company,
as Trustee
10.1 Consent and First Amendment to Credit Agreement dated as of
September 16, 1996, among Monitoring, Heller Financial Inc.
as Agent and lender and the other lenders signatory thereto
99.1 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
</TABLE>
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EXHIBIT 4.1
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PROTECTION ONE ALARM MONITORING, INC.,
as Issuer
PROTECTION ONE, INC.,
as Parent Company
and
STATE STREET BANK AND TRUST COMPANY,
as Trustee
___________________________________________
Supplemental Indenture No. 1
Dated as of September 20, 1996
___________________________________________
$90,000,000
6 3/4% Convertible Senior Subordinated Notes due 2003
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE ONE
Relation to Subordinated Indenture; Definitions;
Amendments to Subordinated Indenture
SECTION 1.01 Relation to Subordinated Indenture . . . . . . . . 2
SECTION 1.02 Definitions . . . . . . . . . . . . . . . . . . . 2
SECTION 1.03 Amendments to Subordinated Indenture . . . . . . . 9
ARTICLE TWO
The Series of Notes
SECTION 2.01 Title of the Securities . . . . . . . . . . . . . 11
SECTION 2.02 Limitation on Aggregate Principal Amount;
Dates of Notes . . . . . . . . . . . . . . . . . . 11
SECTION 2.03 Form and Denomination of Notes . . . . . . . . . . 11
SECTION 2.04 Date of Notes; Payments of Interest . . . . . . . 12
SECTION 2.05 Place of Payment . . . . . . . . . . . . . . . . . 14
SECTION 2.06 Method of Payment . . . . . . . . . . . . . . . . 14
SECTION 2.07 Registrar and Paying Agent . . . . . . . . . . . . 14
ARTICLE THREE
Redemption of Notes
SECTION 3.01 Redemption Prices . . . . . . . . . . . . . . . . 15
SECTION 3.02 Notice of Redemption; Selection of Notes . . . . . 15
SECTION 3.03 Payment of Notes Called for Redemption . . . . . . 17
SECTION 3.04 Conversion Arrangement on Call for Redemption . . 18
SECTION 3.05 Redemption at Option of Holders . . . . . . . . . 19
ARTICLE FOUR
Conversion of Notes
SECTION 4.01 Right to Convert . . . . . . . . . . . . . . . . . 22
SECTION 4.02 Exercise of Conversion Privilege; Issuance
of Common Stock on Conversion; No Adjustment for
Interest or Dividends . . . . . . . . . . . . . . 22
SECTION 4.03 Cash Payments in Lieu of Fractional Shares . . . . 24
SECTION 4.04 Conversion Price . . . . . . . . . . . . . . . . . 24
SECTION 4.05 Adjustment of Conversion Price . . . . . . . . . . 24
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 4.06 Effect of Reclassification, Consolidation,
Merger or Sale . . . . . . . . . . . . . . . . . . 36
SECTION 4.07 Taxes on Shares Issued . . . . . . . . . . . . . . 37
SECTION 4.08 Reservation of Shares; Shares to Be Fully Paid;
Compliance with Governmental Requirements; Listing of
Common Stock . . . . . . . . . . . . . . . . . . . 37
SECTION 4.09 Responsibility of Trustee . . . . . . . . . . . . 38
SECTION 4.10 Notice to Holders Prior to Certain Actions . . . . 38
SECTION 4.11 Conversion Agent . . . . . . . . . . . . . . . . . 39
ARTICLE FIVE
Certain Covenants
SECTION 5.01 Office of the Parent Company . . . . . . . . . . . 39
SECTION 5.02 Limitation on Senior Subordinated Indebtedness . . 40
SECTION 5.03 Limitation on Senior Indebtedness . . . . . . . . 40
SECTION 5.04 Issuance of Certain Subsidiary Guarantees. . . . . 40
ARTICLE SIX
Subordination of Notes
SECTION 6.01 Notes Subordinated to Senior Indebtedness . . . . 41
SECTION 6.02 No Payment on Securities or Coupons in Certain
Circumstances . . . . . . . . . . . . . . . . . . 41
SECTION 6.03 Payment over of Proceeds upon Dissolution, Etc. . 43
SECTION 6.04 Subrogation . . . . . . . . . . . . . . . . . . . 44
SECTION 6.05 Obligations of the Issuer Unconditional . . . . . 45
SECTION 6.06 Notice to Trustee . . . . . . . . . . . . . . . . 45
SECTION 6.07 Reliance on Judicial Order or Certificate of
Liquidating Agent . . . . . . . . . . . . . . . . 46
SECTION 6.08 Trustee's Relation to Senior Indebtedness . . . . 46
SECTION 6.09 Subordination Rights Not Impaired by Acts
or Omissions of the Issuer or Holders
of Senior Indebtedness . . . . . . . . . . . . . . 47
SECTION 6.10 Holders Authorize Trustee to Effectuate
Subordination of the Notes . . . . . . . . . . . 47
SECTION 6.11 Not to Prevent Events of Default . . . . . . . . . 47
SECTION 6.12 Trustee's Compensation Not Prejudiced . . . . . . 47
SECTION 6.13 No Waiver of Subordination Provisions . . . . . . 47
SECTION 6.14 Payments May Be Paid Prior to Dissolution . . . . 48
ARTICLE SEVEN
Subordination of Note Guarantees
SECTION 7.01 Note Guarantees Subordinated to Guarantor
Senior Indebtedness . . . . . . . . . . . . . . . 48
SECTION 7.02 No Payment on Note Guarantees in
Certain Circumstances . . . . . . . . . . . . . . 49
</TABLE>
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iii
<TABLE>
<S> <C> <C>
SECTION 7.03 Payment over of Proceeds upon Dissolution, Etc. . . 50
SECTION 7.04 Subrogation . . . . . . . . . . . . . . . . . . . 51
SECTION 7.05 Obligations of Guarantors Unconditional . . . . . 52
SECTION 7.06 Notice to Trustee . . . . . . . . . . . . . . . . 53
SECTION 7.07 Reliance on Judicial Order or Certificate of
Liquidating Agent . . . . . . . . . . . . . . . . 54
SECTION 7.08 Trustee's Relation to Guarantor
Senior Indebtedness . . . . . . . . . . . . . . . 54
SECTION 7.09 Subordination Rights Not Impaired by Acts
or Omissions of Guarantors or Holders
of Guarantor Senior Indebtedness . . . . . . . . . 54
SECTION 7.10 Holders Authorize Trustee to Effectuate
Subordination of Note Guarantees . . . . . . . . 54
SECTION 7.11 Not to Prevent Events of Default . . . . . . . . . 55
SECTION 7.12 Trustee's Compensation Not Prejudiced . . . . . . 55
SECTION 7.13 No Waiver of Subordination Provisions . . . . . . 55
SECTION 7.14 Payments May Be Paid Prior to Dissolution . . . . 55
ARTICLE EIGHT
Miscellaneous Provisions
SECTION 8.01 Ratification of Subordinated Indenture . . . . . . 56
SECTION 8.02 Supplemental Indenture . . . . . . . . . . . . . . 56
SECTION 8.03 Governing Law . . . . . . . . . . . . . . . . . . 56
SECTION 8.04 Counterparts . . . . . . . . . . . . . . . . . . . 57
SECTION 8.05 Effect of Headings . . . . . . . . . . . . . . . . 57
</TABLE>
EXHIBIT A
FORM OF FACE OF NOTE
FORM OF REVERSE OF NOTE
ABBREVIATIONS
CONVERSION NOTICE
ASSIGNMENT
OPTION TO ELECT REPAYMENT UPON A FUNDAMENTAL CHANGE
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THIS SUPPLEMENTAL INDENTURE NO. 1, dated as of September 20,
1996 between PROTECTION ONE ALARM MONITORING, INC., a Delaware corporation (the
"Issuer"), PROTECTION ONE, INC., a Delaware corporation (the "Parent Company"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as
trustee (the "Trustee") (the "Supplemental Indenture").
W I T N E S S E T H :
WHEREAS, the Issuer has duly authorized the creation of an
issue of 6 3/4% Convertible Senior Subordinated Notes due 2003 (the "Notes"),
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Issuer has duly authorized the execution and delivery of an
Indenture dated as of August 29, 1996 providing for the issuance from time to
time of unsecured debentures, notes or other evidences in one or more series
(the "Securities") of the Issuer (the "Subordinated Indenture") and the
execution and delivery of this Supplemental Indenture;
WHEREAS, Sections 2.01 and 2.03 of the Subordinated Indenture
provide for various matters with respect to any series of Securities issued
under the Subordinated Indenture to be established in an indenture supplemental
to the Subordinated Indenture;
WHEREAS, Section 8.01(e) of the Subordinated Indenture
provides for the Issuer and the Trustee to enter into an indenture supplemental
to the Subordinated Indenture to establish the forms or terms of Securities of
any series as permitted by Sections 2.01 and 2.03 of the Subordinated
Indenture;
WHEREAS, the Board of Directors of the Issuer has duly adopted
resolutions authorizing the Issuer to execute and deliver this Supplemental
Indenture; and
WHEREAS, all the conditions and requirements necessary to make
this Supplemental Indenture, when duly executed and delivered, a valid and
binding agreement in accordance with its terms and for the purposes herein
expressed, have been performed and fulfilled;
NOW, THEREFORE:
In consideration of the premises and the purchase of the
series of Securities provided for herein by the Holders thereof, the Issuer,
the Parent Company and the Trustee mutually covenant and agree for the equal
and proportionate benefit of all Holders of the Securities or of any series
thereof, as follows:
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2
ARTICLE ONE
Relation to Subordinated Indenture; Definitions;
Amendments to Subordinated Indenture
SECTION 1.01 Relation to Subordinated Indenture.
This Supplemental Indenture constitutes an integral part of
the Subordinated Indenture and all references to "this Indenture" in this
Supplemental Indenture shall mean and be a reference to the Subordinated
Indenture as supplemented by this Supplemental Indenture. If there shall be
any inconsistency or conflict between any provision of this Supplemental
Indenture and any provision in the Subordinated Indenture, then, unless this
Supplemental Indenture provides otherwise, the provision of this Supplemental
Indenture shall prevail.
SECTION 1.02 Definitions.
For all purposes of this Supplemental Indenture, except as
otherwise expressly provided for or unless the context otherwise requires:
(1) Capitalized terms used but not defined herein shall
have the respective meanings assigned to them in the Subordinated
Indenture; and
(2) All references herein to Articles and Sections,
unless otherwise specified, refer to the corresponding Articles and
Sections of this Supplemental Indenture.
"Accounts" means alarm monitoring accounts or alarm service
accounts of customers pursuant to which the Parent Company or any of its
Subsidiaries provides alarm monitoring or other security services or sells,
installs or services security alarms or services ancillary thereto.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Applicable Price" means (i) in the event of a Fundamental
Change in which the holders of the Common Stock receive only cash, the amount
of cash received by the holder of one share of Common Stock and (ii) in the
event of any other Fundamental Change, the arithmetic average of the Closing
Price for the Common Stock (determined as set forth in Section 4.05(i)) during
the ten Trading Days prior to the record date for the determination of the
holders of Common Stock entitled to receive cash, securities, property or other
assets in connection with such Fundamental Change, or, if there is no such
record date, the date upon which the holders
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3
of the Common Stock shall have the right to receive such cash, securities,
property or other assets in connection with the Fundamental Change.
"Capitalized Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations,
as aforesaid, under such lease.
"Closing Price" shall have the meaning specified in Section
4.05(i)(1).
"Conversion Price" shall have the meaning specified in Section
4.04.
"Credit Agreement" means the Amended and Restated Credit
Agreement dated as of June 7, 1996, as amended, among the Issuer and Heller
Financial, Inc., as agent and as lender, and certain other lenders, together
with all other agreements, instruments and documents executed or delivered
pursuant thereto or in connection therewith, in each case as such Credit
Agreement, agreements, instruments or documents (or such agents or lenders) may
be amended, supplemented, extended, renewed, replaced, substituted or otherwise
modified from time to time, including, without limitation, replacement or
substitution in its entirety with one or more agreements, agents or syndicates
of financial institutions; provided, that with respect to any one or more loan
agreements providing for the refinancing of Indebtedness under the Credit
Agreement, such loan agreement or loan agreements shall be the Credit Agreement
under this Supplemental Indenture only if a notice to that effect has been
delivered by the Issuer to the Trustee and there shall be at any time only one
Credit Agreement Agent.
"Credit Agreement Agent" means (i) if one loan agreement
constitutes the Credit Agreement, the sole lender thereunder or the agent for
the financial institutions from time to time party to such Credit Agreement and
any successor or successors of such agent or (ii) if more than one loan
agreement constitutes the Credit Agreement, the representative of the financial
institutions from time to time parties to such agreements and any successor or
successors of such representative, which representative shall have been
identified in a written notice delivered by the Issuer to the Trustee.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Issuer or any Restricted Subsidiary against fluctuations in
currency values to or under which the Issuer or any Restricted Subsidiary is a
party or a beneficiary on the date of this Supplemental Indenture or becomes a
party or a beneficiary thereafter.
"Defaulted Interest" shall have the meaning specified in
Section 2.04.
"Deferred Account Acquisition Price" means, in connection with
(i) the purchase of Accounts, or (ii) the acquisition of all of the outstanding
Capital Stock of a Person where the principal purpose of such acquisition is to
acquire Accounts, that portion of the purchase price of
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4
such Accounts or Capital Stock that has been deferred to provide an offset for
future purchase price adjustments.
"Designated Senior Indebtedness" means (i) Indebtedness and
all other monetary obligations (including expenses, fees and other monetary
obligations) under the Credit Agreement and (ii) any other Indebtedness
constituting Senior Indebtedness that, at any date of determination, has an
aggregate principal amount of at least $25 million and is specifically
designated by the Issuer in the instrument creating or evidencing such Senior
Indebtedness as "Designated Senior Indebtedness."
"Discount Notes" means the Issuer's 13-5/8% Senior
Subordinated Discount Notes due 2005.
"Discount Notes Indenture" means the Indenture dated as of May
17, 1995, as amended, between the Issuer, as issuer, the Parent Company, as
guarantor, and State Street Bank and Trust Company, as successor trustee,
relating to the Discount Notes.
"Distribution Securities" shall have the meaning specified in
Section 4.05(d).
"Expiration Time" shall have the meaning specified in Section
4.05(f) or Section 4.05(g), as applicable.
"Fundamental Change" means the occurrence of any transaction
or event in connection with which all or substantially all the Common Stock of
the Parent Company shall be exchanged for, converted into, acquired for or
constitute the right to receive consideration (whether by means of an exchange
offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) which is not all or
substantially all common stock which is (or, upon consummation of or
immediately following such transaction or event, will be) listed on a United
States national securities exchange or approved for quotation on the Nasdaq
National Market or any similar United States system of automated dissemination
of quotations of securities prices.
"Fundamental Change Expiration Time" shall have the meaning
specified in Section 3.05(b).
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the date of this Supplemental
Indenture, including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis.
"Guarantor Payment Blockage Period" shall have the meaning
specified in Section 7.02(b).
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5
"Guarantor Senior Indebtedness" means, with respect to each
Guarantor, the following obligations of such Guarantor, whether outstanding on
the date of this Supplemental Indenture or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including expenses, fees and
other monetary obligations) of such Guarantor under the Credit Agreement,
including any Guarantee of Senior Indebtedness of the Issuer under the Credit
Agreement and (ii) all other Indebtedness of such Guarantor (other than the
Note Guarantee and the Guarantee by such Guarantor of the obligations of the
Issuer under the Discount Notes), including principal and interest on such
Indebtedness if, in the case of this clause (ii), (A) in the event such
Indebtedness is unsecured, a notice to the effect that such Indebtedness
constitutes "Guarantor Senior Indebtedness" under this Indenture is delivered
by the Issuer or such Guarantor to the Trustee, and (B) such Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, does not expressly state that it is pari passu with, or
subordinated in right of payment to, the Note Guarantee; provided that the term
"Guarantor Senior Indebtedness" shall not include (a) any Indebtedness of such
Guarantor that, when Incurred and without respect to any election under Section
1111(b) of the United States Bankruptcy Code, was without recourse to such
Guarantor, (b) any Indebtedness of such Guarantor to the Parent Company or any
Subsidiary of the Parent Company or to a joint venture in which such Guarantor
or any Affiliate has an interest (unless, in the case of such Indebtedness of a
Subsidiary Guarantor to the Issuer, (1) such Indebtedness is evidenced by a
note or other similar instrument that is pledged to secure Senior Indebtedness,
and (2) such note evidences an obligation by such Subsidiary Guarantor to repay
proceeds of such Senior Indebtedness which at the time of any enforcement of
the Notes were loaned to such Subsidiary Guarantor), (c) any Indebtedness of
such Guarantor not permitted by this Indenture; provided, however, that this
clause (c) shall not be applicable with respect to Indebtedness under clause
(i) of this definition that consists of up to $200 million of principal
outstanding at any time under the Credit Agreement, all interest accrued under
the Credit Agreement on up to $200 million of principal and all other monetary
obligations (other than principal and interest) under the Credit Agreement, (d)
any repurchase, redemption or other obligation in respect of Redeemable Stock,
(e) any Indebtedness of such Guarantor to any employee, officer or director of
such Guarantor or any of its Affiliates, (f) any liability for federal, state,
local or other taxes owed or owing by such Guarantor, (g) Indebtedness of such
Guarantor pursuant to its Guarantee of any Indebtedness under the Discount
Notes Indenture, which Indebtedness of such Guarantor shall be pari passu with
the Note Guarantee of such Guarantor, and (h) any Trade Payables of such
Guarantor. Guarantor Senior Indebtedness will also include interest accruing
subsequent to an event specified in Section 5.01(d) or Section 5.01(e) of the
Subordinated Indenture at the rate provided for in the document governing such
Guarantor Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor under the United States Bankruptcy Code or
similar laws relating to insolvency.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person; provided that
none of the accrual of interest, the accrual of dividends payable on Redeemable
Stock or the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
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"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (except, with respect to the
Issuer, the promissory notes issued by the Issuer in favor of Ion Leasing
(which obligations have been defeased by a cash deposit in a segregated trust
account)), (iii) all obligations of such Person in respect of letters of credit
or other similar instruments (including reimbursement obligations with respect
thereto), (iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such service, except (A) Trade
Payables, (B) all obligations to pay any Deferred Account Acquisition Price,
provided that the maximum amount excluded from the definition of "Indebtedness"
under this clause (B) shall not exceed $5 million in the aggregate at any date
of determination and (C) compensation payable to employees of such Person (or
any subsidiary thereof) under employee benefit plans of such Person, which
compensation is deferred in the ordinary course of business of such Person (or
such subsidiary) and in accordance with such plans, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person; provided that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness, (vii) all Indebtedness of other
Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed
by such Person, (viii) all outstanding Redeemable Stock issued by such Person
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations (other than those described in clause (vii)), the
maximum liability upon the occurrence of the contingency giving rise to the
obligations (including with respect to any premium which may be payable on the
redemption of Redeemable Stock), provided (i) that the amount outstanding at
any time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP and (ii) that Indebtedness shall not include any liability
for federal, state, local or other taxes that are not delinquent.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect the Issuer or any Restricted Subsidiary against
fluctuations in interest rates to or under which the Issuer or any Restricted
Subsidiary is a party or a beneficiary on the date of this Supplemental
Indenture or becomes a party or a beneficiary hereafter.
"Issuer Notice" has the meaning specified in Section 3.05(b).
"Noteholder" means the registered Holder of any Note.
"Notes" shall have the meaning specified in Section 2.01.
<PAGE> 11
7
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.09 of the Subordinated Indenture in
lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the lost, destroyed or stolen Note that it replaces.
"Purchased Shares" shall have the meaning specified in Section
4.05(f) or Section 4.05(g), as applicable.
"Redeemable Stock" means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class of series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the Stated Maturity of the Discount Notes shall
not constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in Sections 4.12
and 4.13 of the Discount Notes Indenture and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock pursuant
to such provision prior to the Issuer's repurchase of such Discount Notes as
are required to be repurchased pursuant to Sections 4.12 and 4.13 of the
Discount Notes Indenture.
"Reference Market Price" shall initially mean $9.67 and in the
event of any adjustment to the Conversion Price pursuant to Sections 4.05(a),
(b), (c), (d), (e), (f), (g) or (h), the Reference Market Price shall also be
adjusted so that the ratio of the Reference Market Price to the Conversion
Price after giving effect to any such adjustment shall always be the same as
the ratio of $9.67 to the initial Conversion Price specified in the form of
Note attached hereto (without regard to any adjustment thereto).
"Repurchase Date" shall have the meaning specified in Section
3.05(a).
