<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
PROTECTION ONE, INC.( COMMISSION FILE NO. 0-24780)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ITS COMMISSION FILE
NUMBER)
<TABLE>
<S> <C>
DELAWARE 93-1063818
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
6011 BRISTOL PARKWAY, CULVER CITY, CALIFORNIA 90230
(310) 338-6930
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER , INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PROTECTION ONE ALARM MONITORING, INC.(COMMISSION FILE NO. 33-73002-01)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND ITS COMMISSION FILE
NUMBER)
<TABLE>
<S> <C>
DELAWARE 93-1064579
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
6011 BRISTOL PARKWAY, CULVER CITY, CALIFORNIA 90230
(310) 338-6930
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER , INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) have been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of August 8, 1996, Protection One, Inc. had outstanding 12,738,175
shares of Common Stock, par value $.01 per share. At such date, Protection One
Alarm Monitoring, Inc. had outstanding 100 shares of Common Stock, par value
$.10 per share.
Protection One Alarm Monitoring, Inc. meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and therefore is filing this
form with the reduced disclosure format provided for therein.
<PAGE> 2
PART I
FINANCIAL INFORMATION
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
---- -----
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 1,256 $ 8,347
Receivables, net 5,806 11,146
Inventories 3,125 3,461
Prepaid expenses 547 1,172
-------- ----------
Total current assets 10,734 24,126
Property and equipment, net 5,307 10,956
Subscriber accounts, intangibles and goodwill, net 162,239 238,898
Deposits 389 449
--------- ----------
$ 178,669 $ 274,429
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1 $ 94
Accounts payable 2,078 2,462
Accrued salaries, wages and benefits 1,401 1,208
Accrued interest 318 216
Other accruals 210 412
Purchase holdbacks 4,949 12,588
Acquisition transition costs 970 3,779
Other current liabilities 800 646
Deferred revenue 9,166 13,763
--------- ---------
Total current liabilities 19,893 35,168
Long-term debt, net of current portion 146,023 206,956
Other liabilities 279 604
Deferred income tax -- 792
--------- ---------
Total liabilities 166,195 243,520
--------- ---------
Commitments and contingencies (Note 12)
Redeemable preferred stock, redemption value $6,127 at
September 30, 1995 6,127 --
Stockholders' equity:
Common Stock, $.01 par value, 24,000,000 shares
authorized, 9,047,638 and 12,736,255 shares issued
and outstanding at September 30,1995 and
June 30, 1996, respectively 90 127
Additional paid-in capital 41,829 77,453
Accumulated deficit (35,572) (46,671)
--------- ---------
Total stockholders' equity 6,347 30,909
--------- ---------
$ 178,669 $ 274,429
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE> 3
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine months ended June 30,
-------------------------------
1995 1996
--------- ---------
<S> <C> <C>
Revenues: (unaudited)
Monitoring and service $ 32,622 $ 46,377
Other 6,343 5,418
--------- --------
Total revenues 38,965 51,795
Cost of revenues:
Monitoring and service 8,151 12,651
Other 5,734 4,685
--------- --------
Total cost of revenues 13,885 17,336
--------- --------
Gross profit 25,080 34,459
Selling, general and administrative expenses 8,178 10,082
Loss on acquisition terminations 208 --
Acquisition and transition expenses 2,380 3,048
Amortization of subscriber accounts and goodwill 10,858 16,108
--------- --------
Operating income 3,456 5,221
Other expenses:
Interest expense, net 6,850 3,052
Amortization of OID and debt issuance costs 2,687 13,159
Loss on sales of subscriber accounts 433 19
--------- --------
Loss before income taxes and extraordinary item (6,514) (11,009)
Income tax benefit (expense) 2,432 (90)
--------- --------
Loss before extraordinary item and cumulative effect
of change in accounting method-net of taxes (4,082) (11,099)
Extraordinary item-loss on early extinguishment of debt (8,898) --
Cumulative effect of change in accounting method-net of taxes (1,954) --
--------- --------
Net loss (14,934) (11,099)
Preferred stock dividends 791 248
Accretion of redeemable preferred stock 796 --
--------- --------
Loss attributable to common stock $ (16,521) $(11,347)