"Senior Indebtedness" means the following obligations of the
Issuer, whether outstanding on the date of this Supplemental Indenture or
thereafter Incurred (as defined herein): (i) all Indebtedness and all other
monetary obligations (including expenses, fees and other monetary obligations)
of the Issuer under the Credit Agreement and (ii) all other Indebtedness of the
Issuer (other than the Notes and the Discount Notes), including principal and
interest on such Indebtedness, if, in the case of this clause (ii), (A) in the
event such Indebtedness is unsecured, a notice to the effect that such
Indebtedness constitutes "Senior Indebtedness" under this Indenture is
delivered by the Issuer to the Trustee, and (B) such Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, does not expressly state that it is pari passu with, or
subordinated in right of payment to, the Notes; provided that the term "Senior
Indebtedness" shall not include (a) any Indebtedness of the Issuer that, when
Incurred and without respect to any election under Section 1111(b) of the
United
<PAGE> 12
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States Bankruptcy Code, was without recourse to the Issuer, (b) any
Indebtedness of the Issuer to the Parent Company or any Subsidiary of the
Parent Company or to a joint venture in which the Issuer or any Affiliate has
an interest, (c) any Indebtedness of the Issuer not permitted by this
Indenture; provided, however, that this clause (c) shall not be applicable with
respect to Indebtedness under clause (i) of this definition that consists of up
to $200 million of principal outstanding at any time under the Credit
Agreement, all interest accrued under the Credit Agreement on up to $200
million of principal and all other monetary obligations (other than principal
and interest) under the Credit Agreement, (d) any repurchase, redemption or
other obligation in respect of Redeemable Stock, (e) any Indebtedness of the
Issuer to any employee, officer or director of the Issuer or any of its
Affiliates, (f) any liability for federal, state, local or other taxes owed or
owing by the Issuer, (g) Indebtedness under the Discount Notes Indenture, which
shall be pari passu with the Notes, and (h) any Trade Payables of the Issuer.
Senior Indebtedness will also include interest accruing subsequent to an event
specified in Section 5.01(d) or Section 5.01(e) of the Subordinated Indenture
at the rate provided for in the document governing such Senior Indebtedness,
whether or not such interest is an allowed claim enforceable against the debtor
under the United States Bankruptcy Code or similar laws relating to insolvency.
"Senior Subordinated Obligations" means all principal of,
premium, if any, or interest on the Notes payable pursuant to the terms of the
Notes or upon acceleration, including any amounts received upon the exercise of
rights of rescission or other rights of action (including claims for damages)
or otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal of or interest on the Notes.
"Stated Maturity" means, (i) with respect to any debt
security, the date specified in such debt security as the fixed date on which
the final installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or interest on
any debt security, the date specified in such debt security as the fixed date
on which such installment is due and payable.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Trading Day" shall have the meaning specified in Section
4.05(i)(5).
"Trigger Event" shall have the meaning specified in Section
4.05(d).
SECTION 1.03 Amendments to Subordinated Indenture. The
Subordinated Indenture is hereby amended as follows:
(a) The first paragraph to the Subordinated Indenture is
hereby amended by deleting the words "a banking corporation duly
organized and existing under the laws of the Commonwealth of
Massachusetts" therein and inserting the words "a Massachusetts trust
company" in lieu thereof.
<PAGE> 13
9
(b) Section 1.01 of the Subordinated Indenture is hereby
amended by:
(i) deleting the reference "Section 13.12" in the
definition of "Judgment Currency" and inserting "Section 15.12" in
lieu thereof;
(ii) deleting the words "Article Twelve" in the
definition of "Note Guarantee" and inserting the words "Article
Thirteen" in lieu thereof;
(iii) deleting the reference "Section 13.05" in the
definition of "Officers' Certificate" and inserting the reference
"Section 15.05" in lieu thereof;
(iv) deleting the reference "Section 13.05" in the
definition of "Opinion of Counsel" and inserting the reference
"Section 15.05" in lieu thereof;
(v) deleting the reference "Section 13.12" in the
definition of "Required Currency" and inserting "Section 15.12" in
lieu thereof; and
(vi) deleting the reference "Section 8.07" in the
definition of "Opinion of Counsel" and inserting the reference
"Section 8.06" in lieu thereof.
(c) Section 3.07 of the Subordinated Indenture is hereby
amended by deleting in clause (ii) thereof the words "Article Twelve"
and inserting the words "Article Thirteen" in lieu thereof.
(d) Section 5.11 of the Subordinated Indenture is hereby
amended by deleting in clause (i) thereof the reference "Section 3.09"
and inserting the reference "Section 3.08" in lieu thereof.
(e) Section 6.09(a) of the Subordinated Indenture is
hereby amended by deleting in clause (i) of the first sentence thereof
the reference "Section 3.09" and inserting the reference "Section
3.08" in lieu thereof.
(f) Section 6.10 of the Subordinated Indenture is hereby
amended by deleting in clause (a) of the first sentence of the fourth
paragraph thereof the reference "Section 3.09" and inserting the
reference "Section 3.08" in lieu thereof.
(g) Section 8.02 of the Subordinated Indenture is hereby
amended by deleting in clause (iii) of the first sentence of the fifth
paragraph thereof the reference "Section 3.09" and inserting the
reference "Section 3.08" in lieu thereof.
(h) Section 10.04 of the Subordinated Indenture is hereby
amended by deleting in clause (b) of the proviso thereof the reference
"Section 3.09" and inserting the reference "Section 3.08" in lieu
thereof.
<PAGE> 14
10
(i) Section 11.02 of the Subordinated Indenture is hereby
amended by deleting in the third sentence of the first paragraph
thereof the reference "Section 3.09" and inserting the reference
"Section 3.08" in lieu thereof.
(j) Section 11.05 of the Subordinated Indenture is hereby
amended by deleting in the first sentence of the second paragraph the
reference "Section 13.05" and inserting the reference "Section 15.05"
in lieu thereof.
(k) Section 13.05 of the Subordinated Indenture is hereby
amended by deleting in the first sentence of the second paragraph
thereof the reference "Section 3.08" and inserting the reference
"Section 3.07" in lieu thereof.
The provisions of this Section 1.03 shall apply to (a) all Holders of the
series of Notes issued pursuant to this Supplemental Indenture and (b) Holders
of any series of Securities that may be issued under the Subordinated Indenture
subsequent to the date hereof.
ARTICLE TWO
The Series of Notes
SECTION 2.01 Title of the Securities.
There shall be a series of Securities designated the "6 3/4%
Convertible Senior Subordinated Notes due 2003" (the "Notes").
SECTION 2.02 Limitation on Aggregate Principal Amount; Dates
of Notes.
The aggregate principal amount of the Notes shall be limited
to $90,000,000 (or $103,500,000 if the over-allotment option set forth in
Section 3 of the Underwriting Agreement dated September 16, 1996 (as amended
from time to time by the parties thereto) by and between the Issuer and the
Parent Company and Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc.
and Montgomery Securities is exercised in full) and, except as provided in this
Section and in Section 2.09 of the Subordinated Indenture, the Issuer shall not
execute and the Trustee shall not authenticate or deliver Notes in excess of
such aggregate principal amount.
Nothing contained in this Section 2.02 or elsewhere in this
Supplemental Indenture, or in the Notes, is intended to or shall limit
execution by the Issuer or authentication or delivery by the Trustee of Notes
under the circumstances contemplated by Sections 2.04, 2.05, 2.07, 2.09, 2.11,
8.05 and 11.02 of the Subordinated Indenture and Sections 3.03, 3.05 and 4.02
of this Supplemental Indenture.
SECTION 2.03 Form and Denomination of Notes. The Notes and
the Trustee's certificate of authentication to be borne by such Notes shall be
substantially in the form set forth in Exhibit A, which is incorporated in and
made a part of this Supplemental Indenture. It shall not be necessary for any
Guarantor to execute any Notes.
<PAGE> 15
11
Any of the Notes may have such letters, numbers or other marks
of identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Notes may be
listed, or to conform to usage.
The terms and provisions contained in the form of Note
attached as Exhibit A hereto shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Issuer and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
The Notes shall be issuable and transferable in fully
registered form as Registered Securities, without coupons, in denominations of
$1,000 principal amount and integral multiples thereof. The Notes shall
initially be issued in the form of one or more Registered Global Securities
deposited with the Trustee, as custodian for the Depositary. The Depositary
may surrender a Registered Global Security in whole or in part for Notes in
definitive registered form without coupons in the manner provided by Section
2.08 of the Subordinated Indenture. The Person designated as Depositary with
respect to the Notes is The Depository Trust Company, its nominees and their
respective successors.
SECTION 2.04 Date of Notes; Payments of Interest. Every Note
shall be dated the date of its authentication and shall bear interest from the
applicable date in each case as specified on the face of the form of Note
attached as Exhibit A hereto. Interest on the Notes shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The person in whose name any Note (or its Predecessor Note) is
registered on the Note register at the close of business on any record date
with respect to any interest payment date shall be entitled to receive the
interest payable on such interest payment date, except (i) that the interest
payable upon redemption (unless the date of redemption is an interest payment
date) will be payable to the person to whom principal is payable and (ii) as
set forth in the next succeeding sentence. In the case of any Note (or portion
thereof) which is converted into Common Stock of the Parent Company during the
period from (but excluding) a record date to (but excluding) the next
succeeding interest payment date either (i) if such Note (or portion thereof)
has been called for redemption on a redemption date which occurs during such
period, or is to be redeemed in connection with a Fundamental Change on a
Repurchase Date (as defined in Section 3.05) which occurs during such period,
the Issuer shall not be required to pay interest on such interest payment date
in respect of any such Note (or portion thereof) except to the extent required
to be paid upon redemption of such Note or portion thereof pursuant to Section
3.03 or 3.05 hereof or (ii) if otherwise, any Note (or portion thereof)
submitted for conversion during such period shall be accompanied by funds equal
to the interest payable on such succeeding interest payment date on the
principal amount so converted. The term "record date" with respect to any
interest payment date shall mean the March 1 or September 1 preceding said
March 15 or September 15, respectively.
<PAGE> 16
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Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any said March 15 or September 15
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Noteholder on the relevant record date by virtue of such Holder having been
such Noteholder; and such Defaulted Interest shall be paid by the Issuer, at
its election in each case, as provided in clause (1) or (2) below:
(1) The Issuer may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a
special record date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Issuer shall notify the
Trustee in writing of the amount of Defaulted Interest to be paid on
each Note and the date of the payment (which shall be not less than
twenty-five (25) days after the receipt by the Trustee of such notice,
unless the Trustee shall consent to an earlier date), and at the same
time the Issuer shall deposit with the Trustee an amount of money
equal to the aggregate amount to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided.
Thereupon the Trustee shall fix a special record date for the payment
of such Defaulted Interest which shall be not more than fifteen (15)
days and not less than ten (10) days prior to the date of the proposed
payment and not less than ten (10) days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Issuer of such special record date and, in the
name and at the expense of the Issuer, shall cause notice of the
proposed payment of such Defaulted Interest and the special record
date therefor to be mailed, first-class postage prepaid, to each
Noteholder at such Noteholder's address as it appears in the Note
register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and
the special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or
their respective Predecessor Notes) were registered at the close of
business on such special record date and shall no longer be payable
pursuant to the following clause (2).
(2) The Issuer may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange or automated quotation system on which the
Notes may be listed or designated for issuance, and upon such notice
as may be required by such exchange or automated quotation system, if,
after notice given by the Issuer to the Trustee of the proposed
payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
SECTION 2.05 Place of Payment.
An office or agency of the Issuer where the Notes may be
presented or surrendered for payment, where the Notes may be surrendered for
registration of transfer or exchange and where notices and demands to and upon
the Issuer in respect of the Notes and the Subordinated Indenture may be served
shall be maintained in the Borough of Manhattan, The
<PAGE> 17
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City of New York, New York, and the office or agency maintained by the Issuer
for such purpose shall initially be c/o State Street Bank and Trust Company, 61
Broadway, Concourse Level, New York, New York 10006.
SECTION 2.06 Method of Payment.
Payment of the principal of and interest on the Notes will be
made at the office or agency of the Issuer maintained for that purpose in the
Borough of Manhattan, The City of New York (which shall initially be the
Corporate Trust Office of the Trustee specified in the Subordinated Indenture)
by 10:00 a.m., New York City time, on the date due, in Dollars. At the option
of the Issuer, payments of principal and interest on the Notes may be made (i)
by check mailed to the address of the Person entitled thereto as such address
shall appear in the register of Holders of the Notes or (ii) by wire transfer
to an account maintained by the Person entitled thereto located in the United
States as specified in the register of Holders of the Notes; provided, however,
that payments to the Depositary shall be made by wire transfer of immediately
available funds to the account of the Depositary or its nominee.
SECTION 2.07 Registrar and Paying Agent.
The Trustee shall initially serve as registrar and paying
agent for the Notes. If, at any time, the Trustee is not the registrar for the
Notes, the registrar shall make available to the Trustee, on or before each
interest payment date and at such other times as the Trustee may reasonably
request, the names and addresses of the Noteholders as they appear in the
register of the Notes. The Issuer may have one or more co-registrars and one
or more additional paying agents for the Notes. Unless the context otherwise
requires, the terms "registrar" and "paying agent" shall apply to any
co-register and additional paying agent for the Notes, respectively.
The Issuer shall enter into an appropriate agency agreement
with any registrar or paying agent for the Notes not a party to this
Supplemental Indenture. The agreement shall implement the provisions of this
Supplemental Indenture that relate to such registrar or paying agent. The
Issuer shall give prompt written notice to the Trustee of the name and address
of any such registrar or paying agent and any change in the address of such
registrar or paying agent. If the Issuer fails to maintain a registrar and/or
paying agent for the Notes and/or an agent for service of notices and demands
on the Issuer, the Trustee shall act as such registrar, paying agent and/or
agent for service of notices and demands for so long as such failure shall
continue. The Issuer may remove any registrar or paying agent upon written
notice to such Person and the Trustee; provided that no such removal shall
become effective until (i) the acceptance of an appointment by a successor
registrar or paying agent to such registrar or paying agent, as applicable, as
evidenced by an appropriate agency agreement entered into by the Issuer and
such successor registrar or paying agent delivered to the Trustee, or (ii)
notification to the Trustee that the Trustee shall serve as such registrar or
paying agent until the appointment of a successor registrar or paying agent in
accordance with clause (i) of this proviso. The Issuer, any Subsidiary of the
Issuer or any Affiliate of any of them may act as paying agent or registrar for
the Notes and/or agent for service of notice and demand on the Issuer;
provided, however, that neither the Issuer, any Subsidiary of the Issuer nor
any Affiliate of any of them shall act as paying agent for the Notes in
connection with the defeasance of the Securities or the discharge of this
Indenture.
<PAGE> 18
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ARTICLE THREE
Redemption of Notes
SECTION 3.01 Redemption Prices. The Issuer may not redeem
the Notes prior to September 19, 1999. Subject to the provisions of Section
3.03, at any time on or after September 19, 1999, the Issuer may, at its
option, redeem all or from time to time any part of the Notes on any date prior
to maturity, upon notice as set forth in Section 3.02, and at the optional
redemption prices set forth in the form of Note attached as Exhibit A hereto,
together with accrued interest to, but excluding, the date fixed for
redemption.
SECTION 3.02 Notice of Redemption; Selection of Notes. In
case the Issuer shall desire to exercise the right to redeem all or, as the
case may be, any part of the Notes pursuant to Section 3.01, it shall fix a
date for redemption and it or, at its written request received by the Trustee
not fewer than forty-five (45) days prior (or such shorter period of time as
may be acceptable to the Trustee) to the date fixed for redemption, the Trustee
in the name of the and at the expense of the Issuer, shall mail or cause to be
mailed a notice of such redemption at least 30 days prior to the date fixed for
redemption to the Holders of Notes so to be redeemed as a whole or in part at
their last addresses as the same appear on the Note register (provided, that
any such request so given by the Issuer may be revoked by the Issuer at any
time prior to the time at which the Trustee shall have given the requested
notice to the Holders of the Notes, and provided, further, that if the Issuer
shall give such notice, it shall also give written notice, and written notice
of the Notes to be redeemed, to the Trustee). Such mailing shall be by first
class mail. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the Holder of any Note designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Note.
Each such notice of redemption shall specify the aggregate
principal amount of Notes to be redeemed, the date fixed for redemption (which
shall be a Business Day), the redemption price at which Notes are to be
redeemed, the place or places of payment, that payment will be made upon
presentation and surrender of such Notes, that interest accrued to the date
fixed for redemption will be paid as specified in said notice, and that on and
after such date, interest thereon or on the portion thereof to be redeemed will
cease to accrue. Such notice shall also state the current Conversion Price and
the date on which the right to convert such Notes or portions thereof into
Common Stock of the Parent Company will expire. If fewer than all the Notes
are to be redeemed, the notice of redemption shall identify the Notes to be
redeemed. In case any Note is to be redeemed in part only, the notice of
redemption shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for redemption, upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section 3.02, the Issuer will deposit with
the Trustee or with one or more paying
<PAGE> 19
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agents (or, if the Issuer is acting as its own paying agent, set aside,
segregate and hold in trust as provided in Section 3.04 of the Subordinated
Indenture) an amount of money sufficient to redeem on the redemption date all
the Notes (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock of the Parent Company
and those that prior to such date have been delivered by the Issuer to the
Trustee for cancellation) at the appropriate redemption price, together with
accrued interest to, but excluding, the date fixed for redemption; provided
that if such payment is made on the redemption date it must be received by the
Trustee or paying agent, as the case may be, by 10:00 a.m., New York City time,
on such date. If any Note called for redemption is converted pursuant hereto,
any money deposited with the Trustee or any paying agent or so segregated and
held in trust for the redemption of such Note shall be paid to the Issuer upon
its written request, or, if then held by the Issuer shall be discharged from
such trust. Whenever any Notes are to be redeemed, the Issuer will give the
Trustee written notice in the form of an Officers' Certificate not fewer than
forty-five (45) days (or such shorter period of time as may be acceptable to
the Trustee), or if the Issuer is mailing the notice of redemption relating to
such redemption, not fewer than thirty (30) days (or such shorter period of
time as may be acceptable to the Trustee), prior to the redemption date as to
the aggregate principal amount of Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed (in principal amounts of $1,000 or
integral multiples thereof) in compliance with the requirements, as certified
to the Trustee by the Issuer in the form of an Officers' Certificate, of the
principal national securities exchange on which the Notes are listed, or if the
Notes are not so listed, by lot or, in the Trustee's discretion, on a pro rata
basis or by another method the Trustee considers fair and appropriate. If any
Note selected for partial redemption is converted in part after such selection,
the converted portion of such Note shall be deemed (so far as may be) to be the
portion to be selected for redemption. The Notes (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Note is converted as a whole or in part before
the mailing of the notice of redemption. The Trustee shall notify the Issuer
and the registrar of the Notes promptly in writing of the Notes or portions of
Notes to be called for redemption.
Upon any redemption of less than all Notes, the Issuer and the
Trustee may (but need not) treat as outstanding any Notes surrendered for
conversion during the period of fifteen (15) days next preceding the mailing of
a notice of redemption and may (but need not) treat as outstanding any Note
authenticated and delivered during such period in exchange for the unconverted
portion of any Note converted in part during such period.
SECTION 3.03 Payment of Notes Called for Redemption. If
notice of redemption has been given as above provided, the Notes or portion of
Notes with respect to which such notice has been given shall, unless converted
into Common Stock of the Parent Company pursuant to the terms hereof, become
due and payable on the date fixed for redemption and at the place or places
stated in such notice at the applicable redemption price, together with
interest accrued to (but excluding) the date fixed for redemption, and on and
after said date (unless the Issuer shall default in the payment of such Notes
at the redemption price, together with interest accrued to said date) interest
on the Notes or portion of Notes so called for redemption shall cease to accrue
and such Notes shall cease after the close of business on the
<PAGE> 20
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Business Day next preceding the date fixed for redemption to be convertible
into Common Stock of the Parent Company and, except as provided in Sections
6.05 and 10.04 of the Subordinated Indenture, to be entitled to any benefit or
security under this Indenture, and the Holders thereof shall have no right in
respect of such Notes except the right to receive the redemption price thereof
and unpaid interest to (but excluding) the date fixed for redemption. On
presentation and surrender of such Notes at a place of payment in said notice
specified, the said Notes or the specified portions thereof shall be paid and
redeemed by the Issuer at the applicable redemption price, together with
interest accrued thereon to (but excluding) the date fixed for redemption;
provided that, if the applicable redemption date is an interest payment date,
the semi-annual payment of interest becoming due on such date shall be payable
to the Holders of such Notes registered as such on the relevant record date
instead of the Holders surrendering such Notes for redemption on such date.
Upon presentation of any Note redeemed in part only, the
Issuer shall execute and the Trustee shall authenticate and deliver to the
Holder thereof, at the expense of the Issuer, a new Note or Notes, of
authorized denominations, in principal amount equal to the unredeemed portion
of the Notes so presented.
Notwithstanding the foregoing, neither the Issuer nor the
Trustee shall redeem any Notes or mail any notice of optional redemption (i)
during the continuance of a Default in payment of interest on the Notes or if
accrued interest on any Notes for any interest payment period terminating on or
prior to the last interest payment date before the date of redemption otherwise
remains unpaid or (ii) during the continuance of any Event of Default, provided
that for purposes of this clause (ii), the Trustee shall not redeem any Notes
or mail any notice of optional redemption during the continuance of any Event
of Default (other than an Event of Default under Sections 5.01(a) or 5.01(b) of
the Subordinated Indenture) of which a Responsible Officer of the Trustee has
knowledge. If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate
borne by the Note and such Note shall remain convertible into Common Stock of
the Parent Company until the principal shall have been paid or duly provided
for.
SECTION 3.04 Conversion Arrangement on Call for Redemption.
In connection with any redemption of Notes, the Issuer may arrange for the
purchase and conversion of any Notes by an agreement with one or more
investment bankers or other purchasers to purchase such Notes by paying to the
Trustee in trust for the Noteholders, on or before the date fixed for
redemption, an amount not less than the applicable redemption price, together
with interest accrued to (but excluding) the date fixed for redemption, of such
Notes. Notwithstanding anything to the contrary contained in this Article
Three, the obligation of the Issuer to pay the redemption price of such Notes,
together with interest accrued to (but excluding) the date fixed for
redemption, shall be deemed to be satisfied and discharged to the extent such
amount is so paid by such purchasers. If such an agreement is entered into, a
copy of which will be filed with the Trustee prior to the date fixed for
redemption, any Notes not duly surrendered for conversion by the Holders
thereof may, at the option of the Issuer, be deemed, to the fullest extent
permitted by law, acquired by such purchasers from such Holders and
(notwithstanding anything to the contrary contained in Article Four)
surrendered by such purchasers for conversion, all as
<PAGE> 21
17
of immediately prior to the close of business on the date fixed for redemption
(and the right to convert any such Notes shall be extended through such time),
subject to payment of the above amount as aforesaid. At the written direction
of the Issuer, the Trustee shall hold and dispose of any such amount paid to it
in the same manner as it would monies deposited with it by the Issuer for the
redemption of Notes. Without the Trustee's prior written consent, no
arrangement between the Issuer and such purchasers for the purchase and
conversion of any Notes shall increase or otherwise affect any of the powers,
duties, responsibilities or obligations of the Trustee as set forth in this
Indenture.
SECTION 3.05 Redemption at Option of Holders.
(a) If, at any time prior to September 15, 2003, there
shall occur a Fundamental Change, then each Noteholder shall have the right, at
such Holder's option, to require the Issuer to redeem all of such Holder's
Notes, or any portion thereof that is an integral multiple of $1,000 principal
amount, on the date (the "Repurchase Date") that is 30 days after the date of
the Issuer Notice (as defined in Section 3.05(b) below) of such Fundamental
Change (or, if such 30th day is not a Business Day, the next succeeding
Business Day). Such repayment shall be made at the following prices (expressed
as percentages of the principal amount) in the event of a Repurchase Date
occurring during the 12-month period beginning September 15:
<TABLE>
<CAPTION>
Year Percentage Year Percentage
- ---- ---------- ---- ----------
<S> <C> <C> <C>
1996 . . . . . . . . . 106.750% 2000 . . . . . . . . 102.893%
1997 . . . . . . . . . 105.786 2001 . . . . . . . . 101.929
1998 . . . . . . . . . 104.821 2002 . . . . . . . . 100.964
1999 . . . . . . . . . 103.857
</TABLE>
and 100% at September 15, 2003; provided that if the Applicable Price with
respect to the Fundamental Change is less than the Reference Market Price, the
Issuer shall redeem such Notes at a price equal to the foregoing redemption
price multiplied by the fraction obtained by dividing the Applicable Price by
the Reference Market Price; provided further, that if such repayment date is
March 15 or September 15, then the interest payable on such date shall be paid
to the Holder of record of the Note on the next preceding March 1 or September
1. In each case, the Issuer shall also pay to such Holders accrued interest
to, but excluding, the Repurchase Date on the redeemed Notes.
Upon presentation of any Note redeemed in part only, the
Issuer shall execute and, upon the Issuer's written direction to the Trustee,
the Trustee shall authenticate and deliver to the Holder thereof, at the
expense of the Issuer, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.
(b) On or before the tenth day after the occurrence of a
Fundamental Change, the Issuer, or, at its written request (which must be
received by the Trustee at least five Business Days prior to the date the
Trustee is requested to give notice as described below), the Trustee in the
name of and at the expense of the Issuer, shall mail or cause to be mailed to
all Holders of
<PAGE> 22
18
record on the date of the Fundamental Change a notice (the "Issuer Notice") of
the occurrence of such Fundamental Change and of the redemption right at the
option of the Holders arising as a result thereof. Such notice shall be mailed
in the manner and with the effect set forth in the first paragraph of Section
3.02. The Issuer shall also deliver a copy of the Issuer Notice to the Trustee
at such time as it is mailed to Noteholders and shall issue for distribution to
Bloomberg Business News, Dow Jones & Company, Inc. and to Reuters Economic
Services a press release announcing the occurrence of such Fundamental Change
and of the redemption right arising as a result thereof.
Each Issuer Notice shall specify the circumstances
constituting the Fundamental Change, the Repurchase Date, the price at which
the Issuer shall be obligated to redeem Notes, the latest time on the
Repurchase Date by which the Holder must exercise the redemption right (the
"Fundamental Change Expiration Time"), that the Holder shall have the right to
withdraw any Notes surrendered prior to the Fundamental Change Expiration Time,
a description of the procedure which a Noteholder must follow to exercise such
redemption right and to withdraw any surrendered Notes, the place or places
where the Holder is to surrender such Holder's Notes, and the amount of
interest accrued on each Note to the Repurchase Date.
No failure of the Issuer to give the foregoing notices and no
defect therein shall limit the Noteholders' redemption rights or affect the
validity of the proceedings for the repurchase of the Notes pursuant to this
Section 3.05.
(c) For a Note to be so repaid at the option of the
Holder, the Issuer must receive at the office or agency of the Issuer
maintained for that purpose or, at the option of such Holder, the Corporate
Trust Office, such Note with the form entitled "Option to Elect Repayment Upon
A Fundamental Change" on the reverse thereof duly completed, together with such
Notes duly endorsed for transfer, on or before the Fundamental Change
Expiration Time. All questions as to the validity, eligibility (including time
of receipt) and acceptance of any Note for repayment shall be determined by the
Issuer, whose determination shall be final and binding absent manifest error.
(d) On or prior to the Repurchase Date, the Issuer will
deposit with the Trustee or with one or more paying agents (or, if the Issuer
is acting as its own paying agent, set aside, segregate and hold in trust as
provided in Section 3.04 of the Subordinated Indenture) an amount of money
sufficient to repay on the Repurchase Date all the Notes to be repaid on such
date at the appropriate redemption price, together with accrued interest to
(but excluding) the Repurchase Date; provided that if such payment is made on
the Repurchase Date it must be received by the Trustee or paying agent, as the
case may be, by 10:00 a.m., New York City time, on such date. Payment for
Notes surrendered for redemption (and not withdrawn) prior to the Fundamental
Change Expiration Time will be made promptly (but in no event more than five
Business Days) following the Repurchase Date by mailing checks for the amount
payable to the Holders of such Notes entitled thereto as they shall appear on
the registry books of the Issuer.
(e) In the case of a consolidation, merger, conveyance,
transfer or lease to which Section 4.06 applies, in which the Common Stock of
the Parent Company is changed or exchanged as a result into the right to
receive securities, cash or other property which includes
<PAGE> 23
19
shares of Common Stock of the Parent Company or another person that are, or
upon issuance will be, traded on a United States national securities exchange
or approved for trading on an established automated over-the-counter trading
market in the United States and such shares constitute at the time such change
or exchange becomes effective in excess of 50% of the aggregate fair market
value of such securities, cash and other property (as determined by the Issuer,
which determination shall be conclusive and binding), then the Person formed by
such consolidation or resulting from such merger or which acquires such assets,
as the case may be, shall execute and deliver to the Trustee a supplemental
indenture (accompanied by an Opinion of Counsel that such supplemental
indenture complies with the Trust Indenture Act as in force at the date of
execution of such supplemental indenture) modifying the provisions of this
Indenture relating to the right of Holders of the Notes to cause the Issuer to
repurchase the Notes following a Fundamental Change, including without
limitation the applicable provisions of this Section 3.05 and the definitions
of the Applicable Price, Common Stock, Fundamental Change and Reference Market
Price, as appropriate, as determined in good faith by the Issuer (which
determination shall be conclusive and binding), to make such provisions apply
to the Common Stock and the issuer thereof if different from the Parent Company
and Common Stock of the Parent Company (in lieu of the Parent Company and the
Common Stock of the Parent Company).
(f) Upon receipt by the Corporation Trust Office or the
office or agency of the Issuer referred to in Section 3.05(c) above of a Note
for repayment pursuant to Section 3.05(c), the Holder of such Note shall
(unless such Note is withdrawn as specified in the following paragraph)
thereafter be entitled to receive solely the amount specified in Section
3.05(a) with respect to such Note. Notes surrendered for repayment as provided
in Section 3.05(c) may not be converted pursuant to Article Four on or after
the date of the delivery of such Note unless such Note has been validly
withdrawn as specified in the following paragraph.
A Note surrendered pursuant to Section 3.05(c) may be
withdrawn by means of a written notice of withdrawal delivered to the office or
agency to which the Note was surrendered at any time prior to the Fundamental
Change Expiration Time specifying the certificate number or numbers, and the
principal amount, of the Note or Notes in respect of which such notice or
withdrawal is being submitted and the principal amount, if any, of Notes that
remain subject to the original surrender for repayment.
ARTICLE FOUR
Conversion of Notes
SECTION 4.01 Right to Convert. Subject to and upon
compliance with the provisions of this Supplemental Indenture and the
Subordinated Indenture, including, without limitation, Articles Six and Seven
of this Supplemental Indenture, the Holder of any Note shall have the right, at
such Holder's option, at any time after ninety (90) days following the latest
date of original issuance of the Notes and prior to the close of business on
September 15, 2003 (except as provided in Section 3.05(f) and except that, with
respect to any Note or portion of a Note which shall be called for redemption
such right shall terminate, except as provided in Section 3.04 or Section 4.02,
at the close of business on the Business Day next preceding the date fixed for
redemption of such Note or portion of a Note unless the Issuer shall default in
<PAGE> 24
20
payment due upon redemption thereof) to convert the principal amount of any
such Note, or any portion of such principal amount which is $1,000 or an
integral multiple thereof, into that number of fully paid and non-assessable
shares of Common Stock (as such shares shall then be constituted) of the Parent
Company obtained by dividing the principal amount of the Notes or portion
thereof surrendered for conversion by the Conversion Price in effect at such
time, by surrender of the Note so to be converted in whole or in part in the
manner provided, together with any required funds, in Section 4.02. A Holder
of Notes is not entitled to any rights of a holder of Common Stock of the
Parent Company until such Holder has converted such Holder's Notes to Common
Stock of the Parent Company, and only to the extent such Notes are deemed to
have been converted to Common Stock of the Parent Company under this Article
Four.
SECTION 4.02 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No Adjustment for Interest or Dividends. In order
to exercise the conversion privilege with respect to any Note in certificated
form, the Holder of any such Note to be converted in whole or in part shall
surrender such Note, duly endorsed, at the Parent Company Office (as defined in
Section 5.01) accompanied by the funds, if any required by the penultimate
paragraph of this Section 4.02 and shall give written notice of conversion in
the form provided on the Notes (or such other notice which is acceptable to the
Issuer and the Parent Company) to the office or agency that the Holder elects
to convert such Note or the portion thereof specified in said notice. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock of the Parent
Company which shall be issuable on such conversion shall be issued, and shall
be accompanied by transfer taxes, if required pursuant to Section 4.07. Each
such Note surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of such Note,
be duly endorsed by, or be accompanied by instruments of transfer in form
satisfactory to the Parent Company duly executed by, the Holder or such
Holder's duly authorized attorney.
In order to exercise the conversion privilege with respect to
any interest in a Note in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depository's
book-entry conversion program, deliver by book-entry
<PAGE> 25
21
delivery an interest in such Note in global form, furnish appropriate
endorsements and transfer documents if required by the Issuer, the Parent
Company or the Trustee or conversion agent and pay the funds, if any required
by this Section 4.02 and any transfer taxes if required pursuant to Section
4.07.
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, subject to compliance with any
restrictions on transfer if shares issuable on conversion are to be issued in a
name other than that of the Noteholder (as if such transfer were a transfer of
the Note or Notes (or portion thereof) so converted), the Parent Company shall
issue and shall deliver to such Holder, at the Parent Company Office, a
certificate or certificates for the number of full shares of Common Stock of
the Parent Company issuable upon the conversion of such Note or portion thereof
in accordance with the provisions of this Article and a check or cash in
respect to any fractional interest in respect of a share of Common Stock of the
Parent Company arising upon such conversion, as provided in Section 4.03. In
case any Note of a denomination greater than $1,000 shall be surrendered for
partial conversion, and subject to Section 2.03, the Issuer shall execute and
the Trustee shall authenticate and deliver to the Holder of the Note so
surrendered, without charge to such Holder, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.
Each conversion shall be deemed to have been affected as to
any such Note (or portion thereof) on the date on which the requirements set
forth above in this Section 4.02 have been satisfied as to such Note (or
portion thereof), and the Person in whose name any certificate or certificates
for shares of Common Stock of the Parent Company shall be issued upon such
conversion shall be deemed to have become on said date the holder or record of
the shares represented thereby; provided, however, that any such surrender on
any date when the stock transfer books of the Parent Company shall be closed
shall constitute the Person in whose name the certificates are to be issued as
the record holder thereof for all purposes on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date upon which such Note shall be
surrendered.
Any Note or portion thereof surrendered for conversion during
the period from the close of business on the record date for any interest
payment date to the close of business on the Business Day next preceding the
following interest payment date shall (unless such Note or portion thereof
being converted shall have been called for redemption on a redemption date
which occurs during the period from the close of business on such record date
to the close of business on the Business Day next preceding the following
interest payment date) be accompanied by payment, in New York Clearing House
funds or other funds acceptable to the Parent Company, of an amount equal to
the interest otherwise payable on such interest payment date on the principal
amount being converted; provided, however, that no such payment need be made if
there shall exist at the time of conversion a Default in the payment of
interest on the Notes. Except as provided above in this Section 4.02, no
payment or other adjustment shall be made for interest accrued on any Note
converted or for dividends or other distributions on any shares issued upon the
conversion on such Note as provided in this Article.
<PAGE> 26
22
Upon the conversion of an interest in a Note in global form,
the Trustee (or other conversion agent appointed by the Parent Company) shall
make a notation on such Note in global form as to the reduction in the
principal amount represented thereby. The Parent Company shall notify the
Trustee in writing of any conversion of Notes effected through any conversion
agent other than the Trustee.
SECTION 4.03 Cash Payments in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same Holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered. If any fractional share of stock
would be issuable upon the conversion of any Note or Notes, the Parent Company
shall make an adjustment any payment therefor in cash at the current market
value thereof to the Holder of Notes. The current market value of a share of
Common Stock shall be the Closing Price on the first Business Day immediately
preceding the day on which the Notes (or specified portions thereof) are deemed
to have been converted.
SECTION 4.04 Conversion Price. The conversion price shall be
as specified in the form of Note (herein called the "Conversion Price")
attached as Exhibit A hereto, subject to adjustment as provided in this Article
Four.
SECTION 4.05 Adjustment of Conversion Price. The Conversion
Price shall be adjusted from time to time by the Issuer as follows:
(a) In case the Parent Company shall hereafter
pay a dividend or make a distribution to all holders of its
outstanding Common Stock in shares of Common Stock of the Parent
Company, the Conversion Price in effect at the opening of business on
the date following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock of
the Parent Company outstanding at the close of business on the date
fixed for such determination and the denominator shall be the sum of
such number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. If any dividend or distribution of
the type described in this Section 4.05(a) is declared but not so paid
or made, the Conversion Price shall again be adjusted to the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(b) In case the Parent Company shall issue rights
or warrants to all holders of its outstanding shares of its Common
Stock entitling them (for a period expiring within 45 days after the
date fixed for determination of stockholder entitled to receive such
rights or warrants) to subscribe for or purchase shares of Common
Stock of the Parent Company at a price per share less than the Current
Market Price (as defined below) on the date fixed for determination of
stockholders entitled to receive such rights
<PAGE> 27
23
or warrants, the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the date fixed for determination of
stockholders entitled to receive such rights or warrants by a fraction
of which the numerator shall be the number of shares of Common Stock
of the Parent Company outstanding at the close of business on the date
fixed for determination of stockholders entitled to receive such
rights and warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase
at such Current Market Price, and of which the denominator shall be
the number of shares of Common Stock of the Parent Company outstanding
on the date fixed for determination of stockholders entitled to
receive such rights and warrants plus the total number of additional
shares of Common Stock offered for subscription or purchase. Such
adjustment shall be successively made whenever any such rights and
warrants are issued, and shall become effective immediately after the
opening of business on the day following the date fixed for
determination of stockholders entitled to receive such rights or
warrants. To the extent that shares of Common Stock of the Parent
Company issuable upon exercise of such rights or warrants are not
delivered prior to the expiration of such rights or warrants, the
Conversion Price shall be readjusted to the Conversion Price which
would then be in effect had the adjustments made upon the issuance of
such rights or warrants been made on the basis of delivery of only the
number of shares of Common Stock of the Parent Company actually
delivered. In the event that such rights or warrants are not so
issued, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such date fixed for
the determination of stockholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or
warrants entitle the holders to subscribe for or purchase shares of
Common Stock of the Parent Company at less than such Current Market
Price, and in determining the aggregate offering price of such shares
of Common Stock, there shall be taken into account any consideration
received by the Parent Company for such rights or warrants, the value
of such consideration, if other than cash, to be determined by the
Board of Directors of the Parent Company.
(c) In case outstanding shares of Common Stock of
the Parent Company shall be subdivided into a greater number of shares
of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and conversely, in
case outstanding shares of Common Stock of the Parent Company shall be
combined into a smaller number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day upon
which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day
following the day upon which subdivision or combination becomes
effective.
(d) In case the Parent Company shall, by dividend
or otherwise, distribute to all holders of its Common Stock shares of
any class of Capital Stock of the Parent Company (other than any
dividends or distributions to which Section 4.05(a) applies) or
evidences of Indebtedness or assets of the Parent Company or any of
its Subsidiaries (including securities, but excluding any rights or
warrants referred to in
<PAGE> 28
24
Section 4.05(b), and excluding any dividend or distribution (x) paid
exclusively in cash or (y) referred to in Section 4.05(a) (any of the
foregoing hereinafter in this Section 4.05(d) called the "Distribution
Securities")), then, in each such case (unless the Parent Company
elects to reserve such Distribution Securities for distribution to the
Noteholders upon the conversion of the Notes so that any such Holder
converting Notes will receive upon such conversion, in addition to the
shares of Common Stock of the Parent Company to which such Holder is
entitled, the amount and kind of such Distribution Securities which
such Holder would have received if such Holder had converted its Notes
into Common Stock immediately prior to the Record Date (as defined in
Section 4.05(i) for such distribution of the Distribution
Securities)), the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the Conversion
Price in effect on the Record Date with respect to such distribution
by a fraction of which the numerator shall be the Current Market Price
per share of the Common Stock of the Parent Company on such Record
Date less the firm market value (as determined by the Board of
Directors of the Parent Company, whose determination shall be
conclusive, and described in a resolution of the Board of Directors of
the Parent Company) on the Record Date of the portion of the
Distribution Securities so distributed applicable to one share of
Common Stock and the denominator shall be the Current Market Price per
share of the Common Stock of the Parent Company, such reduction to
become effective immediately prior to the opening of business on the
date following such Record Date; provided, however, that in the event
the then fair market value (as so determined) of the portion of the
Distribution Securities so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price of
the Common Stock of the Parent Company on the Record Date, in lieu of
the foregoing adjustment, adequate provision shall be amended so that
each Noteholder shall have the right to receive upon conversion the
amount of Distribution Securities such Holder would have received had
such Holder converted each Note on the Record Date. In the event that
such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price which would
then be in effect if such dividend or distribution had not been
declared. If the Board of Directors of the Parent Company determines
the fair market value of any distribution for purposes of this Section
4.05(d) by reference to the actual or when issued trading market for
any securities, it must in doing so consider the prices in such market
over the same period used in computing the Current Market Price of the
Common Stock of the Parent Company.
Rights or warrants distributed by the Parent Company
to all holders of Common Stock of the Parent Company entitling the
holders thereof to subscribe for or purchase shares of the Parent
Company's Capital Stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events (a "Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances
of Common Stock, shall be deemed not to have been distributed for
purposed of this Section 4.05 (and no adjustment to the Conversion
Price under this Section 4.05 will be required) until the occurrence
of the earliest Trigger Event, whereupon such rights and warrants
shall be deemed to have been distributed and an appropriate adjustment
(if any is required) to the Conversion Price shall be made under this
Section 4.05(d). If any such
<PAGE> 29
25
right or warrant, including any such existing rights or warrants
distributed prior to the date of this Supplemental Indenture, are
subject to events, upon the occurrence of which such rights or
warrants become exercisable to purchase different securities,
evidences of Indebtedness or other assets, then the date of the
occurrence of any and each such event shall be deemed to be the date
of distribution and record date with respect to new rights or warrants
with such rights (and a termination or expiration of the existing
rights or warrant without exercise by any of the holders thereof.) In
addition, in the event of any distribution (or deemed distribution) of
rights or warrants, or any Trigger Event or other event (of the type
described in the preceding sentence) with respect thereto that was
counted for purposes of calculating a distribution amount for which an
adjustment to the Conversion Price under this Section 4.05 was made,
(1) in that case of any such rights or warrants which shall all have
been redeemed or repurchased without exercise by any holder thereof,
the Conversion Price shall be readjusted upon such final redemption or
repurchase to give effect to such distribution or Trigger Event, as
the case may be, as though it were a cash distribution, equal to the
per share redemption or repurchase price received by a holder or
holders of Common Stock of the Parent Company with respect to such
rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such
redemption or repurchase, and (2) in the case of such rights or
warrants which shall have expired or been terminated without exercise
by any holders thereof, the Conversion Price shall be readjusted as if
such rights and warrants had not been issued.