========= ========
Loss per common share:
Before extraordinary item $ (0.66) $ (1.06)
Net loss per share $ (1.92) $ (1.06)
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE> 4
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------------------
1995 1996
--------- -----------
Revenues: (unaudited)
<S> <C> <C>
Monitoring and service $ 11,776 $ 16,854
Other 1,909 1,763
--------- --------
Total revenues 13,685 18,617
Cost of revenues:
Monitoring and service 2,872 4,460
Other 1,749 1,511
--------- --------
Total cost of revenues 4,621 5,971
--------- --------
Gross profit 9,064 12,646
Selling, general and administrative expenses 2,705 3,526
Loss on acquisition terminations 208 --
Acquisition and transition expenses 693 1,121
Amortization of subscriber accounts and goodwill 4,020 6,046
--------- --------
Operating income 1,438 1,953
Other expenses:
Interest expense, net 1,777 1,196
Amortization of OID and debt issuance costs 2,066 4,527
Loss on sales of subscriber accounts 433
--------- --------
Loss before income taxes and extraordinary items (2,838) (3,770)
Income tax benefit (expense) 1,052 (90)
--------- --------
Loss before extraordinary item (1,786) (3,860)
Extraordinary item-loss on early extinguishment of debt 8,898 --
--------- --------
Net loss (10,684) (3,860)
Preferred stock dividends 177 --
--------- --------
Loss attributable to common stock $ (10,861) $ (3,860)
========= =========
Loss per common share:
Before extraordinary item $ (0.22) $ (0.31)
Net loss per share $ (1.23) $ (0.31)
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE> 5
PROTECTION ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended June 30,
---------------------------------
1995 1996
---------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (14,934) $ (11,099)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Cumulative effect of change in accounting method 1,955 --
Depreciation 745 1,250
Amortization of subscriber accounts and goodwill 10,858 16,108
Amortization of debt issuance costs 756 924
Amortization of OID 1,931 12,235
Loss on sale of subscriber accounts 433 --
Income tax benefit (2,432) --
Extraordinary loss on early retirement of debt 8,898 --
Provision for doubtful accounts 1,238 1,518
Changes in assets and liabilities, net of effects of acquisitions:
Receivables (2,292) (5,359)
Inventories (3) 528
Prepaid expenses and deposits (831) (505)
Accounts payable (904) 681
Accrued liabilities (2,546) (389)
Deferred revenue (239) 663
--------- ---------
Net cash provided by operating activities 2,633 16,555
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (1,946) (4,706)
Net proceeds on sale of subscriber accounts 1,323 --
Acquisitions, net of cash received (47,459) (72,275)
Payments on purchase holdbacks (3,059) (133)
Deferred acquisition payments (1,996) (1,438)
Acquisition transition costs (1,777) (2,272)
Payment of other liabilities (72) --
--------- ---------
Net cash used in investing activities (54,986) (80,824)
--------- ---------
Cash flows from financing activities:
Payments on long-term debt (118,678) (23,828)
Proceeds from long-term debt 164,428 72,619
Debt and equity issuance costs (6,420) (666)
Payments on stockholder notes 47 --
Issuance of common stock and warrants 20,164 23,483
Redemption and conversion of redeemable preferred stock (2,125) --
Note redemption premiums and costs (2,627) --
Cash dividends paid (2,648) (248)
--------- ---------
Net cash provided by financing activities 52,141 71,360
--------- ---------
Net increase (decrease) in cash and cash equivalents (212) 7,091
Cash and cash equivalents:
Beginning of period 1,057 1,256
--------- ---------
End of period $ 845 $ 8,347
========= =========
Interest paid during the period $ 9,266 $ 3,181
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 6
PROTECTION ONE, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY; INTERIM FINANCIAL INFORMATION:
The accompanying financial statements of Protection One, Inc. ("POI")
and its subsidiaries (the "Company") include the accounts of POI, POI's
wholly-owned subsidiary, Protection One Alarm Monitoring, Inc. ("Monitoring"),
and Monitoring's former wholly-owned subsidiary, Protection One Alarm Services,
Inc. ("Services"), and Monitoring's current wholly-owned subsidiaries (See Note
14). On May 13, 1996, Services was merged into Monitoring. The assets, results
of operations and stockholder's equity of Monitoring comprise substantially all