For purposes of this Section 4.05(d) and Section
4.05(a) and (b), any dividend or distribution to which this Section
4.05(d) is applicable that also includes shares of Common Stock of the
Parent Company, or rights or warrants to subscribe for or purchase
shares of Common Stock (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of Indebtedness, assets or
shares of Capital Stock other than such shares of Common Stock or
rights or warrants (and any Conversion Price reduction required by
this Section 4.05(d) with respect to such dividend or distribution
shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants
(and any further Conversion Price reduction required by Section
4.05(a) and (b) with respect to such dividend or distribution shall
then be made), except (A) the Record Date of such dividend or
distribution shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or
other distribution" and "the date fixed for such determination" within
the meaning of Section 4.05(a) and (b) and (B) any shares of Common
Stock including in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 4.05(a).
(e) In case the Parent Company shall, by dividend
or otherwise, distribute to all holders of its Common Stock cash
(excluding (x) any quarterly cash dividend on the Common Stock to the
extent the aggregate cash dividend per share of Common Stock in any
fiscal quarter does not exceed the greater of (A) the amount per share
of Common Stock of the next preceding quarterly cash dividend on the
Common Stock to the extent that such preceding quarterly dividend did
not require any adjustment of the Conversion Price pursuant to this
Section 4.05(e) (as adjusted to reflect subdivisions
<PAGE> 30
26
or combinations of the Common Stock), and (B) 3.75% of the arithmetic
average of the Closing Price (determined as set forth in Section
4.05(i) during the ten Trading Days (as defined in Section 4.05(i)
immediately prior to the date of declaration of such dividend, and (y)
any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Parent Company, whether voluntary or
involuntary), then, in such case, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
close of business on such Record Date by a fraction of which the
numerator shall be the Current Market Price of the Common Stock of the
Parent Company on the Record Date less the amount of cash so
distributed (and not excluded as provided above) applicable to one
share of Common Stock and the denominator shall be such Current Market
Price of the Common Stock, such reduction to be effective immediately
prior to the opening of business on the day following the Record Date;
provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock of the Parent
Company is equal to or greater than the Current Market Price of the
Common Stock of the Parent Company on the Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each
Noteholder shall have the right to receive upon conversion the amount
of cash such Holder would have received had such Holder converted each
Note on the Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect
if such dividend or distribution had not been declared. If any
adjustment is required to be made as set forth in this Section 4.05(e)
as a result of a distribution that is a quarterly dividend, such
adjustment shall be based upon the amount by which such distribution
exceeds the amount of the quarterly cash dividend permitted to be
excluded pursuant hereto. If an adjustment is required to be made as
set forth in this Section 4.05(e) above as a result of a distribution
that is not a quarterly dividend, such adjustment shall be based upon
the full amount of the distribution.
(f) In case a tender or exchange offer made by
the Parent Company or any Subsidiary of the Parent Company for all or
any portion of the Common Stock of the Parent Company shall expire and
such tender or exchange offer (as amended upon the expiration thereof)
shall require the payment to stockholders of consideration per share
of Common Stock of the Parent Company having a fair market value (as
determined by the Board of Directors of the Parent Company, whose
determination shall be conclusive and described in a resolution of the
Board of Directors) that as of the last time (the "Expiration Time")
tender or exchanges may be made pursuant to such tender or exchange
offer (as it may be amended) that exceeds the Current Market Price of
the Common Stock of the Parent Company on the Trading Day next
succeeding the Expiration Time, the Conversion Price shall be reduced
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the Expiration Time by
a fraction of which the numerator shall be the number of shares of
Common Stock of the Parent Company outstanding (including any tendered
or exchange shares) on the Expiration Time multiplied by the Current
Market Price of the Common Stock of the Parent Company on the Trading
Day next succeeding the Expiration Time and the denominator shall be
the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the
acceptance (up to any
<PAGE> 31
27
maximum specified in the terms of the tender or exchange offer) of all
shares validity tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock of the Parent Company
outstanding (less any Purchased Shares) on the Expiration Time and the
Current Market Price of the Common Stock of the Parent Company on the
Trading Day next succeeding the Expiration Time, such reduction to
become effective immediately prior to the opening of business on the
day following the Expiration Time. In the event that the Parent
Company is obligated to purchase shares pursuant to any such tender or
exchange offer, but the Parent Company is permanently prevented by
applicable law from effecting any such purchase or all such purchases
are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such tender or
exchange offer had not been made.
(g) In case of a tender or exchange offer made by
a Person other than the Parent Company or any Subsidiary of the Parent
Company for an amount which increases the offeror's ownership of
Common Stock of the Parent Company to more than 25% of the Common
Stock of the Parent Company outstanding and shall involve the payment
by such Person of consideration per share of Common Stock having a
fair market value (as determined by the Board of Directors of the
Parent Company, whose determination shall be conclusive, and described
in a resolution of the Board of Directors of the Parent Company) at
the last time (the "Expiration Time") tenders or exchanges may be made
pursuant to such tender or exchange offer (as it shall have been
amended) that exceeds the Current Market Price of the Common Stock on
the Trading Day next succeeding the Expiration Time, and in which, as
of the Expiration Time the Board of Directors of the Parent Company is
not recommending rejection of the offer, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
Expiration Time by a fraction of which the numerator shall be the
number of shares of Common Stock of the Parent Company outstanding
(including any tendered or exchanged shares) on the Expiration Time
multiplied by the Current Market Price of the Common Stock of the
Parent Company on the Trading Day next succeeding the Expiration Time
and the denominator shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares") and (y) the product of the number of shares
of Common Stock of the Parent Company outstanding (less any Purchased
Shares) on the Expiration Time and the Current Market Price of the
Common Stock of the Parent Company on the Trading Day next succeeding
the Expiration Time, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration
Time. In the event that such Person is obligated to purchase shares
pursuant to any such tender or exchange offer, but such Person is
permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be
in effect if such tender or exchange offer had not
<PAGE> 32
28
been made. Notwithstanding the foregoing, the adjustment described in
this Section 4.05(g) shall not be made if, as of the Expiration Time,
the offering documents with respect to such offer disclose a plan or
intention to cause the Parent Company to engage in any transaction
described in Article Nine of the Subordinated Indenture.
(h) In case the Parent Company shall issue Common
Stock or securities convertible into, or exchangeable for, Common
Stock of the Parent Company at a price per share (or having a
conversion or exchange price per share) that is less than the then
Current Market Price of the Common Stock of the Parent Company (but
excluding, among other things, issuances: (a) pursuant to any bona
fide plan for the benefit of employees, directors or consultants of
the Parent Company or any Subsidiary of the Parent Company now or
hereafter in effect; (b) to acquire all or any portion of a business
in an arm's-length transaction between the Parent Company or any
Subsidiary of the Parent Company and an unaffiliated third party
including, if applicable, issuances upon exercise of options or
warrants assumed in connection with such an acquisition; (c) in a bona
fide public offering pursuant to a firm commitment underwriting (or a
similar type of offering made pursuant to Rule 144A and/or Regulation
S under the Securities Act) or sales at the market pursuant to a
continuous offering stock program; (d) pursuant to the exercise of
warrants, rights (including, without limitation, earnout rights) or
options, or upon the conversion of convertible securities, which are
issued and outstanding on the date hereof, or which may be issued in
the future at fair value and with an exercise price or conversion
price at least equal to the Current Market Price of the Common Stock
of the Parent Company at the time of issuance of such warrant, right,
option or convertible security; and (e) pursuant to a dividend
reinvestment plan or other plan hereafter adopted for the reinvestment
of dividends or interest provided that such Common Stock is issued at
a price at least equal to 95% of the market price of the Common Stock
at the time of such issuance), the Conversion Price shall be adjusted
so that the Holder of each Note shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock of the Parent
Company determined by multiplying (i) the Conversion Price on the day
immediately prior to such date of issuance by (ii) a fraction, the
numerator of which shall be the sum of (A) the number of shares of
Common Stock of the Parent Company outstanding on such date and (B)
the number of additional shares of Common Stock issued (or into which
the convertible securities may convert), and the denominator of which
shall be the sum of (1) the number of shares of Common Stock
outstanding on such date and (2) the number of shares of Common Stock
which the aggregate consideration receivable by the Parent Company for
the total number of shares of Common Stock so issued (or into which
the convertible securities may convert) would purchase at such
Conversion Price on such date. An adjustment made pursuant to this
paragraph (h) shall be made on the next Business Day following the
date on which any such issuance is made and shall be effective
retroactively immediately after the close of business on such date.
For purposes of this paragraph (h), the aggregate consideration
receivable by the Parent Company in connection with the issuance of
shares of Common Stock or of securities convertible into shares of
Common Stock of the Parent Company shall be deemed to be equal to the
sum of the aggregate offering price (before deduction of underwriting
discounts or commissions and expenses payable to third parties) of all
<PAGE> 33
29
such securities plus the minimum aggregate amount, if any, payable
upon conversion of any such convertible securities into shares of
Common Stock of the Parent Company.
(i) For purposes of this Section 4.05, the
following terms shall have the meaning indicated:
(1) "Closing Price" with respect to any
securities on any day shall mean the closing sale price
regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked
prices, regular way, in each case on the New York Stock
Exchange, or, if such security is not listed or admitted to
trading on such Exchange, on the principal national security
exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked
prices of such security on the over-the-counter market on the
day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service or if not so available, in such manner as furnished by
any New York Stock Exchange member firm selected from time to
time by the Board of Directors of the Parent Company for that
purpose, or a price determined in good faith by the Board of
Directors of the Parent Company or, to the extent permitted by
applicable law, a duly authorized committee thereof, whose
determination shall be conclusive.
(2) "Current Market Price" shall mean
the average of the daily Closing Prices per share of Common
Stock for the ten consecutive Trading Days immediately prior
to the date in question; provided, however, that (1) if the
"ex" date (as hereinafter defined) for any event (other than
the issuance or distribution or Fundamental Change requiring
such computation) that requires an adjustment to the
Conversion Price pursuant to Section 4.05(a), (b), (c), (d),
(e), (f), (g) or (h) occurs during such ten consecutive
Trading Days, the Closing Price for each Trading Day prior to
the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same fraction by which
the Conversion Price is so required to be adjusted as a result
of other event, (2) if the "ex" date for any event (other than
the issuance, distribution or Fundamental Change requiring
such computation) that requires an adjustment to the
Conversion Price pursuant to Section 4.05(a), (b), (c), (d),
(e), (f), (g) or (h) occurs on or after the "ex" date for the
issuance or distribution requiring such computation and prior
to the day in question, the Closing Price for each Trading Day
on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal
of the fraction by which the Conversion Price is so required
to be adjusted as a result of such other event, and (3) if the
"ex" date for the issuance, distribution or Fundamental Change
requiring such computation is prior to the day in question,
after taking into account any adjustment required pursuant to
clause (1) or (2) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market
value (as determined by the Board of Directors of the Parent
Company or,
<PAGE> 34
30
to the extent permitted by applicable law, a duly authorized
committee thereof in a manner consistent with any
determination of such value for purposes of Section 4.05(d),
(f) or (g), whose determination shall be conclusive and
described in a resolution of the Board of Directors of the
Parent Company or such duly authorized committee thereof, as
the case may be) of the evidences of Indebtedness, shares of
Capital Stock or assets being distributed applicable to one
share of Common Stock of the Parent Company as of the close of
business on the day before such "ex" date. For purposes of
any computation under Section 4.05(f) or (g), the Current
Market Price of the Common Stock of the Parent Company on any
date shall be deemed to be the average of the daily Closing
Prices per share of Common Stock for such day and the next two
succeeding Trading Days; provided, however, that if the "ex"
date for any event (other than the tender or exchange offer
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 4.05(a), (b), (c), (d),
(e), (f), (g) or (h) occurs on or after the Expiration Time
for the tender of exchange offer requiring such computation
and prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Price is so
required to be adjusted as a result of such other event. For
purposes of this paragraph, the term "ex" date, (1) when used
with respect to any issuance or distribution, means the first
date on which the Common Stock of the Parent Company trades
regular way on the relevant exchange or in the relevant market
from which the Closing Price was obtained without the right to
receive such issuance or distribution, (2) when used with
respect to any subdivision or combination of shares of Common
Stock of the Parent Company, means the first date on which the
Common Stock trades regular way on such exchange or in such
market after the time at which such subdivision or combination
becomes effective, and (3) when used with respect to any
tender or exchange offer means the first date on which the
Common Stock of the Parent Company trades regular way on such
exchange or in such market after the Expiration Time of such
offer.
(3) "fair market value" shall mean the
amount which a willing buyer would pay a willing seller in an
arm's length transaction.
(4) "Record Date" shall mean, with
respect to any dividend, distribution or other transaction or
event in which the holders of Common Stock of the Parent
Company have the right to receive any cash, securities or
other property or in which the Common Stock (or other
applicable security) of the Parent Company is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of stockholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors of the
Parent Company or by statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the
applicable security is listed or admitted for trading on the
New York Stock Exchange or another national
<PAGE> 35
31
security exchange, a day on which the New York Exchange or
another national security exchange is open for business or (y)
if the applicable security is quoted on the Nasdaq National
Market, a day on which trades may be made on thereon or (z) if
the applicable security is not so listed, admitted for trading
or quoted, any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(j) The Issuer and the Parent Company may make
such reductions in the Conversion Price, in addition to those required
by Sections 4.05 (a), (b), (c), (d), (e), (f), (g) and (h) as the
Boards of Directors of the Issuer and the Parent Company consider to
be advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock of the Parent Company
resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax
purposes.
To the extent permitted by applicable law, the Issuer
and the Parent Company from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least
twenty (20) days, the reduction is irrevocable during the period and
the Boards of Directors of the Issuer and the Parent Company shall
have made a determination that such reduction would be in the best
interests of the Parent Company and its Subsidiaries taken as a whole,
which determination shall be conclusive. When the Conversion Price is
reduced pursuant to the preceding sentence, the Issuer shall mail to
Holders of record of the Notes a notice of the reduction at least
fifteen (15) days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price and
the period during which it will be in effect.
(k) No adjustments in the Conversion Price shall
be required unless such adjustment would require an increase or
decrease of at least 1% in such price; provided, however, that any
adjustments which by reason of this Section 4.05(k) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article Four shall
be made by the Issuer and the Parent Company, collectively, and shall
be made to the nearest cent or to the nearest one hundredth of a
share, as the case may be. No adjustment need be made for rights to
purchase Common Stock of the Parent Company pursuant to a plan of the
Parent Company or of any of its Subsidiaries for reinvestment of
dividends or interest. To the extent the Notes become convertible
into cash, assets, property or securities (other than Capital Stock of
the Parent Company), no adjustment need be made thereafter as to the
cash, assets, property or such securities. Interest will not accrue
on the cash.
(l) Whenever the Conversion Price is adjusted as
herein provided, the Issuer shall promptly file with the Trustee and
any conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Issuer shall prepare
a notice of such adjustment of the Conversion Price setting forth the
adjusted Conversion Price and the date on which each
<PAGE> 36
32
adjustment becomes effective and shall mail such notice of such
adjustments of the Conversion Price to the Holder of each Note at such
Holder's last address appearing on the Note register, within 20 days
after execution thereof. Failure to deliver such notice shall not
affect the legality or validity of any such adjustment.
(m) In any case in which this Section 4.05
provides that an adjustment shall become effective immediately after a
record date for an event, the Parent Company may defer until the
occurrence of such event (i) issuing to the Holder of any Note
converted after such record date and before the occurrence of such
event the additional shares of Common Stock of the Parent Company
issuable upon such conversion by reason of the adjustment required by
such event or over and above the Common Stock of the Parent Company
issuable upon such conversion before giving effect to such adjustment
and (ii) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 4.03.
(n) For purposes of this Section 4.05, the number
of shares of Common Stock of the Parent Company at any time
outstanding shall not include shares held in the treasury of the
Parent Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock of
the Parent Company. The Parent Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury
of the Parent Company.
SECTION 4.06 Effect of Reclassification, Consolidation,
Merger or Sale. If any of the following events occur, namely (i) any
reclassification or change of the outstanding shares of Common Stock of the
Parent Company (other than a subdivision or combination to which Section
4.05(c) applies), (ii) any consolidation, merger or combination of the Parent
Company with another corporation as a result of which holders of Common Stock
of the Parent Company shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, or (iii) any sale or conveyance of the properties and assets of
the Parent Company as, or substantially as, an entirety to any other Person as
a result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Parent Company or the successor or
purchasing Person, as the case may be, shall execute with the Trustee a
supplemental indenture (which shall comply with the Trust Indenture Act as in
force at the date of execution of such supplemental indenture) providing that
such Note shall be convertible into the kind and amount of shares of stock and
other securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares of Common Stock of the Parent
Company issuable upon conversion of such Notes (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock of the Parent Company
available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise such holder's
rights of election, if any, as to the kind or amount of securities, cash or
other property receivable upon such reclassification, consolidation, merger,
combination, sale or conveyance (provided that, if the kind of amount of
securities, cash or other property receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance is not the same
<PAGE> 37
33
for each share of Common Stock of the Parent Company in respect of which such
rights of election shall not have been exercised ("nonelecting share")), then
for the purposes of this Section 4.06 the kind and amount of securities, cash
or other property receivable upon such reclassification, change, consolidation,
merger, combination, sale or conveyance for each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares. Such supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article.
The Issuer shall cause notice of the execution of such
supplemental indenture to be mailed to each Holder of Notes, at such Holder's
address appearing in the Note register, within twenty (20) days after execution
thereof. Failure to deliver such notice shall not affect the legality or
validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 4.06 applies to any event or occurrence,
Section 4.05 shall not apply.
SECTION 4.07 Taxes on Shares Issued. The issue of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any tax in respect of the issue thereof. Neither the
Issuer nor the Parent Company shall, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
stock in any name other than that of the Holder of any Note converted, and the
Parent Company shall not be required to issue or deliver any such stock
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Parent Company the amount of such tax or shall have
established to the satisfaction of the Parent Company that such tax has been
paid.
SECTION 4.08 Reservation of Shares; Shares to Be Fully Paid;
Compliance with Governmental Requirements; Listing of Common Stock. The Parent
Company shall provide, free from preemptive rights, out of its authorized but
unissued shares or shares held in treasury, sufficient shares of Common Stock
to provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the shares
of Common Stock issuable upon conversion of the Notes, the Parent Company will
take all corporate action which may, in the opinion of its counsel, be
necessary in order that the Parent Company may validly and legally issue shares
of such Common Stock at such adjusted Conversion Price.
The Parent Company covenants that all shares of Common Stock
which may be issued upon conversion of Notes will upon issue be fully paid and
non-assessable by the Parent Company and free from all taxes (to the extent
provided in Section 4.07), liens and charges with respect to the issue thereof.
<PAGE> 38
34
The Parent Company covenants that if any shares provided of
Common Stock to be provided for the purpose of conversion of Notes hereunder
require registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued upon conversion,
the Parent Company will in good faith and as expeditiously as possible endeavor
to secure such registration or approval, as the case may be.
The Parent Company further covenants that if at any time the
Common Stock shall be listed on the Nasdaq National Market or any other
national securities exchange or automated quotation system the Parent Company
will, if permitted by the rules of such exchange or automated quotation system,
list and keep listed, so long as the Common Stock shall be so listed on such
exchange or automated quotation system, all Common Stock issuable upon
conversion of the Notes.
SECTION 4.09 Responsibility of Trustee. The Trustee and
any other conversion agent shall not at any time be under any duty or
responsibility to any Holder of Notes to determine the Conversion Price or
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the nature or extent or calculation of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same. The
Trustee and any other conversion agent shall not be accountable with respect to
the validity or value (or the kind or amount) of any shares of Common Stock of
the Parent Company, or of any securities or property, which may at any time be
issued or delivered upon the conversion of any Note; and the Trustee and any
other conversion agent make no representations with respect thereto. Neither
the Trustee nor any conversion agent shall be responsible for any failure of
the Issuer or the Parent Company to issue, transfer or deliver any shares of
Common Stock of the Parent Company or stock certificates or other securities or
property or cash upon the surrender of any Note for the purpose of conversion
or to comply with any of the duties, responsibilities or covenants of the
Issuer or the Parent Company contained in this Article. Without limiting the
generality of the foregoing, neither the Trustee nor any conversion agent shall
be under any responsibility to determine the correctness of any provisions
contained in any supplemental indenture entered into pursuant to Section 4.06
relating either to the kind or amount of shares of stock or securities or
property (including cash) receivable by Noteholders upon the conversion of
their Notes after any event referred to in such Section 4.06 or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Section 6.01 of the Subordinated Indenture, may accept as conclusive evidence
of the correctness of any such provisions, and shall be protected in relying
upon, the Officers' Certificate (which the Issuer and the Parent Company shall
be obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.