of the assets, results of operations and stockholders' equity of the Company on
a consolidated basis. See Note 13 for separate consolidated financial
information of Monitoring. Results of operations of purchased companies are
consolidated in all periods after the date of acquisition.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q which mandates
adherence to Rule 10-01 of Regulation S-X. Accordingly, these statements do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management of
the Company, all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included. The results
of operations for the nine month and three month periods ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full fiscal
year.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should
be read in conjunction with the audited financial statements and notes thereto
for the year ended September 30, 1995 included in the Company's Annual Report
on Form 10-K, as amended, filed with the Securities and Exchange Commission.
2. CHANGE IN ACCOUNTING METHOD:
In the third quarter of fiscal 1995, the Company changed its method of
accounting for certain subscriber account acquisition and transition costs,
effective as of October 1, 1994. Under the new method, the Company's personnel
and related support costs and duplicative costs incurred solely in support of
acquiring and transitioning subscriber accounts are expensed as incurred.
The new method is consistent with the guidelines adopted by the
Emerging Issues Task Force of the Financial Accounting Standards Board in Issue
95-3, Recognition of Liabilities in Conjunction with Purchase Business
Combinations.
The consolidated financial statements for the year ended September 30,
1995 reflect the change in accounting method as of October 1, 1994. The effect
of the change on such year was to increase the loss before cumulative effect of
the accounting change, net loss and loss attributable to Common Stock by
approximately $1.5 million or $0.17 per share. The cumulative effect of the
change as of October 1, 1994 was approximately $1.95 million or $0.23 per
share, net of income taxes of approximately $1.2 million, and is reported
separately in the consolidated statement of operations for the year ended
September 30, 1995.
3. RECEIVABLES:
Receivables, which consist primarily of trade accounts receivable of
$15,580 at June 30, 1996 and $8,309 at September 30, 1995, have been reduced by
allowances for doubtful accounts of $4,434 and $2,503, respectively. Included
in receivables and deferred revenue at June 30, 1996 and September 30,
5
<PAGE> 7
1995 are July 1996 and October 1995 invoices billed in advance of the periods
in which services are provided totaling $6,321 and $4,667, respectively. The
provisions for doubtful accounts for the three months ended June 30, 1996 and
June 30, 1995 were $478 and $342, respectively. The provisions for doubtful
accounts for the nine months ended June 30, 1996 and June 30, 1995 were $1,518
and $1,238, respectively.
4. SUBSCRIBER ACCOUNTS, INTANGIBLES AND GOODWILL:
Subscriber accounts, intangibles and goodwill (at cost) consist of the
following (dollar amounts in thousands):
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
---- ----
<S> <C> <C>
Acquired subscriber accounts $ 184,463 $ 276,058
Debt issuance costs 7,405 8,645
Goodwill and other 1,641 2,495
---------- ----------
193,509 287,198
Less accumulated amortization (31,270) (48,300)
---------- ----------
$ 162,239 $ 238,898
========== ==========
</TABLE>
Reconciliation of acquired subscriber accounts (dollar amounts in
thousands):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
September 30, June 30,
1995 1996
---- ----
<S> <C> <C>
Balance, beginning of period $ 122,330 $ 184,463
Cumulative effect of change in accounting method (3,802) --
Acquisition of subscriber accounts 70,106 95,506
Charges against acquisition holdbacks (2,026) (3,911)
Sale of subscriber accounts (2,145) --
---------- ----------
Balance, end of period $ 184,463 $ 276,058
=========== ==========
</TABLE>
5. PURCHASE HOLDBACKS:
In conjunction with certain purchases of subscriber accounts, the
Company withholds a portion of the purchase price as a reserve to offset
qualifying attrition of the acquired subscriber accounts for a specified period
as provided for in the purchase agreements, and as a reserve for purchase price
settlements of assets acquired and liabilities assumed.
Reconciliation of purchase holdbacks (dollar amounts in thousands):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
September 30, June 30,
1995 1996
---- ----
<S> <C> <C>
Balance, beginning of period $ 4,250 $ 4,949
Purchase holdback additions 6,349 11,682
Charges against subscriber accounts (2,025) (3,911)
Cash paid to sellers (3,625) (132)
-------- --------
Balance, end of period $ 4,949 $ 12,588
======== ========
</TABLE>
6
<PAGE> 8
6. LOSS PER COMMON SHARE:
The computation of fully diluted net loss per common share for each of
the periods presented was antidilutive; as such, no presentation of fully
diluted loss per share has been included in the consolidated statements of
operations. The weighted average shares outstanding used in the computation of
the net loss attributable to common shares are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- ---------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common Stock 8,604,864 10,749,983 8,799,931 12,330,317
</TABLE>
7. CHANGES IN STOCKHOLDERS' EQUITY:
During the nine month period ended June 30, 1996, the Company issued
2.5 million shares of common stock generating net proceeds of $23.1 million.
Concurrently with the issuance of common stock, the Company converted 6,127
shares of Series H Preferred Stock to 680,777 shares of common stock at $9 per
share. Additionally, warrants and options for 72,332 shares of common stock
were exercised generating proceeds of $.05 million.
In April, 1996, the Company issued 7,623 shares of common stock under
its Employee Stock Purchase Plan ("ESPP"). In connection with the acquisition
in late June, 1996 of Metrol Security Services, Inc., the Company issued
417,885 shares of common stock as a portion of the purchase price paid.
Also during the period, additional paid in capital was reduced by $.8
million and $.2 million for costs related to the secondary offering and
dividends on preferred stock dividends, respectively.
8. DIVIDEND RESTRICTIONS:
The Company's Credit Agreement governing its Revolving Credit Facility
and the Indenture governing its Discount Notes place certain restrictions on
POI's and Monitoring's ability to make dividend payments, distributions and
other asset transfers in respect of such company's capital stock and assets. At
June 30, 1996, under provisions of the Credit Agreement (the most restrictive
agreement), no amounts were available for such dividend payments, distributions
or other transfers by either POI or Monitoring.
9. STOCK WARRANTS AND OPTIONS:
Performance Warrants to purchase 500,472 shares of Common Stock at an
exercise price of $0.167 per share were issued to certain officers of the
Company on September 16, 1991 and were to be earned upon attainment of a certain
return on investment objectives and were to vest over a five year period of
employment after the date of issuance. Such objectives were not achieved as of
June 29, 1994, when the Board of Directors and the officers modified the
earnings and vesting criteria such that vesting occurred on that date for all
Performance Warrants. The modified Performance Warrant agreements provide that
the officers will not exercise more than 40%, and 70% of the Warrants prior to
September 16, 1995 and 1996, respectively. In the event the Company is
acquired, such restriction on exercise by officers would be released.
7
<PAGE> 9
On November 3, 1993, the Company issued 50,000 units (the "Units")
with each Unit consisting of one, $1,000 face value, 12% Series A Senior
Subordinated Note and 28 detachable Warrants (total of 1,400,000 warrants) to
purchase shares of the Company's Common Stock. Each warrant, when exercised,
will entitle the holder to receive six-tenths of a share of the Company's
Common Stock at an exercise price of $0.167 per share, subject to adjustment.