SECTION 4.10 Notice to Holders Prior to Certain Actions. In
the event:
(a) the Parent Company shall declare a dividend (or any
other distribution) on its Common Stock that would require an
adjustment in the Conversion Price pursuant to Section 4.05; or
<PAGE> 39
35
(b) the Parent Company shall authorize the granting to
the holders of its Common Stock of rights or warrants to subscribe for
or purchase any share of any class or any other rights or warrants; or
(c) of any reclassification or reorganization of the
Common Stock of the Parent Company (other than a subdivision or
combination of its outstanding common Stock, or a change in par value,
or from par value to no par value, or from no par value to par value),
or of any consolidation or merger to which the Parent Company is a
party and for which approval of any stockholders of the Parent Company
required, or of the sale or transfer of all or substantially all of
the assets of the Parent Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Parent Company;
the Parent Company shall cause to be filed with the Trustee and to be mailed to
each Holder of Notes at such Holder's address appearing on the note register
provided for in Section 2.08 of the Subordinated Indenture, as promptly as
possible but in any event at least fifteen (15) days prior to the applicable
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution or rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of the Parent Company of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective or occur, and the
date as of which it is expected that holders of Common Stock of the Parent
Company of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
SECTION 4.11 Conversion Agent. The Trustee shall initially
serve as conversion agent for the Notes.
ARTICLE FIVE
Certain Covenants
SECTION 5.01 Office of the Parent Company. So long as any
Notes are convertible into Common Stock of the Parent Company in accordance
with the terms of this Supplemental Indenture, the Parent Company shall
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Notes may be surrendered for conversion into Common Stock of the
Parent Company (the "Parent Company Office"). The Parent Company and the
Issuer covenant and agree for the benefit of the Holders that the office or
agency of the Issuer maintained in the Borough of Manhattan, The City of New
York pursuant to Section 3.02 of the Subordinated Indenture shall serve as the
Parent Company Office.
<PAGE> 40
36
SECTION 5.02 Limitation on Senior Subordinated Indebtedness.
The Parent Company will not, and will not permit any Subsidiary Guarantor to,
Incur any Indebtedness that is expressly made subordinate in right of payment
to any Senior Indebtedness or Guarantor Senior Indebtedness, as the case may
be, unless such Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such Indebtedness is outstanding, is expressly
made pari passu with, or subordinate in right of payment to, the Securities or
the Note Guarantee of such Guarantor, as the case may be, pursuant to
provisions substantially similar to those contained in this Indenture.
SECTION 5.03 Limitation on Senior Indebtedness. The Parent
Company will not, and will not permit the Issuer or any Subsidiary Guarantor
to, Incur any Indebtedness unless (i) in the case of such Indebtedness that is
secured, there is no outstanding unsecured Senior Indebtedness or Guarantor
Senior Indebtedness of the Issuer or any Guarantor, and (ii) in the case of
such Indebtedness that is unsecured Senior Indebtedness or unsecured Guarantor
Senior Indebtedness, there is no outstanding secured Indebtedness of the Issuer
or any Guarantor, other than Capital Lease Obligations outstanding at any time
in an aggregate amount not to exceed $2.0 million.
The foregoing provision will be of no further force and effect
if (a) a supplemental indenture which eliminates the subordination provisions
set forth in Articles Six and Seven of this Supplemental Indenture and Articles
Twelve and Fourteen of the Subordinated Indenture, in form and substance
satisfactory to the Trustee, shall have been executed and delivered to the
Trustee, (b) the Trustee shall have received necessary consents with respect to
all outstanding Senior Indebtedness and Guarantor Senior Indebtedness from the
holders thereof approving such supplemental indenture, (c) the Trustee shall
have received such Opinions of Counsel as the Trustee may reasonably request,
and (d) immediately before and immediately after giving effect to such
supplemental indenture, no Default or Event of Default shall have occurred and
be continuing.
SECTION 5.04 Issuance of Certain Subsidiary Guarantees. If
and to the extent the same has not occurred as of the date of this Supplemental
Indenture, the Issuer and the Parent Company shall, within 30 days of the date
of final prospectus relating to the public offering of the Notes, cause each of
Metrol Security Services, Inc., a Delaware corporation ("Metrol"), and Sonitrol
of Arizona, Inc. ("Sonitrol"), an Arizona corporation, each of which is a
Subsidiary of the Parent Company, to be merged with and into the Issuer, and if
either Metrol or Sonitrol is not so merged within such 30-day period, cause
Metrol or Sonitrol, as the case may be, to execute and deliver an indenture
supplemental to the Subordinated Indenture providing for a Note Guarantee of
payment of the Notes by Metrol or Sonitrol, as the case may be, pursuant to
Article Thirteen of the Subordinated Indenture.
ARTICLE SIX
Subordination of Notes
<PAGE> 41
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SECTION 6.01 Notes Subordinated to Senior Indebtedness.
Notwithstanding any other provision of this Indenture, the Issuer and the
Trustee each covenants and agrees, and each Holder, by its acceptance of a
Note, likewise covenants and agrees, that all Notes shall be issued subject to
the provisions of this Article Six; and each Person holding any Note, whether
upon original issue or upon transfer, assignment or exchange thereof, accepts
and agrees that Senior Subordinated Obligations shall, to the extent set forth
in this Article Six, be subordinated in right of payment to the prior payment
in full, in cash or cash equivalents, of all amounts that constitute Senior
Indebtedness of the Issuer, including, without limitation, the Issuer's
obligations under the Credit Agreement.
SECTION 6.02 No Payment on Securities or Coupons in Certain
Circumstances.
(a) No direct or indirect payment by or on behalf of the
Issuer of Senior Subordinated Obligations, whether pursuant to the terms of the
Securities or of any Coupons or upon acceleration or otherwise, shall be made
if, at the time of such payment, there exists a default in the payment of all
or any portion of the obligations of any Senior Indebtedness, and such default
shall not have been cured or waived or the benefits of this provision waived by
or on behalf of the holders of such Senior Indebtedness.
(b) During the continuance of any other event of default
with respect to (i) the Credit Agreement pursuant to which the maturity thereof
may be accelerated and (A) upon receipt by the Trustee of written notice from
the Credit Agreement Agent or (B) if such event of default under the Credit
Agreement results from the acceleration of the Securities, from and after the
date of such acceleration, no payment of Senior Subordinated Obligations may be
made by or on behalf of the Issuer upon or in respect of the Securities for a
period (a "Payment Blockage Period") commencing on the earlier of the date of
receipt of such notice or the date of such acceleration and ending 179 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the Trustee from the Credit Agreement Agent or by repayment in full
in cash or cash equivalents of such Senior Indebtedness or such event of
default has been cured or waived) or (ii) any other Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated, upon
receipt by the Trustee of written notice from the trustee or other
representative for the holders of such other Designated Senior Indebtedness (or
the holders of at least a majority in principal amount of such other Designated
Senior Indebtedness then outstanding), no payment of Senior Subordinated
Obligations may be made by or on behalf of the Issuer upon or in respect of the
Notes for a Payment Blockage Period commencing on the date of receipt of such
notice and ending 119 days thereafter (unless, in each case, such Payment
Blockage Period shall be terminated by written notice to the Trustee from such
trustee of, or other representative for, such holders or by repayment in full
in cash or cash equivalents of such Designated Senior Indebtedness or such
event of default has been cured or waived). Not more than one Payment Blockage
Period pursuant to this Section 6.02(b) may be commenced with respect to the
Notes during any period of 360 consecutive days; provided that, subject to the
limitations set forth in the next sentence, the commencement of a Payment
Blockage Period by the representatives for, or the holders of, Designated
Senior Indebtedness, other than under the Credit Agreement or under clause
(i)(B) of this paragraph, shall not bar the commencement of another Payment
Blockage Period by the Credit Agreement Agent within such period of 360
consecutive days. Notwithstanding anything in this Indenture to the contrary,
there must be 180
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38
consecutive days in any 360-day period in which no Payment Blockage Period is
in effect. For all purposes of this Section 6.02(b), no event of default that
existed or was continuing (it being acknowledged that any subsequent action
that would give rise to an event of default pursuant to any provision under
which an event of default previously existed or was continuing shall constitute
a new event of default for this purpose) on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or shall be made, the basis
for the commencement of a second Payment Blockage Period by the representative
for, or the holders of, such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 6.02(a) or 6.02(b), the Trustee shall promptly notify the
holders of Senior Indebtedness of such prohibited payment and such payment
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Senior Indebtedness or their respective representatives, or
to the trustee or trustees under any indenture pursuant to which any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that, upon notice from the Trustee to the
holders of Senior Indebtedness that such prohibited payment has been made, the
holders of the Senior Indebtedness (or their representative or representatives
of a trustee) within 30 days of receipt of such notice from the Trustee notify
the Trustee of the amounts then due and owing on the Senior Indebtedness, if
any, and only the amounts specified in such notice to the Trustee shall be paid
to the holders of Senior Indebtedness and any excess above such amounts due and
owing on Senior Indebtedness shall be paid to the Issuer.
SECTION 6.03 Payment over of Proceeds upon Dissolution, Etc.
(a) Upon any payment or distribution of assets or
securities of the Issuer of any kind or character, whether in cash, property or
securities, in connection with any dissolution or winding up or total or
partial liquidation or reorganization of the Issuer, whether voluntary or
involuntary, or in a bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full, in cash or cash equivalents, before the Holders or the Trustee on
their behalf shall be entitled to receive any payment by the Issuer on account
of Senior Subordinated Obligations, or any payment to acquire any of the Notes
for cash, property or securities, or any distribution with respect to the Notes
of any cash, property or securities. Before any payment may be made by, or on
behalf of, the Issuer on any Senior Subordinated Obligations in connection with
any such dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Issuer of any kind or character,
whether in cash, property or securities, to which the Holders or the Trustee on
their behalf would be entitled, except for the provisions of this Article Six,
shall be made by the Issuer or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution or by the Holders or the Trustee if received by them or it,
directly to the holders of the Senior Indebtedness (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such
holders) or their representatives or to any trustee or trustees under any
indenture pursuant to which any such Senior Indebtedness may have been issued,
as their respective interests appear, to the extent
<PAGE> 43
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necessary to pay all such Senior Indebtedness in full, in cash or cash
equivalents, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness.
(b) To the extent any payment of Senior Indebtedness
(whether by or on behalf of the Issuer, as proceeds of security or enforcement
of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be
deemed to be reinstated and outstanding as if such payment had not occurred.
To the extent the obligation to repay any Senior Indebtedness is declared to be
fraudulent, invalid or otherwise set aside under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then the obligations so
declared fraudulent, invalid or otherwise set aside (and all other amounts that
would come due with respect thereto had such obligation not been so affected)
shall be deemed to be reinstated and outstanding as Senior Indebtedness for all
purposes of this Indenture as if such declaration, invalidity or setting aside
had not occurred.
(c) In the event that, notwithstanding the foregoing
provision prohibiting such payment or distribution, any payment or distribution
of assets or securities of the Issuer of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or any Holder at
a time when such payment or distribution is prohibited by Section 6.03(a) and
before all obligations in respect of Senior Indebtedness are paid in full, in
cash or cash equivalents, such payment or distribution shall be received and
held in trust for the benefit of, and shall be paid over or delivered to, the
holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which any such Senior Indebtedness may have been issued, as their respective
interests appear, for application to the payment of Senior Indebtedness
remaining unpaid until all such Senior Indebtedness has been paid in full, in
cash or cash equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(d) The consolidation of the Issuer with, or the merger
of the Issuer with or into, another Person or the liquidation or dissolution of
the Issuer following the sale, conveyance, transfer, lease or other disposition
of all or substantially all of its property and assets to another Person upon
the terms and conditions provided in Article Nine of the Subordinated Indenture
shall not be deemed a dissolution, winding up, liquidation or reorganization
for the purposes of this Section 6.03 if such other Person shall, as a part of
such consolidation, merger, sale, conveyance, transfer, lease or other
disposition, comply (to the extent required) with the conditions stated in
Article Nine of the Subordinated Indenture.
SECTION 6.04 Subrogation.
(a) Upon the payment in full of all Senior Indebtedness
in cash or cash equivalents, the Holders shall be subrogated to the rights of
the holders of Senior Indebtedness to
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40
receive payments or distributions of cash, property or securities of the Issuer
made on such Senior Indebtedness until the principal of and interest on the
Notes shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of such Senior Indebtedness of any
cash, property or securities to which the Holders or the Trustee on their
behalf would be entitled except for the provisions of this Article Six, and no
payment pursuant to the provisions of this Article Six to the holders of Senior
Indebtedness by Holders or the Trustee on their behalf shall, as between the
Issuer, its creditors other than holders of Senior Indebtedness, and the
Holders, be deemed to be a payment by the Issuer to or on account of the Senior
Indebtedness. It is understood that the provisions of this Article Six are
intended solely for the purpose of defining the relative rights of the Holders,
on the one hand, and the holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders
would otherwise have been entitled but for the provisions of this Article Six
shall have been applied, pursuant to the provisions of this Article Six, to the
payment of all amounts payable under Senior Indebtedness, then, and in such
case, the Holders shall be entitled to receive from the holders of such Senior
Indebtedness any payments or distributions received by such holders of such
Senior Indebtedness in excess of the amount required to make payment in full,
in cash or cash equivalents, of such Senior Indebtedness of such holders.
SECTION 6.05 Obligations of the Issuer Unconditional.
(a) Nothing contained in this Article Six or elsewhere in
this Indenture or in the Notes is intended to or shall impair, as among the
Issuer and the Holders, the obligation of the Issuer, which is absolute and
unconditional, to pay to the Holders the principal of and interest on the Notes
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders and
creditors of the Issuer other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Holders or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Six of the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing,
nothing contained in this Article Six will restrict the right of the Trustee or
the Holders to take any action to declare the Notes to be due and payable prior
to their maturity pursuant to Section 5.01 of the Subordinated Indenture or to
pursue any rights or remedies hereunder; provided, however, that all Senior
Indebtedness then due and payable or thereafter declared to be due and payable
shall first be paid in full, in cash or cash equivalents, before the Holders or
the Trustee are entitled to receive any direct or indirect payment from the
Issuer of Senior Subordinated Obligations.
SECTION 6.06 Notice to Trustee.
(a) The Issuer shall give prompt written notice to the
Trustee of any fact known to the Issuer that would prohibit the making of any
payment to or by the Trustee in respect of the Notes pursuant to the provisions
of this Article Six. The Trustee shall not be charged with knowledge of the
existence of any default or event of default with respect to any
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Senior Indebtedness or of any other facts that would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing at its Corporate Trust Office to that effect signed by an
Officer of the Issuer, or by a holder of Senior Indebtedness or trustee or
agent thereof; and prior to the receipt of any such written notice, the Trustee
shall, subject to Article Six of the Subordinated Indenture, be entitled to
assume that no such facts exist; provided that, if the Trustee shall not have
received the notice provided for in this Section 6.06 at least two Business
Days prior to the date upon which, by the terms of this Indenture, any monies
shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Note), then, notwithstanding
anything herein to the contrary, the Trustee shall have full power and
authority to receive any monies from the Issuer and to apply the same to the
purpose for which they were received, and shall not be affected by any notice
to the contrary that may be received by it on or after such prior date except
for an acceleration of the Notes prior to such application. Nothing contained
in this Section 6.06 shall limit the right of the holders of Senior
Indebtedness to recover payments as contemplated by this Article Six. The
foregoing shall not apply if the paying agent is the Issuer. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness (or a
trustee on behalf of, or other representative of, such holder) to establish
that such notice has been given by a holder of such Senior Indebtedness or a
trustee or representative on behalf of any such holder.
(b) In the event that the Trustee determines in good
faith that any evidence is required with respect to the right of any Person as
a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Six, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article Six and, if such
evidence is not furnished to the Trustee, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment.
SECTION 6.07 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets or securities
referred to in this Article Six, the Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making such
payment or distribution, delivered to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Issuer, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Six.
SECTION 6.08 Trustee's Relation to Senior Indebtedness.
(a) The Trustee and any paying agent shall be entitled to
all the rights set forth in this Article Six with respect to any Senior
Indebtedness that may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Indebtedness
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and nothing in this Indenture shall deprive the Trustee or any paying agent of
any of its rights as such holder.
(b) With respect to the holders of Senior Indebtedness,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Six, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness
(except as provided in Section 6.02(c) and Section 6.03(c)).
SECTION 6.09 Subordination Rights Not Impaired by Acts or
Omissions of the Issuer or Holders of Senior Indebtedness. No right of any
present or future holders of any Senior Indebtedness to enforce subordination
as provided in this Article Six will at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Issuer or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance
by the Issuer with the terms of this Indenture, regardless of any knowledge
thereof that any such holder may have or otherwise be charged with. The
provisions of this Article Six are intended to be for the benefit of, and shall
be enforceable directly by, the holders of Senior Indebtedness.
SECTION 6.10 Holders Authorize Trustee to Effectuate
Subordination of the Notes. Each Holder, by such Holder's acceptance of any
Notes, authorizes and expressly directs the Trustee on such Holder's behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article Six, and appoints the Trustee such
Holder's attorney-in-fact for such purposes, including, in the event of any
dissolution, winding up, liquidation or reorganization of the Issuer (whether
in bankruptcy, insolvency, receivership, reorganization or similar proceedings
or upon an assignment for the benefit of creditors or otherwise) tending
towards liquidation of the property and assets of the Issuer, the filing of a
claim for the unpaid balance of its Notes, if any, in the form required in
those proceedings. If the Trustee does not file a proper claim or proof of
indebtedness in the form required in such proceeding at least 30 days before
the expiration of the time to file such claim or claims, each holder of Senior
Indebtedness is hereby authorized to file an appropriate claim for and on
behalf of the Holders.
SECTION 6.11 Not to Prevent Events of Default. The failure
to make a payment on account of principal of or interest on the Notes by reason
of any provision of this Article Six will not be construed as preventing the
occurrence of an Event of Default.
SECTION 6.12 Trustee's Compensation Not Prejudiced. Nothing
in this Article Six will apply to amounts due to the Trustee pursuant to other
sections of this Indenture.
SECTION 6.13 No Waiver of Subordination Provisions. Without
in any way limiting the generality of Section 6.09, the holders of Senior
Indebtedness may, at any time and from time to time, without the consent of or
notice to the Trustee or the Holders, without incurring responsibility to the
Holders and without impairing or releasing the subordination provided in this
Article Six or the obligations hereunder of the Holders to the holders of
Senior Indebtedness, do any one or more of the following: (a) change the
manner, place or terms of
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payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Indebtedness; (c) release any Person liable in any manner for the
collection of Senior Indebtedness; and (d) exercise or refrain from exercising
any rights against the Issuer and any other Person.
SECTION 6.14 Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Six or elsewhere in this Indenture shall
prevent (i) the Issuer, except under the conditions described in Section 6.02
or Section 6.03, from making payments of principal of and interest on the
Notes, or from depositing with the Trustee any money for such payments, or (ii)
the application by the Trustee of any money deposited with it for the purpose
of making such payments of principal of and interest on the Notes to the
Holders entitled thereto unless, at least two Business Days prior to the date
upon which such payment becomes due and payable, the Trustee shall have
received the written notice provided for in Section 6.02(b) (or there shall
have been an acceleration of the Notes prior to such application) or in Section
6.06. The Issuer shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Issuer.
ARTICLE SEVEN
Subordination of Note Guarantees
SECTION 7.01 Note Guarantees Subordinated to Guarantor Senior
Indebtedness. Notwithstanding any other provision of this Indenture, each
Guarantor and the Trustee each covenants and agrees, and each Holder, by its
acceptance of a Note, likewise covenants and agrees, that the Note Guarantee of
each Guarantor shall be subject to the provisions of this Article Seven; and
each Person holding any Note, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments pursuant
to any Note Guarantee shall, to the extent set forth in this Article Seven, be
subordinated in right of payment to the prior payment in full, in cash or cash
equivalents, of all amounts payable under the Guarantor Senior Indebtedness of
the issuer of such Note Guarantee, including, without limitation, such
Guarantor's obligations, if any, under the Credit Agreement.
SECTION 7.02 No Payment on Note Guarantees in Certain
Circumstances.
(a) No direct or indirect payment by or on behalf of any
Guarantor pursuant to the Note Guarantee of such Guarantor shall be made if, at
the time of such payment, there exists a default in the payment of all or any
portion of the obligations of any Guarantor Senior Indebtedness, and such
default shall not have been cured or waived or the benefits of this provision
waived by or on behalf of the holders of such Guarantor Senior Indebtedness.
(b) During the continuance of any other event of default
with respect to (i) the Credit Agreement pursuant to which the maturity thereof
may be accelerated and (A) upon receipt by the Trustee of written notice from
the Credit Agreement Agent or (B) if such event of
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default under the Credit Agreement results from the acceleration of the Notes,
from and after the date of such acceleration, no payment may be made by or on
behalf of any Guarantor pursuant to a Note Guarantee for a period (a "Guarantor
Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice or the date of such acceleration and ending 179 days thereafter
(unless such Guarantor Payment Blockage Period shall be terminated by written
notice to the Trustee from the Credit Agreement Agent or by repayment in full
in cash or cash equivalents of such Senior Indebtedness of the Issuer or such
event of default has been cured or waived) or (ii) any other Designated Senior
Indebtedness (payment of which has been guaranteed by such Guarantor) pursuant
to which the maturity thereof may be accelerated, upon receipt by the Trustee
of written notice from the trustee or other representative for the holders of
such other Designated Senior Indebtedness (or the holders of at least a
majority in principal amount of such other Designated Senior Indebtedness then
outstanding), no payment pursuant to the Note Guarantee of such Guarantor may
be made by or on behalf of such Guarantor for a Guarantor Payment Blockage
Period commencing on the date of receipt of such notice and ending 119 days
thereafter (unless, in each case, such Guarantor Payment Blockage Period shall
be terminated by written notice to the Trustee from such trustee of, or other
representative for, such holders or by repayment in full in cash or cash
equivalents of such Designated Senior Indebtedness or such event of default has
been cured or waived). Not more than one Guarantor Payment Blockage Period
pursuant to this Section 7.02(b) may be commenced with respect to any Note
Guarantee during any period of 360 consecutive days; provided that, subject to
the limitations set forth in the next sentence, the commencement of a Guarantor
Payment Blockage Period by the representatives for, or the holders of,
Designated Senior Indebtedness, other than under the Credit Agreement or under
clause (i)(B) of this paragraph, shall not bar the commencement of another
Guarantor Payment Blockage Period by the Credit Agreement Agent within such
period of 360 consecutive days. Notwithstanding anything in this Indenture to
the contrary, with respect to such Note Guarantee, there must be 180
consecutive days in any 360-day period in which, with respect to such Note
Guarantee, no Guarantor Payment Blockage Period is in effect. For all purposes
of this Section 7.02(b), no event of default that existed or was continuing (it
being acknowledged that any subsequent action that would give rise to an event
of default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose) on the date of the commencement of any Guarantor Payment Blockage
Period with respect to the Designated Senior Indebtedness initiating such
Guarantor Payment Blockage Period shall be, or shall be made, the basis for the
commencement of a second Guarantor Payment Blockage Period by the
representative for, or the holders of, such Designated Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
SECTION 7.03 Payment over of Proceeds upon Dissolution, Etc.
(a) Upon any payment or distribution of assets or
securities of any Guarantor of any kind or character, whether in cash, property
or securities, in connection with any dissolution or winding up or total or
partial liquidation or reorganization of such Guarantor, whether voluntary or
involuntary, or in a bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Guarantor Senior Indebtedness of such
Guarantor shall first be paid in full, in cash or cash equivalents, before the
Holders or the Trustee
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on their behalf shall be entitled to receive any payment by such Guarantor on
account of its Note Guarantee, or any payment by such Guarantor to acquire any
of the Notes for cash, property or securities, or any distribution with respect
to the Notes of any cash, property or securities. Before any payment may be
made by, or on behalf of, any Guarantor pursuant to such Guarantor's Note
Guarantee in connection with any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or securities of such
Guarantor of any kind or character, whether in cash, property or securities, to
which the Holders or the Trustee on their behalf would be entitled, except for
the provisions of this Article Seven, shall be made by such Guarantor or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person making such payment or distribution or by the Holders or the Trustee if
received by them or it, directly to the holders of the Guarantor Senior
Indebtedness of such Guarantor (pro rata to such holders on the basis of the
respective amounts of Guarantor Senior Indebtedness held by such holders) or
their representatives or to any trustee or trustees under any indenture
pursuant to which any such Guarantor Senior Indebtedness may have been issued,
as their respective interests appear, to the extent necessary to pay all such
Guarantor Senior Indebtedness in full, in cash or cash equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Guarantor Senior Indebtedness.
(b) To the extent any payment of Guarantor Senior
Indebtedness of any Guarantor (whether by or on behalf of such Guarantor, as
proceeds of security or enforcement of any right of setoff or otherwise) is
declared to be fraudulent or preferential, set aside or required to be paid to
any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Guarantor Senior Indebtedness of such Guarantor or part
thereof originally intended to be satisfied shall be deemed to be reinstated
and outstanding as if such payment had not occurred. To the extent the
obligation to repay any Guarantor Senior Indebtedness of such Guarantor is
declared to be fraudulent, invalid or otherwise set aside under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then the
obligations so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been so affected) shall be deemed to be reinstated and outstanding as Guarantor
Senior Indebtedness of such Guarantor for all purposes of this Indenture as if
such declaration, invalidity or setting aside had not occurred.
(c) In the event that, notwithstanding the foregoing
provision prohibiting such payment or distribution, any payment or distribution
of assets or securities of any Guarantor of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or any Holder at
a time when such payment or distribution is prohibited by Section 7.03(a) and
before all obligations in respect of Guarantor Senior Indebtedness of such
Guarantor are paid in full, in cash or cash equivalents, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the holders of Guarantor Senior Indebtedness of
such Guarantor (pro rata to such holders on the basis of the respective amounts
of Guarantor Senior Indebtedness held by such holders) or their representatives
or to the trustee or trustees under any indenture pursuant to which any such
Guarantor Senior Indebtedness may have been issued, as their respective
interests appear, for application to the payment of
<PAGE> 50
46
Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness has been paid in full, in cash or cash equivalents, after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Guarantor Senior Indebtedness.
(d) The consolidation of any Guarantor with, or the
merger of any Guarantor with or into, another Person or the liquidation or
dissolution of any Guarantor following the sale, conveyance, transfer, lease or
other disposition of all or substantially all of its property and assets to
another Person upon the terms and conditions provided in Article Nine of the
Subordinated Indenture shall not be deemed a dissolution, winding up,
liquidation or reorganization for the purposes of this Section 7.03 if such
other Person shall, as a part of such consolidation, merger, sale, conveyance,
transfer, lease or other disposition, comply (to the extent required) with the
conditions stated in Article Nine of the Subordinated Indenture.
SECTION 7.04 Subrogation.
(a) Upon the payment in full of all Guarantor Senior
Indebtedness of any Guarantor in cash or cash equivalents, the Holders shall be
subrogated to the rights of the holders of Guarantor Senior Indebtedness to
receive payments or distributions of cash, property or securities of such
Guarantor made on such Guarantor Senior Indebtedness until the principal of and
interest on the Securities and any Coupons appertaining thereto shall be paid
in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Guarantor Senior Indebtedness of any cash,
property or securities to which the Holders or the Trustee on their behalf
would be entitled except for the provisions of this Article Seven, and no
payment pursuant to the provisions of this Article Seven to the holders of
Guarantor Senior Indebtedness by Holders or the Trustee on their behalf shall,
as between such Guarantor, its creditors other than holders of Guarantor Senior
Indebtedness, and the Holders, be deemed to be a payment by such Guarantor to
or on account of such Guarantor Senior Indebtedness. It is understood that the
provisions of this Article Seven are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders
of such Guarantor Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders
would otherwise have been entitled but for the provisions of this Article Seven
shall have been applied, pursuant to the provisions of this Article Seven, to
the payment of all amounts payable under the Guarantor Senior Indebtedness of a
Guarantor, then, and in such case, the Holders shall be entitled to receive
from the holders of such Guarantor Senior Indebtedness any payments or
distributions received by such holders of such Guarantor Senior Indebtedness in
excess of the amount required to make payment in full, in cash or cash
equivalents, of such Guarantor Senior Indebtedness of such holders.
SECTION 7.05 Obligations of Guarantors Unconditional.
(a) Nothing contained in this Article Seven or elsewhere
in this Indenture or in the Notes is intended to or shall impair, as among any
Guarantor and the Holders, the obligation of such Guarantor, which, pursuant to
the Note Guarantee of such Guarantor is absolute and unconditional, to pay to
the Holders the principal of and interest on the Notes as
<PAGE> 51
47
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders and
creditors of such Guarantor other than the holders of the Guarantor Senior
Indebtedness of such Guarantor, nor shall anything herein or therein prevent
the Holders or the Trustee on their behalf from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture,
subject to the rights, if any, under this Article Seven of the holders of the
Guarantor Senior Indebtedness of such Guarantor.
(b) Without limiting the generality of the foregoing,
nothing contained in this Article Seven will restrict the right of the Trustee
or the Holders to take any action to declare the Notes to be due and payable
prior to their maturity pursuant to Section 5.01 of the Subordinated Indenture
or to pursue any rights or remedies hereunder; provided, however, that all
Guarantor Senior Indebtedness of a Guarantor then due and payable or thereafter
declared to be due and payable shall first be paid in full, in cash or cash
equivalents, before the Holders or the Trustee are entitled to receive any
direct or indirect payment from such Guarantor on account of its Note
Guarantee.
SECTION 7.06 Notice to Trustee.
(a) Each Guarantor shall give prompt written notice to
the Trustee of any fact known to such Guarantor that would prohibit the making
of any payment to or by the Trustee in respect of the Notes pursuant to the
provisions of its Note Guarantee, Article Six of this Supplemental Indenture
and this Article Seven. The Trustee shall not be charged with knowledge of the
existence of any default or event of default with respect to any Guarantor
Senior Indebtedness or of any other facts that would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing at its Corporate Trust Office to that effect signed by an
Officer of a Guarantor, or by a holder of Guarantor Senior Indebtedness or
trustee or agent thereof; and prior to the receipt of any such written notice,
the Trustee shall, subject to Article Six of the Subordinated Indenture, be
entitled to assume that no such facts exist; provided that, if the Trustee
shall not have received the notice provided for in this Section 7.06 at least
two Business Days prior to the date upon which, by the terms of this Indenture,
any monies shall become payable for any purpose (including, without limitation,
the payment of the principal of or interest on any Note), then, notwithstanding
anything herein to the contrary, the Trustee shall have full power and
authority to receive any monies from such Guarantor and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary that may be received by it on or after such prior date
except for an acceleration of the Notes prior to such application. Nothing
contained in this Section 7.06 shall limit the right of the holders of
Guarantor Senior Indebtedness to recover payments as contemplated by this
Article Seven. The foregoing shall not apply if the paying agent is such
Guarantor. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Indebtedness (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Guarantor Senior Indebtedness or a trustee or representative
on behalf of any such holder.
(b) In the event that the Trustee determines in good
faith that any evidence is required with respect to the right of any Person as
a holder of Guarantor Senior Indebtedness to
<PAGE> 52
48
participate in any payment or distribution pursuant to this Article Seven, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Guarantor Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Seven and, if such evidence is not furnished to
the Trustee, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 7.07 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets or securities
referred to in this Article Seven, the Trustee and the Holders shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person
making such payment or distribution, delivered to the Trustee or to the Holders
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Guarantor Senior Indebtedness and other
Indebtedness of a Guarantor, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Seven.
SECTION 7.08 Trustee's Relation to Guarantor Senior
Indebtedness.
(a) The Trustee and any paying agent shall be entitled to
all the rights set forth in this Article Seven with respect to any Guarantor
Senior Indebtedness that may at any time be held by it in its individual or any
other capacity to the same extent as any other holder of Guarantor Senior
Indebtedness and nothing in this Indenture shall deprive the Trustee or any
paying agent of any of its rights as such holder.
(b) With respect to the holders of Guarantor Senior
Indebtedness, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article Seven,
and no implied covenants or obligations with respect to the holders of
Guarantor Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness (except as provided in Section 7.02(c)
and Section 7.03(c)).
SECTION 7.09 Subordination Rights Not Impaired by Acts or
Omissions of Guarantors or Holders of Guarantor Senior Indebtedness. No right
of any present or future holders of any Guarantor Senior Indebtedness of any
Guarantor to enforce subordination as provided in this Article Seven will at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of such Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by such Guarantor with the terms of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with. The provisions of this Article Seven are
intended to be for the benefit of, and shall be enforceable directly by, the
holders of Guarantor Senior Indebtedness.
<PAGE> 53
49
SECTION 7.10 Holders Authorize Trustee to Effectuate
Subordination of Note Guarantees. Each Holder, by such Holder's acceptance of
any Notes, authorizes and expressly directs the Trustee on such Holder's behalf
to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article Seven, and appoints the Trustee such
Holder's attorney-in-fact for such purposes, including, in the event of any
dissolution, winding up, liquidation or reorganization of any Guarantor
(whether in bankruptcy, insolvency, receivership, reorganization or similar
proceedings or upon an assignment for the benefit of creditors or otherwise)
tending towards liquidation of the property and assets of such Guarantor, the
filing of a claim for the unpaid balance of its Notes in the form required in
those proceedings. If the Trustee does not file a proper claim or proof of
indebtedness in the form required in such proceeding at least 30 days before
the expiration of the time to file such claim or claims, each holder of
Guarantor Senior Indebtedness is hereby authorized to file an appropriate claim
for and on behalf of the Holders.
SECTION 7.11 Not to Prevent Events of Default. The failure
to make a payment on account of principal of or interest on the Notes by reason
of any provision of this Article Seven will not be construed as preventing the
occurrence of an Event of Default.
SECTION 7.12 Trustee's Compensation Not Prejudiced. Nothing
in this Article Seven will apply to amounts due to the Trustee pursuant to
other sections of the Indenture.
SECTION 7.13 No Waiver of Subordination Provisions. Without
in any way limiting the generality of Section 7.09, the holders of Guarantor
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the Trustee or the Holders, without incurring responsibility to
the Holders and without impairing or releasing the subordination provided in
this Article Seven or the obligations hereunder of the Holders to the holders
of such Guarantor Senior Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, such Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which such Guarantor Senior
Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing such
Guarantor Senior Indebtedness; (c) release any Person liable in any manner for
the collection of such Guarantor Senior Indebtedness; and (d) exercise or
refrain from exercising any rights against a Guarantor with respect to such
Guarantor Senior Indebtedness and any other Person.
SECTION 7.14 Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Seven or elsewhere in this Indenture shall
prevent (i) a Guarantor, except under the conditions described in Section 7.02
or Section 7.03, from making payments under the Note Guarantee of such
Guarantor with respect to the principal of and interest on the Notes, or from
depositing with the Trustee any money for such payments, or (ii) the
application by the Trustee of any money deposited with it for the purpose of
making such payments of principal of and interest on the Notes to the Holders
entitled thereto unless, at least two Business Days prior to the date upon
which such payment becomes due and payable, the Trustee shall have received the
written notice provided for in Section 7.02(b) (or there shall have been an
acceleration of the Securities or any Coupons appertaining thereto prior to
such application) or in Section 7.06.
<PAGE> 54
50
Each Guarantor shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of such Guarantor.
ARTICLE EIGHT
Miscellaneous Provisions
SECTION 8.01 Ratification of Subordinated Indenture.
Except as expressly modified or amended hereby, the
Subordinated Indenture continues in full force and effect and is in all
respects confirmed and preserved.
SECTION 8.02 Supplemental Indenture.
Notwithstanding any provision to the contrary in Section 8.02
of the Subordinated Indenture, no supplemental indenture entered into by the
Issuer and the Trustee in accordance with Article Eight of the Subordinated
Indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby, change or eliminate any of such Holder's rights under
Articles Three and Four hereof, or modify Articles Six or Seven hereof in a
manner adverse to such Holder.
It shall not be necessary for the consent of the Holders under
this Section 8.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
SECTION 8.03 Governing Law.
This Supplemental Indenture and each Note shall be deemed to
be a contract under the laws of the State of New York, and for all purposes
shall be construed in accordance with the internal laws of such State, except
as may otherwise be required by mandatory provisions of law. This Supplemental
Indenture is subject to the provisions of the Trust Indenture Act and shall, to
the extent applicable, be governed by such provisions.
SECTION 8.04 Counterparts.
This Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 8.05 Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.
[Signature page follows]
<PAGE> 55
S-1
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the day and year first
written above.
PROTECTION ONE ALARM MONITORING, INC.,
as Issuer
By: JOHN E. MACK, III
-------------------------------------
Name: John E. Mack, III
Title: Executive Vice President
PROTECTION ONE, INC.,
as Parent Company
By: JOHN E. MACK, III
-------------------------------------
Name: John E. Mack, III
Title: Executive Vice President
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: JAMES E. MOGAVERO
-------------------------------------
Name: James E. Mogavero
Title: Assistant Vice President
<PAGE> 56
Exhibit A to
Supplemental Indenture
[FORM OF FACE OF NOTE]
[For global Note only:
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE "DEPOSITARY," WHICH
TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE NOTES) TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO., OR IN SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY PAYMENT HEREON IS MADE TO CEDE
& CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A NOTE IN DEFINITIVE
REGISTERED FORM, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY
THE DEPOSITORY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY.]
CUSIP No. 743 659 AL8
No. ____________ $_____________
PROTECTION ONE ALARM MONITORING, INC.
6 3/4% Convertible Senior Subordinated Note due 2003
PROTECTION ONE ALARM MONITORING, INC., a corporation duly
organized and existing under the laws of the State of Delaware (the "Issuer"),
for value received, hereby promises to pay to ________________________________,
or registered assigns, the principal sum of __________ DOLLARS on September 15,
2003 at the agency of the Issuer in the Borough of Manhattan, The City of New
York, New York, or at such other office or agency of the Issuer as may be
maintained for such purpose, in such coin or currency of The United States of
America as at the time of payment is legal tender for the payment of public and
private debts, and to pay to the registered Holder hereof, as hereinafter
provided, interest on said principal sum at the rate per annum specified in the
title of this Note, in like coin or currency, semiannually on March 15 and
September 15 of each year, commencing March 15, 1997. Interest shall accrue
from the most recent date to which interest has been paid or duly provided for
or, if no interest has been paid or duly provided for, from
<PAGE> 57
2
September 20, 1996. The interest so payable on any March 15 and September 15
will, subject to certain exceptions provided in the Supplemental Indenture
hereinafter referred to, be paid to the Person in whose name this Note is
registered at the close of business on the March 1 and September 1, as the case
may be, next preceding such March 15 and September 15 whether or not such March
1 and September 1 is a Business Day. Interest shall be computed on the basis
of a 360-day year of twelve 30-day months. At the option of the Issuer,
payments of principal and interest on the Notes may be made (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the register of Holders of the Notes or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the register of
Holders of the Notes; provided, however, that payments to The Depository Trust
Company ("DTC") shall be made by wire transfer of immediately available funds
to the account of DTC or its nominee.
As provided in the Supplemental Indenture, this Note shall be
deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be governed by and construed in accordance with the internal
laws of such State, except as may otherwise be required by mandatory provisions
of law.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of, premium, if any, and interest on the
Notes to the prior payment in full of all Senior Indebtedness, as defined in
the Supplemental Indenture, and provisions giving the Holder of this Note the
right to convert this Note into Common Stock of Protection One, Inc., a
Delaware corporation (the "Parent Company"), on the terms and subject to the
limitations referred to on the reverse hereof and as more fully specified in
the Supplemental Indenture. Such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by the Trustee or a duly authorized Authenticating Agent under the
Senior Indenture and Supplemental Indenture referred to on the reverse hereof.
<PAGE> 58
3
IN WITNESS WHEREOF, Monitoring has caused this instrument to
be duly executed under its corporate seal.
Dated:
PROTECTION ONE ALARM MONITORING, INC.
By:
------------------------------------
Name:
Title:
[SEAL]
Attest:
By:
------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-mentioned
Supplemental Indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ____________________________________
Authorized Officer
<PAGE> 59
[FORM OF REVERSE OF NOTE]
PROTECTION ONE ALARM MONITORING, INC.
6 3/4% Convertible Senior Subordinated Note due 2003
This Note is one of a duly authorized issue of Securities of
the Issuer known as its 6 3/4% Convertible Senior Subordinated Notes due 2003
(herein referred to as the "Notes"), limited to the aggregate principal amount
of $90,000,000 (or $103,500,000 if the over- allotment option set forth in
Section 3 of the Underwriting Agreement dated September 16, 1996 (as amended
from time to time by the parties thereto) by and between the Issuer and the
Parent Company and Morgan Stanley & Co., Incorporated, Bear, Stearns & Co.,
Inc. and Montgomery Securities is exercised in full), all issued under and
pursuant to an Indenture, dated as of August 29, 1996 (herein referred to as
the "Subordinated Indenture"), between the Issuer, the Parent Company and State
Street Bank and Trust Company, a Massachusetts trust company, as trustee (the
"Trustee"), to which Subordinated Indenture and all indentures supplemental
thereto reference is hereby made for a description of the respective rights,
limitations of rights, obligations, duties and immunities thereunder of the
Issuer, the Parent Company, the Trustee and the Holders of the Notes. This
Note is one of the series designated on the face hereof, and is issued pursuant
to an indenture supplemental to the Subordinated Indenture, dated as of
September 20, 1996, from the Issuer and the Parent Company to the Trustee,
relating to the Notes of this series (the "Supplemental Indenture").
In case an Event of Default, as defined in the Subordinated
Indenture, shall have occurred and be continuing, the principal of and accrued
interest on all Notes may be declared, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Subordinated Indenture.