The outstanding warrants are exercisable and will automatically expire on
November 1, 2003.
In June 1994, the Board of Directors adopted, and the stockholders of
the Company approved, the 1994 Stock Option Plan (the "Plan"). The Plan
provides for the award of incentive stock options to directors, officers and
key employees. Three hundred fifty four thousand (354,000) shares were
reserved for issuance under the Plan, subject to such adjustment as may be
necessary to reflect changes in the number or kind of shares of Common Stock or
other securities of POI. In November 1995, the Board of Directors adopted, and
in January 1996, the shareholders of the Company approved, amending the Option
Plan to increase the number of shares for which options may be granted reserved
from 354,000 shares to 944,000 shares. The Option Plan provides for the
granting of options that qualify as incentive stock options under the Internal
Revenue Code and options that do not so qualify.
During the year ended September 30, 1995, the Company granted options
to purchase an aggregate of 273,600 shares of common stock including 132,000
shares to officers of the Company. The Company granted options for an
additional 19,200 shares during fiscal 1996. Each option has a term of 10
years and vests 20% on each of the third through seventh anniversaries of the
commencement of the participant's employment with the Company. During the nine
months ended June 30, 1996, the Company granted options to purchase 590,000
shares of common stock including options for 400,000 shares granted to officers
of the Company. Each option has a term of 10 years and vests 20% on each of
the first through fifth anniversaries of the grant of the option. The purchase
price of the shares issuable pursuant to the options is equal to or greater
than the fair market value of the shares at the date of issue.
In connection with the issuance of the Senior Subordinated Discount
Notes in May of 1995, the Company issued warrants to purchase 531,200 shares of
common stock at an exercise price of $6.60 per share. The outstanding warrants
are exercisable and will automatically expire on May 17, 2005.
A summary of warrant and option activity is as follows:
<TABLE>
<CAPTION>
Warrants
and Options Price Range
----------- ---------------
<S> <C> <C>
Outstanding September 30, 1994 1,572,429 $0.167 - 3.633
Granted 804,800 5.875 - 9.125
Exercised (256,799) 0.167 - 6.50
Surrendered (14,400) 6.50
Outstanding September 30, 1995 2,106,030 0.167 - 9.125
Granted 609,200 8.00 - 15.00
Exercised (72,332) 0.167 - 6.50
Surrendered (14,760) 6.50 - 8.00
---------
Outstanding at June 30, 1996 2,628,138 0.167 - 15.00
=========
Exercisable:
September 30, 1995 1,907,310 0.167 - 6.50
June 30, 1996 1,705,957 0.167 - 6.50
</TABLE>
8
<PAGE> 10
10. INCOME TAXES:
For the nine months ended June 30, 1996, the Company experienced a net
decrease in its net deferred tax asset valuation allowance of $3.1 million. At
June 30, 1996, the Company had $33.4 million in NOL carryforwards for regular
tax purposes and $26.7 million for alternative minimum tax ("AMT NOL") purposes
which expire in the years 2006-2010. Included in these NOL carryforward amounts
are $1.5 million in NOL carry forwards that were acquired in the Metrol Security
corporate stock acquisition. This $1.5 million acquired NOL carryforward begins
to expire in 1999. These carryforwards are available, subject to certain
restrictions, to reduce taxable income, and alternative minimum taxable income
in future periods. As a result of various prior issuances of preferred and
common stock, or if there are future substantial changes in the Company's
ownership, there may be annual limitations on the amounts of NOL and AMT NOL, as
well as credits, that can be used to reduce the Company's taxable income, and
alternative minimum taxable income. The Company has utilized $7.1 million in
net operating loss carryforwards for the nine months ended June 30, 1996 which
results in the effective tax rate being lower than the expected statutory rate.