The Subordinated Indenture and the Supplemental Indenture
contain provisions permitting the Issuer and the Trustee, with the consent of
the Holders of not less than a majority in aggregate principal amount of the
Notes at the time outstanding, evidenced as in the Subordinated Indenture
provided, to execute supplemental indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Subordinated
Indenture, the Supplemental Indenture or of any other supplemental indenture or
modifying in any manner the rights of the Holders of the Notes; provided,
however, that no such supplemental indenture shall (i) extend the final
maturity of any Note, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, or reduce any amount
payable on redemption thereof, or make the principal thereof or interest or
premium, if any, thereon payable in any coin or currency other than that
provided in the Note, or impair or affect the right of any Noteholder to
institute suit for the payment thereof, or modify the provisions of the
Supplemental Indenture with respect to the subordination of the Notes in a
manner adverse to the Noteholders in any material respect, or change the
obligation of the Issuer to make redemption of any Note upon the happening of a
Fundamental Change in a manner adverse to the Holder of the Notes, or impair
the right to convert the Notes into Common Stock of the Parent Company subject
to the terms set forth in the Supplemental Indenture, including Article Four
thereof, without the consent of the Holder of each Note so affected or (ii)
reduce the aforesaid percentage of Notes, the Holders of which are required to
consent to any such supplemental indenture, without the consent of the Holders
of each Note then outstanding. It is also provided in the Subordinated
<PAGE> 60
2
Indenture that, prior to any declaration accelerating the maturity of the
Notes, the Holders of a majority in aggregate principal amount of the Notes at
the time outstanding may on behalf of the Holders of all of the Notes waive any
past Default or Event of Default under the Subordinated Indenture and its
consequences except a Default in respect of a covenant or provision of the
Subordinated Indenture or the Supplemental Indenture which cannot be modified
or amended without the consent of the Holder of each Note affected. Any such
consent or waiver by the Holder of this Note (unless revoked as provided in the
Subordinated Indenture) shall be conclusive and binding upon such Holder and
upon all future Holders and owners of this Note and any Notes which may be
issued in exchange or substitute hereof, irrespective of whether or not any
notation thereof is made upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and
in the manner provided in the Supplemental Indenture, expressly subordinate and
subject in right of payment to the prior payment in full of all Senior
Indebtedness (as defined in the Supplemental Indenture) of the Issuer, whether
outstanding at the date of the Supplemental Indenture or thereafter incurred,
and this Note is issued subject to the provisions of the Supplemental Indenture
with respect to such subordination. Each Holder of this Note, by accepting the
same, agrees to and shall be bound by such provisions and authorizes the
Trustee on its behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and appoints the Trustee as such
Holder's attorney-in-fact for such purpose.
No reference herein to the Subordinated Indenture or to the
Supplemental Indenture and no provision of this Note or of the Subordinated
Indenture or of the Supplemental Indenture shall alter or impair the obligation
of the Issuer, which is absolute and unconditional, to pay the principal of and
any premium and interest on this Note at the place, at the respective times, at
the rate and in the coin or currency herein prescribed. Interest on the Notes
shall be computed on the basis of a 360-day year comprised of twelve 30-day
months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Issuer referred to on the face hereof, and in the manner and
subject to the limitations provided in the Subordinated Indenture, without
payment of any service charge but with payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
registration, transfer or exchange of Notes, Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.
The Notes will not be redeemable at the option of the Issuer
prior to September 19, 1999. At any time on or after September 19, 1999, and
prior to maturity the Notes may be redeemed, subject to certain circumstances
specified in the Supplemental Indenture, at the option of the Issuer as a
whole, or from time to time in part, upon mailing a notice of such redemption
not less than 30 days before the date fixed for redemption to the Holders of
Notes at their last registered addresses, all as provided in the Supplemental
Indenture, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued
interest to, but excluding, the date fixed for redemption.
If redeemed during the 12-month period beginning September 15:
<PAGE> 61
3
<TABLE>
<CAPTION>
Year Percentage Year Percentage
- ---- ---------- ---- ----------
<S> <C> <C> <C>
1999 . . . . . . . . . 103.587% 2001 . . . . . . . . . 101.929%
2000 . . . . . . . . . 102.893 2002 . . . . . . . . . 100.964
</TABLE>
and 100% at September 15, 2003; provided that if the date fixed for redemption
is on March 15 or September 15, then the interest payable on such date shall be
paid to the Holder of record on the next preceding March 1 or September 1,
respectively.
The Notes are not subject to redemption through the operation of any sinking
fund.
If a Fundamental Change (as defined in the Supplemental
Indenture) occurs at any time prior to September 15, 2003, the Notes will be
redeemable on the 30th day after notice thereof at the option of the Holder.
Such payment shall be made at the following prices (expressed as percentages of
the principal amount) in the event of a Fundamental Change occurring during the
12-month period beginning September 15:
<TABLE>
<CAPTION>
Year Percentage Year Percentage
- ---- ---------- ---- ----------
<S> <C> <C> <C>
1996 . . . . . . . . . 106.750% 2000 . . . . . . . . . 102.893%
1997 . . . . . . . . . 105.786 2001 . . . . . . . . . 101.929
1998 . . . . . . . . . 104.821 2002 . . . . . . . . . 100.964
1999 . . . . . . . . . 103.857
</TABLE>
and 100% at September 15, 2003; provided in each case that if the Applicable
Price (as defined in the Supplemental Indenture) is less than the Reference
Market Price (as defined in the Supplemental Indenture), the Issuer shall
redeem such Notes at a price equal to the foregoing repayment price multiplied
by the fraction obtained by dividing the Applicable Price by the Reference
Market Price. In each case, the Issuer shall also pay accrued interest, if
any, on such Notes to, but excluding, the repayment date; provided that if such
repayment date is March 15 or September 15, then the interest payable on such
date shall be paid to the Holder of record of the Note on the next preceding
March 1 or September 1. The Issuer shall mail to all Holders of record of the
Notes a notice of the occurrence of a Fundamental Change and of the redemption
right arising as a result thereof on or before the 10th day after the
occurrence of such Fundamental Change. For a Note to be so repaid at the
option of the Holder, the Issuer must receive at the office or agency of the
Issuer maintained for that purpose in accordance with the terms of the
Indenture, such Note with the form entitled "Option to Elect Repayment Upon a
Fundamental Change" on the reverse thereof duly completed, together with such
Notes duly endorsed for transfer, on or before the 30th day after the date of
such notice (or if such 30th day is not a Business Day, the immediately
preceding Business Day).
Subject to the provisions of the Supplemental Indenture, the
Holder hereof has the right, at its option, at any time after 90 days following
the latest date of original issuance of the Notes and prior to the close of
business on September 15, 2003, or, as to all or any portion
<PAGE> 62
4
hereof called for redemption, prior to the close of business on the Business
Day immediately preceding the date fixed for redemption (unless the Issuer
shall default in payment due upon redemption thereof), to convert the principal
hereof or any portion of such principal which is $1,000 or an integral multiple
thereof, into that number of shares of Common Stock of the Parent Company, as
said shares shall be constituted at the date of conversion, obtained by
dividing the principal amount of this Note or portion thereof to be converted
by the Conversion Price of $17.95 or such Conversion Price as adjusted from
time to time as provided in the Supplemental Indenture, upon surrender of this
Note, together with the form entitled "Conversion Notice" on the reverse
thereof duly completed, as provided in the Supplemental Indenture, to the
Parent Company at the office or agency of the Parent Company maintained for
that purpose in accordance with the terms of the Supplemental Indenture, or at
the option of such Holder, the Corporate Trust Office, and, unless the shares
issuable on conversion are to be issued in the same name as this Note, duly
endorsed by, or accompanied by instruments of transfer in form satisfactory to
the Parent Company duly executed by, the Holder or by such Holder's duly
authorized attorney. No adjustment in respect of interest or dividends will be
made upon any conversion; provided, however, that if this Note shall be
surrendered for conversion during the period from the close of business on any
record date for the payment of interest to the close of business on the
Business Day preceding the interest payment date, this Note (unless it or the
portion being converted shall have been called for redemption during the period
from the close of business on any record date for the payment of interest to
the close of business on the Business Day preceding the interest payment date)
must be accompanied by an amount, in New York Clearing House funds or other
funds acceptable to the Parent Company, equal to the interest payable on such
interest payment date on the principal amount being converted. No fractional
shares will be issued upon any conversion, but an adjustment in cash will be
made, as provided in the Indenture, in respect of any fraction of a share which
would otherwise be issuable upon the surrender of any Note or Notes for
conversion.
Any Notes called for redemption, unless surrendered for
conversion on or before the close of business on the date fixed for redemption,
may be deemed to be purchased from the Holder of such Notes at an amount equal
to the applicable redemption price, together with accrued interest to (but
excluding) the date fixed for redemption, by one or more investment bankers or
other purchasers who may agree with the Issuer to purchase such Notes from the
Holders thereof and convert them into Common Stock of the Parent Company and to
make payment for such Notes as aforesaid to the Trustee in trust for such
Holders.
Upon due presentment for registration of transfer of this Note
at the office or agency of the Issuer maintained for that purpose in accordance
with the terms of the Subordinated Indenture, or at the option of the Holder of
this Note, at the Corporate Trust Office, a new Note or Notes of authorized
denominations for an equal aggregate principal amount will be issued to the
transferee in exchange thereof, subject to the limitations provided in the
Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Issuer, the Parent Company, the Trustee, any
authenticating agent, any paying agent, any conversion agent and any Note
registrar may deem and treat the registered Holder hereof as the absolute owner
of this Note (whether or not this Note shall be overdue and
<PAGE> 63
5
notwithstanding any notation of ownership or other writing hereon made by
anyone other than the Issuer or any Note registrar), for the purpose of
receiving payment hereof, or on account hereof, for the conversion hereof and
for all other purposes, and neither the Issuer nor the Parent Company nor the
Trustee nor any other authenticating agent nor any paying agent nor any other
conversion agent nor any Note registrar shall be affected by any notice to the
contrary. All payments made to or upon the order of such registered Holder
shall, to the extent of the sum or sums paid, satisfy and discharge liability
for monies payable on this Note.
No recourse for the payment of the principal of or any premium
or interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Issuer in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, stockholder, employee, agent, officer or
director or subsidiary, as such, past, present or future, of the Issuer or the
Parent Company or of any successor corporation thereto, either directly or
through the Issuer or the Parent Company or any successor corporation, whether
by virtue of any constitution, statute or rule of law or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
The Issuer's obligations under the Notes are guaranteed on a
senior subordinated basis, jointly and severally, by the Parent Company and by
each Subsidiary of Parent Company which becomes a Guarantor pursuant to the
provisions of the Subordinated Indenture.
Terms used in this Note and defined in the Subordinated
Indenture or the Supplemental Indenture, as the case may be, are used herein as
therein defined.
<PAGE> 64
6
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- _______Custodian______
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with
right of survivorship ___________________________________
and not as tenants in (State)
common
Additional abbreviations may also be used
though not in the above list.
<PAGE> 65
7
CONVERSION NOTICE
To: PROTECTION ONE, INC.
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock of Protection One, Inc. in accordance with the terms of the Supplemental
Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered Holder hereof unless a
different name has been indicated below. If shares or any portion of this Note
not converted are to be issued in the name of a person other than the
undersigned, the undersigned will check the appropriate box below and pay all
transfer taxes payable with respect thereto. Any amount required to be paid to
the undersigned on account of interest accompanies this Note.
Dated:____________________________
____________________________________
____________________________________
Signature(s)
NOTICE: The above signatures of the
Holder(s) hereof must correspond
with the name as written upon the
face of the Note in every particular
without alteration or enlargement or
any change whatever.
Principal amount to be converted (if
less than all):
$___________
__________________________________
Social Security or Other Taxpayer
Identification Number
<PAGE> 66
8
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange
if shares of Common Stock of the Parent
Company are to be issued, or Notes to
be delivered, other than to and in the
name of the registered Holder.
__________________________________
Signature Guarantee
<PAGE> 67
9
ASSIGNMENT
FOR VALUE RECEIVED, _____________________ hereby sell(s), assign(s) and
transfer(s) unto_________________________ (Please insert social security or
other Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints _______________________ attorney to
transfer the said Note on the books of the Issuer, with full power of
substitution in the premises.
Dated: __________________________ ____________________________________
____________________________________
Signature(s)
NOTICE: The above signatures of the
Holder(s) hereof must correspond with
the name as written upon the face of
the Note in every particular without
alteration or enlargement or any change
whatever.
Principal amount to be assigned (if
less than all):
$_________
___________________________________
Social Security or Other Taxpayer
Identification Number
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange
if shares of Common Stock are to be
issued, or Notes to be delivered, other
than to and in the name of the
registered Holder.
____________________________________
Signature Guarantee
<PAGE> 68
10
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
To: PROTECTION ONE ALARM MONITORING, INC.
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from Protection One Alarm Monitoring, Inc.
(the "Issuer") as to the occurrence of a Fundamental Change with respect to the
Issuer and requests and instructs the Issuer to repay the entire principal
amount of this Note, or the portion thereof (which is $1,000 or an integral
multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Note at the redemption price, together with
accrued interest to, but excluding, such date, to the registered Holder hereof.
Dated:________________________ ___________________________________
____________________________________
Signature(s)
NOTICE: The above signatures of the
Holder(s) hereof must correspond with
the name as written upon the face of
the Note in every particular without
alteration or enlargement or any change
whatever.
Principal amount to be repaid (if less
than all):
$_________
__________________________________
Social Security or Other Taxpayer
Identification Number
<PAGE> 69
11
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange
if shares of Common Stock are to be
issued, or Notes to be delivered, other
than to and in the name of the
registered Holder.
____________________________________
Signature Guarantee
<PAGE> 1
EXHIBIT 10.1
CONSENT AND FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS CONSENT AND FIRST AMENDMENT dated, as of September 16,
1996 (this "Amendment"), is among PROTECTION ONE ALARM MONITORING, INC., a
Delaware corporation ("Borrower"), HELLER FINANCIAL, INC., a Delaware
corporation (in its individual capacity as a lender, "Lender", and in its
capacity as agent for the lenders, "Agent"), and the other financial
institutions signatory hereto, each in its capacity as a Lender.
W I T N E S S E T H :
WHEREAS, Borrower, Agent and Lenders are parties to that
certain Amended and Restated Credit Agreement dated as of June 7, 1996 (the
"Credit Agreement") and to certain other documents executed in connection with
the Credit Agreement;
WHEREAS, Borrower has begun the steps necessary to consummate
an offering of its Subordinated Convertible Notes (as hereinafter defined), the
proceeds of which shall be used to repay a substantial portion of the
outstanding Revolving Loan;
WHEREAS, the completion of the offering of the Subordinated
Convertible Notes and use of proceeds thereof as described herein would
substantially strengthen the capital structure of Borrower;
WHEREAS, the parties wish to enter into this Amendment to
consent to the proposed offering of the Subordinated Convertible Notes and
certain related transactions and to amend the Credit Agreement as provided
herein;
NOW, THEREFORE, for and in consideration of the terms and
conditions contained herein, and other good and valuable consideration the
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Defined Terms.
1.1 All capitalized terms used herein and not otherwise
defined shall have the respective meanings ascribed thereto in the Credit
Agreement.
1.2 Additional Definitions. When used herein, the
following additional defined terms shall have the following respective
meanings:
"Complete" or "Completed" means, with reference to
the Notes Offering, the issuance of the Subordinated Convertible Notes and the
delivery to Borrower by the underwriters retained by Borrower of the net cash
proceeds from the Notes Offering.
"First Amendment Effective Date" shall mean that date
on or before September 30, 1996 on which each of the conditions set forth in
Section 4 of this Amendment shall have been met or performed by Borrower or
otherwise waived in writing by Agent and Lenders.
"Notes Offering" means the underwritten public
offering by Borrower, through Morgan Stanley & Co., Bear, Stearns & Co. Inc.
and Montgomery Securities, of the Subordinated
<PAGE> 2
Convertible Notes, resulting in net cash proceeds to Borrower of not less than
ninety-seven percent (97%) of the aggregate principal amount of the
Subordinated Convertible Notes.
"Preliminary Prospectus" means the prospectus of
Borrower dated August 29, 1996, together with the preliminary prospectus
supplement thereto dated September 5, 1996, with respect to the Notes Offering,
true and correct copies of which have heretofore been provided to Agent and
Lenders.
"Refinancing Transactions" means the execution and
delivery of the Refinancing Transactions Documents, the issuance of the
Subordinated Convertible Notes, the Completion of the Notes Offering, the
partial repayment of the Revolving Loan with the net proceeds of the Notes
Offering and the payment of all fees, costs and expenses associated with the
foregoing.
"Refinancing Transactions Documents" means this
Amendment and the related Loan Documents delivered in connection herewith and
the Subordinated Convertible Note Documents.
"Subordinated Convertible Note Documents" and
"Subordinated Convertible Note Underwriting Agreement" have the meanings given
such terms in Section 3.1 of this Amendment.
"Subordinated Convertible Notes" means those 6.75%
Convertible Senior Subordinated Notes Due 2003 of Borrower to be issued on the
First Amendment Effective Date and (to the extent applicable) on the Option
Closing Date (as defined in the Subordinated Convertible Note Underwriting
Agreement) as more fully described in the Preliminary Prospectus.
2. Consent to Refinancing Transactions. Subject to the
satisfaction of each of the conditions set forth in Section 4 of this Amendment
(or written waiver thereof by Agent and Lenders), Agent and Lenders hereby
consent to (i) the issuance on the First Amendment Effective Date of the
Subordinated Convertible Notes in an aggregate initial principal amount not
exceeding $103.5 million and bearing interest at a per annum rate not in excess
of 6.75% and the execution and delivery of the Subordinated Convertible Note
Documents (as defined in Section 3.1 hereof) in connection therewith in the
form previously delivered by Borrower to Agent, (ii) the Completion of the
Notes Offering and the application by Borrower of the proceeds thereof as set
forth on Schedule A hereto and (iii) in the event the aggregate principal
amount of the Subordinated Convertible Notes issued on the First Amendment
Effective Date is less than $103.5 million, the issuance on the Option Closing
Date (as defined in the Subordinated Convertible Note Underwriting Agreement)
of additional Subordinated Convertible Notes in an aggregate principal amount
not exceeding such difference pursuant to the overallotment option granted
under the Subordinated Convertible Note Underwriting Agreement and the
application by Borrower of the proceeds thereof as set forth on Schedule A
hereto.
3. Amendments to Loan Agreement. Subject to the satisfaction of
the conditions set forth in Section 4 of this Amendment, the parties hereto
agree to amend the Credit Agreement as set forth in this Section 3.
3.1 Subsection 1.1 of the Credit Agreement is hereby
amended by inserting the following new definitions therein in proper
alphabetical order:
"First Amendment" shall mean that Consent and First Amendment dated
2
<PAGE> 3
September 16, 1996 between Borrower and Agent and Lenders.
"First Amendment Effective Date" shall have the
meaning given in Section 1.2 of the First Amendment.
"Subordinated Convertible Note Indenture" means the
Subordinated Debt Shelf Indenture, as supplemented by Supplemental Indenture
No. 1, each dated as of the First Amendment Effective Date by and among State
Street Bank and Trust Company, as trustee, Holdings, as guarantor, and
Borrower, with respect to the Subordinated Convertible Notes.
"Subordinated Convertible Note Documents" means the
Subordinated Convertible Note Underwriting Agreement, the Subordinated
Convertible Note Indenture, the Subordinated Convertible Notes, and all
instruments, documents and agreements executed pursuant to the terms of the
foregoing.
"Subordinated Convertible Note Underwriting
Agreement" means the Underwriting Agreement among Holdings, Borrower and Morgan
Stanley and Co., Bear, Stearns & Co. Inc., Montgomery Securities and the other
underwriters signatory thereto, with respect to the issuance and sale of the
Subordinated Convertible Notes.
"Subordinated Convertible Notes" means those Senior
Subordinated Convertible Notes Due 2003 of Borrower issued on the First
Amendment Effective Date and (to the extent applicable) on the Option Closing
Date (as defined in the Subordinated Convertible Note Underwriting Agreement)
as permitted by the terms of the First Amendment.
3.2 Clause (d) of the definition of "Indebtedness"
appearing in subsection 1.1 of the Credit Agreement is hereby amended to read
as follows:
"(d) all Deferred Payment Obligations and any
other obligation owed for all or any part of the deferred purchase
price of property or services;"
3.3 The definitions of "MRR Attrition" and "Subordinated
Indebtedness" appearing in subsection 1.1 of the Credit Agreement shall be
deleted in their entirety and the following new definitions for such terms
shall be substituted in their place:
"MRR Attrition" means, for any trailing twelve-month
period, the quotient of:
(A) MRR for the last month of such trailing
twelve-month period ("Ending MRR"); less
Ending MRR attributable to internal
installations (excluding new owner reconnects
and conversions), less Ending MRR
attributable to Subscriber Accounts acquired
during such period; less MRR for the month
immediately preceding the beginning of such
period ("Beginning MRR"); plus MRR
attributable to account guaranties enforced
during such period; divided by
(B) the average MRR for such trailing
twelve-month period.
"Subordinated Indebtedness" means all Indebtedness
under the Subordinated Convertible Note Documents and the Subordinated Discount
Note Documents and all other Indebtedness of Borrower or any of Borrower's
Subsidiaries which is subordinated in right of
3
<PAGE> 4
payment to the Obligations.