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance
for doubtful accounts $ 1,000 $ 1,772
Acquisition reserves and holdbacks 2,365 5,465
Performance warrants 1,800 1,800
Net operating loss carryforwards 15,688 13,340
Original issue discount amortization 2,174 6,936
Other 37 56
Less valuation allowance (3,573) (506)
-------- --------
Total deferred tax assets 19,491 28,863
Deferred tax liabilities:
Differences in depreciation and amortization (19,491) (29,655)
-------- --------
Net deferred tax liabilities $ 0 $ 792
======== ========
</TABLE>
The valuation allowance of $0.5 million at June 30, 1996 reflects
uncertainties regarding the utilization of state income tax NOL carryforwards on
the Company's tax returns prior to their dates of expiration.
In June 1996, the Company acquired all of the outstanding shares of
Metrol Security Services, Inc. (See Note 4) For financial reporting purposes,
the assets acquired and the liabilities assumed were valued at fair market value
as of the date of purchase. For income tax reporting purposes, the acquisition
was treated as a non-taxable stock purchase with acquired assets and liabilities
retaining their historical tax basis. The deferred tax liability resulting from
the acquisition basis difference, together with the Company's existing deferred
tax liability exceeded the Company's deferred tax assets at the date of
purchase. The taxable temporary differences creating the Company's deferred tax
liabilities are expected to reverse prior to expiration of the Company's NOLs
reducing the requirement for the Company's previously established deferred tax
asset valuation allowance which then affects the amount of the Metrol
acquisition cost that is allocated to subscriber accounts.
11. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
Acquisitions:
Nine months ended June 30,
1995 1996
---- ----
<S> <C> <C>
Subscriber accounts acquired $ 63,161 $ 95,506
Inventory 30 786
Accounts receivable, net 10 1,588
Plant, property and equipment 37 1,884
Other assets acquired 4 1,674
--------- ---------
Total assets acquired 63,242 101,438
--------- ---------
Cash paid to seller 44,992 72,757
Stock issued to seller -- 6,843
Acquisition expenses 500 646
Purchase holdback 5,559 1,478
Acquisition reserve 2,888 2,478
Deferred revenue acquired 3,117 3,934
Other liabilities assumed 6,186 13,302
--------- ---------
Total purchase price $ 63,242 $ 101,438
========= =========
</TABLE>
9
<PAGE> 11
Cash paid to sellers, payments for acquisition expenses and payments
on liabilities assumed in conjunction with acquisitions are included in cash
used in investing activities in the period paid. Deferred revenue, which
represents advance billings to subscribers, is recognized as revenue in the
period in which the related service is provided. Such amounts are considered a
non-cash component of operations and are reflected as a reduction in cash
provided by operating activities.
The following reflects increases (decreases) in assets and accumulated
deficit, and decreases (increases) in liabilities and stockholders' equity
accounts resulting from non-cash investing and financing activities which
occurred in the nine months ended June 30, 1995 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Class B
Redeemable Common Additional
Purchase Preferred Common & Preferred Paid-in Accumulated
Intangibles Holdbacks Stock Stock Stock Capital Deficit
------------- --------- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Accretion to redemption
value of preferred stock $ (15) $ 15
Charge-off of purchase
holdbacks $(1,675) $1,675
Accelerated accretion upon
conversion of preferred stock (782) 782
Reclassification of IPO costs (1,305) $ 1,305
Conversion of Class B
Common and preferred 12,897 $(56) $ 85 (12,927)
------- ------ -------- ---- ---- -------- ----
$(2,980) $1,675 $ 12,100 $(56) $ 85 $ (11,622) $797
======= ====== ======== ==== ==== ======== ====
</TABLE>
The following reflects increases (decreases) in assets, and decreases
(increases) in liabilities and additional paid-in capital resulting from
non-cash investing and financing activities which occurred in the nine months
ended June 30, 1996 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Series H
Purchase Common Additional Paid Preferred
Intangibles Holdbacks Stock in Capital Stock
----------- --------- ------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Charge off of purchase holdbacks $( 3,911) $3,911 -- -- --
Conversion of Series H Preferred -- -- $ (7) $ (6,120) $ 6,127
Common shares issued for Metrol 6,843 (4) (6,839)
Reclassification of stock
offering costs (539) -- -- 539 --
-------- ------ ------ -------- -------
$ 2,393 $3,911 $ (11) $(12,420) $ 6,127
======== ====== ====== ======== =======
</TABLE>
12. COMMITMENT AND CONTINGENCIES:
The Company is a party to claims and matters of litigation incidental
to the normal course of business. The ultimate outcome of these matters cannot
presently be determined; however, in the opinion of management of the Company,
the resolution of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations and cash
flows.
13. SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION:
POI and Services have fully and unconditionally guaranteed the 13 5/8%
Senior Subordinated Discount Notes of Monitoring due 2005 ("Discount Notes") on
a joint and several basis. POI has no independent operations and the
consolidated revenues and costs of operations of POI are substantially
reflected in the accounts of Monitoring. Prior to the merger of Services into
Monitoring, the operations of Monitoring and Services were significantly
interconnected and Monitoring and Services share common management,
10
<PAGE> 12
13. SUPPLEMENTAL SUBSIDIARY COMPANY SUMMARIZED FINANCIAL INFORMATION
(CONTINUED):
employees and facilities and serve a common customer base. Separate summarized
financial information of Services is not presented because management believes
that such separate summarized financial information is not material to
investors. The summarized consolidated financial information of Monitoring and
its former subsidiary Services (see Note 1 above) is presented below (dollar
amounts in thousands).
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
---- ----
<S> <C> <C>
Summarized Balance Sheet
Assets
Current assets $ 10,734 $ 24,126
Subscriber accounts and intangibles, net 162,239 238,898
Other non-current assets 5,695 11,405
Liabilities and Stockholders' Equity
Deferred revenue $ 9,166 $ 13,763
Other current liabilities 10,727 21,405
Long-term debt, net of current portion 146,023 206,956
Other long-term liabilities 279 604
Redeemable preferred stock 6,127
Stockholders' equity 6,347 30,909
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Summarized Statements of Operations
Revenues $ 13,685 $ 18,617 $ 38,965 $ 51,795
Gross Profit 9,064 12,646 25,080 34,459
Loss before extraordinary item
and cumulative effect of change in
accounting method, net of taxes (1,786) (3,860) (4,082) (11,099)
Net loss (10,684) (3,860) (14,934) (11,099)
</TABLE>
14. ACQUISITION:
On June 28, 1996 the Company acquired all of the outstanding stock of
Metrol Security Services, Inc. ("Metrol"), sells, installs, services and
monitors security alarm systems and provides guard and patrol services to
residential and commercial subscribers in Arizona and New Mexico.
The purchase price was allocated to the assets and subscriber accounts
acquired and the liabilities assumed on the basis of fair values at June 28,
1996 as follows (in thousands):
<TABLE>
<S> <C>
Subscriber accounts acquired $30,294
Inventories 754
Receivables, net 1,711
Property and Equipment 1,884
Other assets acquired 622
-------
$35,265
=======
Cash paid to seller $21,296
Stock issued to seller 6,843
Acquisition costs 88
Purchase holdback 3,000
Acquisition transition costs 500
Deferred revenue 1,730
Other liabilities assumed 1,808
-------
$35,265
=======
</TABLE>
The following unaudited pro forma condensed consolidated results of
operations present information as if the acquisition had occurred as of the
beginning of each of the nine month periods ended June 30, 1995. The pro forma
information is presented after giving effect to certain adjustments for the
amortization of subscriber accounts, interest expense and the disposition of
Metrol's guard operations. Certain of Metrol's expenses were estimated based on
annual amounts incurred. Management believes the estimates provide a reasonable
approximation of actual results. The pro forma information is provided for
informational purposes only. It is based on historical information and is not
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
Pro forma for the nine months ended
June 30, 1995 June 30, 1996
<S> <C> <C>
Revenue 46,139 60,651
Net loss before extraordinary item
and cumulative effect of change
in accounting method (6,255) (9,877)
Net loss before extraordinary item,
and cumulative effect of change
in accounting method per share (0.87) (0.91)
Net loss (14,281) (9,877)
Net loss per share (1.76) (0.91)
</TABLE>
11
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
For an overview of the Company's accounting policies and specific
discussions of, among other things, a change in the method of accounting for
certain acquisition and transition expenses, a change in statement of operations
presentation format and the impact of SFAS 121 on the Company's financial
statements, see the Company's Form 10-K, as amended, for the fiscal year ended
September 30, 1995.