3.4 The definition of "Loan Documents" appearing in
subsection 1.1 of the Credit Agreement is hereby amended by substituting the
words "but excluding all Subsequent Acquisition Documents, Capitalization
Documents, Subordinated Convertible Note Documents and Subordinated Discount
Note Documents" for the words "but excluding all Acquisition Documents,
Capitalization Documents and Subordinated Discount Note Documents" at the end
of such definition.
3.5 The definition of "Security Documents" appearing in
subsection 1.1 of the Credit Agreement is hereby amended by substituting the
term "Pledge Agreement" for the term "Pledge Agreements" in the sixth line
thereof.
3.6 The definition of "Subordinated Discount Notes"
appearing in subsection 1.1 of the Credit Agreement is hereby amended by
substituting the term "Borrower" for the term "Monitoring" in the second line
thereof.
3.7 Subsection 2.10(B) of the Credit Agreement is hereby
amended by deleting the words "but excluding the prepayment fee referenced in
subsection 2.3(D)" from such subsection.
3.8 Subsection 3.2(C) of the Credit Agreement is hereby
amended to read as follows:
"(C) No Default. No event shall have occurred and
be continuing or would result from the consummation of the borrowing
contemplated by such Notice of Borrowing that would constitute an
Event of Default or a Default, including without limitation any event
which would constitute a default or an event of default under the
Subordinated Convertible Note Indenture or the Subordinated Discount
Note Indenture."
3.9 Subsection 4.2(B) of the Credit Agreement is hereby
amended to delete any reference to Schedule 4.2(B).
3.10 Subsection 5.1(A) of the Credit Agreement is hereby
amended by changing the reference to "subsection 5.1(J)" contained in clause
(1) thereof to "subsection 5.1(H)."
3.11 Subsection 5.1(F) of the Credit Agreement is hereby
amended by changing the reference to "5.1(J)" contained in clause (2) thereof
to "5.1(H)".
3.12 Clause (d) of subsection 7.1 of the Credit Agreement
is hereby amended to read as follows:
"(d) Indebtedness evidenced by the Subordinated
Convertible Notes and the Subordinated Discount Notes;"
3.13 Clause (f)(iii) of subsection 7.1 of the Credit
Agreement is hereby amended to read as follows:
"(iii) the aggregate amount of Deferred Payment
Obligations at any time shall not exceed $5,000,000; and"
4
<PAGE> 5
3.14 Clause (g) of subsection 7.1 of the Credit Agreement
is hereby amended to read as follows:
"(g) Indebtedness not to exceed $500,000 in the
aggregate at any time outstanding incurred with respect to Capital
Leases permitted hereunder."
3.15 Clause (h) of subsection 7.4 of the Credit Agreement
is hereby amended to read as follows:
"(h) Contingent Obligations of Holdings and
Borrower's Subsidiaries with respect to the Subordinated Indebtedness
under the Subordinated Convertible Note Indenture and the Subordinated
Discount Note Indenture and with respect to other Indebtedness
permitted by subsection 7.1;"
3.16 Clause (b) of subsection 7.5 of the Credit Agreement
is hereby amended to read as follows:
"(b) The Subordinated Convertible Notes may be
converted into Holdings Capital Stock at any time or from time to time
in accordance with the terms of Subordinated Convertible Note
Indenture;"
3.17 Subsection 7.8 of the Credit Agreement is hereby
amended by inserting the word "operating" in between the words "any" and
"lease" in the fourth line thereof.
3.18 The payments to Morgan Stanley & Co. pursuant to the
terms of the Subordinated Convertible Note Underwriting Agreement shall not be
deemed violative of subsection 7.11 of the Credit Agreement.
3.19 The second sentence of subsection 7.13 of the Credit
Agreement is hereby amended to read as follows:
"From and after the Closing Date, Holdings shall not
engage in any type of business activity other than ownership of
Borrower's capital stock and the performance of its obligations under
the Subordinated Convertible Note Indenture, the Subordinated Discount
Note Indenture, the Holdings Guaranty, the Holdings Pledge Agreement
and any other Loan Documents to which it is a party."
3.20 Subsection 7.14 of the Credit Agreement is hereby
amended by adding the following sentence at the end of such subsection:
"Borrower will not, nor will Borrower permit Holdings
or any of Borrower's Subsidiaries to, (a) incur or permit to be
outstanding any unsecured "Senior Indebtedness" or unsecured
"Guarantor Senior Indebtedness" (as such terms are defined in the
Subordinated Convertible Note Indenture and the Subordinated Discount
Note Indenture) or (b) designate any Indebtedness (other than the
Obligations) as "Designated Senior Indebtedness" under either the
Subordinated Convertible Note Indenture or the Subordinated Discount
Note Indenture."
3.21 Subsection 8.1(K) of the Credit Agreement is hereby
amended by changing the reference to "subsection 4.18" contained therein to
"subsection 4.17."
5
<PAGE> 6
3.22 Subsection 8.1(S) of the Credit Agreement is hereby
amended by deleting the "." at the end of such subsection and inserting the
following:
"; or (vi) the occurrence of a "Fundamental Change" as defined in the
Subordinated Convertible Note Indenture."
3.23 Subsection 8.2 of the Credit Agreement is hereby
amended by substituting the words "any Lender" for the word "Lenders" in the
second line thereof.
3.24 Clause (b) of the proviso contained in the first
paragraph of subsection 9.1 of the Credit Agreement is hereby amended to read
as follows:
"(b) upon granting its consent, Agent shall notify
Borrower of the proposed assignment and the identity of the proposed
assignee and the amount to be assigned and Borrower shall notify Agent
and such Lender whether or not it consents to the proposed assignment
(which consent shall not be unreasonably withheld) within five (5)
Business Days of receipt of notice from Agent, and, if Borrower does
not grant its consent to the proposed assignment, then Borrower shall
have a period of ninety (90) days to locate an assignee acceptable to
Borrower and Agent and, failing that, at the conclusion of said ninety
(90) day period such Lender shall be free to make the assignment to
the originally selected assignee,"
3.25 Subsection 9.1 of the Credit Agreement is hereby
amended by deleting the reference to subsection 2.11 in the second paragraph
thereof.
3.26 Subsection 9.3(D) of the Credit Agreement is hereby
amended, by substituting the words "ten (10) Business Days" for the words "five
(5) Business Days" in such subsection.
3.27 Subsection 9.3(F) of the Credit Agreement is hereby
amended by substituting the words "Requisite Lenders" for the word "Agent" in
the first line of such subsection.
3.28 Subsection 9.6(A)(3) of the Credit Agreement is
hereby amended by substituting the word "month" for the words "fiscal quarter"
at the end of the first sentence of the second paragraph of such subsection.
3.29 Subsection 10.1 of the Credit Agreement is hereby
amended to insert the phrase "(with respect to fees, costs and expenses
referenced in clauses (g) and (h) below)" before the words "any Lender" in the
third line of such subsection.
3.30 Subsection 10.3 of the Credit Agreement is hereby
amended by inserting the words "amend or waive subsection 2.4(C)(1) hereof or"
at the beginning of clause (f) of such subsection.
3.31 Subsection 10.17 of the Credit Agreement is hereby
deleted.
4. Conditions to Effectiveness. This Agreement shall not become
effective unless and until all of the following conditions have been satisfied
(except that the amendments set forth in Sections 3.2, 3.3 (relating to the
definition of MRR Attrition), 3.4 through 3.7, 3.9 through 3.11, 3.13, 3.14,
3,17, 3.21 and 3.23 through 3.31 of this Amendment shall become effective
immediately upon the satisfaction of the conditions set forth in clauses (a),
(b) and (c) below).
6
<PAGE> 7
(a) Amendment. There shall have been delivered
to Agent copies of this Amendment duly executed by Lenders and
Borrower.
(b) No Default. No Default or Event of Default
under the Credit Agreement, as amended hereby, shall have occurred and
be continuing on the First Amendment Effective Date.
(c) Warranties and Representations. The
warranties and representations of Borrower contained in this
Amendment, the Credit Agreement, as amended hereby, and the Loan
Documents, shall be true and correct as of the First Amendment
Effective Date, with the same effect as though made on such date,
except for any representation or warranty limited by its terms to a
specific date.
(d) Merger of Metrol and Sonitrol into Borrower.
Metrol Security Services, Inc. and Sonitrol of Arizona, Inc. shall
have been merged with and into Borrower.
(e) Notes Offering and Related Transactions. On
the First Amendment Effective Date, Borrower shall have Completed the
Notes Offering and shall have applied the proceeds of the Notes
Offering in accordance with Schedule A hereto (excluding those fees
and expenses referred to in Schedule A which are not then due and
payable) with satisfactory evidence thereof.
(f) Subordinated Convertible Note Documents.
Agent shall have received executed copies of the Subordinated
Convertible Note Indenture, the Subordinated Convertible Note
Underwriting Agreement and such other Subordinated Convertible Note
Documents as may be requested by Agent, all of which shall be in form
and substance satisfactory to Agent;
(g) Resolutions and Officer's Certificates.
Borrower shall have executed and delivered to Agent resolutions of the
Board of Directors of Borrower approving and authorizing the execution
and delivery of this Agreement and the performance of the transactions
contemplated hereby, certified by Borrower's corporate secretary and
assistant secretary as being in full force and effect without
modification or amendment.
(h) Reaffirmation of Holdings Guaranty. Holdings
shall have executed and delivered a Reaffirmation of Guaranty in form
and substance satisfactory to Agent.
(i) Opinions of Counsel. Agent shall have
received a written opinion of Mitchell, Silberberg & Knupp, counsel
for Borrower, in form and substance satisfactory to Agent and its
counsel, dated as of the First Amendment Effective Date.
(j) Other Documents. Borrower shall have
delivered such other documents as Agent may have reasonably requested.
5. Failure to Meet Conditions. If Borrower shall fail to fulfill
any of the conditions set forth in Section 4 on or prior to September 30, 1996,
then the Credit Agreement shall continue in full force and effect without
regard to the consents and amendments set forth in this Amendment (except for
the consents and amendments set forth in Sections 3.2, 3.3 (relating to the
definition of MRR Attrition), 3.4 through 3.7, 3.9 through 3.11, 3.13, 3.14,
3.17, 3.21 and 3.23 through 3.31 of this Amendment, which shall be deemed
effective upon satisfaction of the conditions set forth in
7
<PAGE> 8
clauses (a) , (b) and (c) of Section 4 above) and (except for the
above-referenced consents and amendments) this Amendment shall be void, ab
initio, because it is premised on a substantially improved capital structure,
and neither this Amendment nor Schedule A hereto shall have any force or effect
whatsoever in the interpretation or construction of the provisions of the
Credit Agreement.
6. Representations and Warranties.
(a) Authorization. The execution, delivery and
performance of each of the Refinancing Transactions Documents and the
consummation of the Refinancing Transactions by each Loan Party have
been duly authorized by all necessary corporate and shareholder
action.
(b) No Conflict. The execution, delivery and
performance by each Loan Party of each Refinancing Transactions
Document to which it is a party do not and will not: (1) violate any
provision of law applicable to any Loan Party, the certificate of
incorporation or bylaws of any Loan Party, or any order, judgment or
decree of any court or other agency of government binding on any Loan
Party; (2) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any Contractual
Obligation of any Loan Party; (3) result in or require the creation or
imposition of any material Lien upon any of the properties or assets
of any Loan Party (other than Liens in favor of Agent, for the benefit
of Lenders); or (y) require any approval or consent of any Person
under any Contractual Obligation of any Loan Party, except, with
respect to each of the clauses (1) through (4) above for such
approvals or consents to be obtained on or before the First Amendment
Effective Date.
(c) Binding Obligation. This Agreement is, and
the other Refinancing Transactions Documents, when executed and
delivered will be, the legally valid and binding obligations of the
applicable Loan Parties, each enforceable against the Loan Parties in
accordance with their respective terms.
(d) Valid Issuance of Subordinated Convertible
Notes. The issuance and sale of the Subordinated Convertible Notes
are registered and/or qualified under applicable federal and state
securities laws. Borrower has the corporate power and authority to
incur the Indebtedness evidenced by the Subordinated Convertible Notes
and to issue the Subordinated Convertible Notes. Holdings has the
corporate power and authority to incur the Contingent Obligations
evidenced by the Subordinated Convertible Note Indenture and to issue
the Holdings Capital Stock issuable upon conversion of the
Subordinated Convertible Notes. The Subordinated Convertible Notes,
when issued and paid for, will be the legally valid and binding
obligations of Borrower enforceable against Borrower in accordance
with their terms (including those pertaining to subordination). On or
prior to the First Amendment Effective Date, Borrower shall have
delivered to Agent and each of the Lenders complete and correct copies
of the Subordinated Convertible Note Underwriting Agreement, the
Subordinated Convertible Note Indenture and such other Subordinated
Convertible Note Documents as may have been requested by Agent and
each of the representations and warranties given by Holdings, Borrower
or Borrower's Subsidiaries therein shall be true and correct in all
material respects as of the First Amendment Effective Date. The
subordination provisions of the Subordinated Convertible Note
Documents will be enforceable against the holders of the Subordinated
Convertible Notes by the holder of any Notes which has not effectively
waived the benefits thereof. All obligations, including the
Obligations to pay principal of and interest on the Loans, constitute
senior Indebtedness entitled to the benefits
8
<PAGE> 9
of the subordination created by the Subordinated Convertible Note
Documents. Borrower acknowledges that Agent and each Lender are
entering into this Amendment and/or each Lender Addition Agreement and
are extending the Revolving Loan Commitment in reliance upon the
subordination provisions of the Subordinated Convertible Note
Documents and this Section.
7. Miscellaneous.
(a) Captions. Section captions used in this
Amendment are for convenience only, and shall not affect the
construction of this Amendment.
(b) Governing Law. This Amendment shall be a
contract made under and governed by the laws of the State of Illinois,
without regard to conflict of laws principles. Whenever possible each
provision of this Amendment shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of
this Amendment shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Amendment.
(c) Counterparts. This Amendment may be executed
in any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one
and the same Amendment.
(d) Successors and Assigns. This Amendment shall
be binding upon Borrower, Agent and Lenders and their respective
successors and assigns, and shall inure to the sole benefit of
Borrower, Agent and Lenders and their respective successors and
assigns.
(e) References. Any reference to the Credit
Agreement contained in any notice, request, certificate, or other
document executed concurrently with or after the execution and
delivery of this Amendment shall be deemed to include this Amendment
unless the context shall otherwise require.
(f) Continued Effectiveness. Notwithstanding
anything contained herein, the terms of this Amendment are not
intended to and do not service to effect a novation as to the Credit
Agreement. The parties hereto expressly do not intend to extinguish
the Credit Agreement. Instead, it is the express intention of the
parties hereto to reaffirm the indebtedness created under the Credit
Agreement which is evidenced by the Revolving Notes and secured by the
Collateral. The Credit Agreement as amended hereby and each of the
Loan Documents remain in full force and effect.
(g) Costs, Expenses and Taxes. Borrower affirms
and acknowledges that Section 10.1 of the Credit Agreement applies to
this Amendment and the transactions and agreements and documents
contemplated hereunder.
Delivered at Chicago, Illinois, as of the date and year first
above written.
PROTECTION ONE
ALARM MONITORING, INC.
9
<PAGE> 10
By: JOHN W. HESSE
---------------------------------
Name Printed: John W. Hesse
-----------------------
Title: Executive Vice President
------------------------------
HELLER FINANCIAL, INC.
as Agent and Lender
By: TIMOTHY CANON
---------------------------------
Name Printed: Timothy Canon
-----------------------
Title: Vice President
------------------------------
BANQUE NATIONALE DE PARIS, NEW
YORK BRANCH, as a Lender
By: SERGE DESRAYAUD
---------------------------------
Name Printed: Serge Desrayaud
-----------------------
Title: Vice President
------------------------------
By: PAMELA LUCASH
---------------------------------
Name Printed: Pamela Lucash
-----------------------
Title: Assistant Treasurer
------------------------------
MERITA BANK, LTD.,
as a Lender
By: CHARLES J. LANSDOWN
---------------------------------
Name Printed: Charles J. Lansdown
-----------------------
Title: Vice President
------------------------------
By: ERIC L. MANN
---------------------------------
Name Printed: Eric L. Mann
-----------------------
Title: Vice President
------------------------------
IBJ SCHRODER BANK & TRUST COMPANY,
as a Lender
By: MARY McLAUGHLIN
---------------------------------
Name Printed: Mary McLaughlin
-----------------------
Title: Vice President
------------------------------
FIRST UNION BANK OF NORTH CAROLINA,
as a Lender
By: BRUCE LOFTIN
---------------------------------
Name Printed: Bruce Loftin
-----------------------
Title: Senior Vice President
------------------------------
TORONTO DOMINION (TEXAS), INC.,
as a Lender
By: LISA ALLISON
---------------------------------
Name Printed: Lisa Allison
-----------------------
Title: Vice President
------------------------------
10
<PAGE> 1
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Protection One, Inc. ("POI"), its subsidiary Protection One Alarm
Monitoring, Inc. ("Monitoring") and Monitoring's subsidiaries (collectively the
"Company"), and their respective affiliates, from time to time issue written
and/or oral statements that may contain froward- looking information, including
projections, estimates, forecasts, plans and objectives. The Company wishes to
ensure that any and all forward looking statements are accompanied by meaningful
cautionary statements in order to maximize to the fullest extent possible the
protections of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 (the "Act"), as set forth in Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended. Accordingly, each such
forward-looking statement is qualified in its entirety by reference to, and is
accompanied by, the risk factors described below, which could cause the
Company's future results and stockholder values to differ materially from those
expressed in such statement.
Any forward looking statement made by or on behalf of the Company
speaks only as of the date on which such statement is made, and the Company
undertakes no obligation to update any forward looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. New risks, uncertainties and
other factors emerge from time to time, and it is not possible for management
to predict all of such factors, nor can management assess the impact of each
such factor on the business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained
in any forward looking statement. Therefore, forward looking statements should
not be relied upon as guarantees or predictions of actual future performance or
results.
Risks Related to High Leverage. The Company is highly leveraged. At
June 30, 1996, the Company's consolidated indebtedness was $207.1 million, and
Monitoring had unused borrowing capacity under its revolving credit facility
(the "Revolving Credit Facility") of $19.1 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.) As of June 30, 1996, after
giving effect to the offering and sale of $103.5 million aggregate principal
amount of Monitoring's 6-3/4% Convertible Senior Subordinated Notes due 2003
(the "Convertible Notes") that were issued on September 20, 1996 and (pursuant
to the exercise in full of the underwriters' over-allotment option) on October
11, 1996, and the application of the net proceeds thereof, the Company's
consolidated indebtedness would have been $229.6 million (excluding $1.2
million of contingent reimbursement obligations under outstanding letters of
credit), and Monitoring would have had unused borrowing capacity under the
Revolving Credit Facility of $100.0 million. Future additions of subscriber
accounts through the purchases from Company's independent dealers (the "Dealer
Program") and 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 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
<PAGE> 2
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,
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 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 1992-1995 period, 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 Dealer Program is anticipated to be an increasingly
important component of the Company's growth, an additional 27 portfolios of
subscriber accounts were acquired during the first nine months of 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
2
<PAGE> 3
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 $11.3 million for the nine months ended June 30, 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
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 the first
nine months of 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 47.0% of the
total subscriber accounts purchased by the Company through the Dealer Program
in the first nine months of 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 the first nine months
of fiscal 1996, the Company invested a total of $138.9 million in acquisitions
of portfolios of subscriber accounts and purchases of subscriber accounts
through the Dealer Program. Net cash provided by operating activities totaled
$25.1 million during such period, 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 borrowing 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
equity of POI. 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
3
<PAGE> 4
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 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 June 30, 1996, the cost of subscriber accounts and intangible
assets, net of previously accumulated amortization, was $238.9 million, which
constituted 87.1% 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 18.6% and 19.9% for the twelve months
ended June 30, 1995 and 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
4
<PAGE> 5
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 the first nine months of 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 fiscal 1994, fiscal 1995 and the first nine months of fiscal 1996. The
Company does not expect to further reduce sales of new systems by Company
personnel and related marketing expenditures in the remainder of fiscal 1996 or
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., 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 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. Although 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.
5
<PAGE> 6
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 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.
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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 and Fundamental Change. 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.
In addition to the factors described above, the following factors
should be considered carefully in evaluating an investment in the Common Stock,
par value $.01 per share, of POI (the "Common Stock"):
Shares Eligible for Future Sale. Of the 13,466,671 shares of Common
Stock outstanding at October 16, 1996, 9,799,610 shares were freely tradeable
in the public market without any restriction whatsoever, an additional
2,947,526 shares were eligible for sale subject to the volume limitations of
Rule 144 under the Securities Act, and 719,535 shares had been registered for
resale under the Securities Act. In addition, as of October 16, 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 stockholder's 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
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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.
Effect of Certain Changes and Delaware Anti-takeover Law on
Stockholder Values. The provisions of the Convertible Notes and the Discount
Notes described above under "--Effect of Change of Control and Fundamental
Change", 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 POI, 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.
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