Acquisition and Dealer Program Activity. As described in this Form
10-Q, a significant portion of the Company's growth has been generated by the
acquisition of portfolios of subscriber accounts from other alarm companies.
Because the Company typically acquires only the subscriber accounts (and not
the accounts receivable or other assets) of the sellers, the Company focuses
its pre- acquisition review and analysis on the quality and stability of the
subscriber accounts to verify the monthly recurring revenue ("MRR") represented
by such accounts. If the subscriber accounts to be purchased pass such due
diligence scrutiny, the Company then applies its monitoring costs to such MRR
as a basis for determining the purchase price to be paid by the Company. To
protect the Company against the loss of acquired accounts, the Company
typically seeks to obtain from the seller a guarantee against the subscriber
account cancellation for a period following the acquisition and the right to
retain a portion of the acquisition price (a "purchase price holdback") against
the MRR lost due to subscriber account cancellations during the specified
period.
During the nine months ended June 30, 1996 the Company added (through
acquisitions of 27 portfolios of subscriber accounts and through its Dealer
Program) an aggregate of approximately 77,000 subscriber accounts for a total
purchase price of approximately $95.5 million. The MRR of the acquired
accounts ranged from approximately $10.00 to $60.00, with an average of $28.56,
and the average purchase price holdback was approximately 12% of the initial
purchase price. Approximately 80% of the acquired subscriber accounts were
residential.
Subscriber Attrition. Subscriber attrition has a direct impact on the
Company's results of operations, since it affects both the Company's revenues
and its amortization expense. Attrition can be measured in terms of canceled
subscriber accounts and in terms of decreased MRR resulting from canceled
subscriber accounts. Gross subscriber attrition is defined by the Company for a
particular period as a quotient, the numerator of which is equal to the number
of subscribers who disconnect service during such period and the denominator of
which is the average of the number of subscribers at each month end during such
period. Net MRR attrition is defined by the Company for a particular period as
a quotient, the numerator of which is an amount equal to gross MRR lost as the
result of canceled subscriber accounts or services during such period, net of
(i) MRR generated during such period by the sale of additional services and
increases in rates to existing subscribers, (ii) MRR generated during such
period from the connection of subscribers who move into premises previously
occupied by subscribers and in which existing systems are installed and from
conversion of accounts that were previously monitored by other companies to the
Company's monitoring service (i.e., "reconnects" and "conversions"); and (iii)
MRR attributable to canceled accounts that, by virtue of a purchase holdback
are "put" back to the seller of such accounts during such period (i.e.,
"guaranteed accounts"); and the denominator of which is the average month-end
MRR in effect during such period. While the Company reduces the gross MRR lost
during a period by the amount of guaranteed accounts provided for in purchase
agreements with sellers, in some cases the Company may not collect all or any
of the reimbursement due it from the seller.
12
<PAGE> 14
The following table sets forth the Company's gross subscriber
attrition and net MRR attrition for the periods indicated:
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Gross subscriber attrition . . . . . . . 18.6% 19.3% 20.3% 20.5% 19.9%
Net MRR attrition . . . . . . . . . . . 6.2 6.6 6.6 7.9 7.1
</TABLE>
Because the Company determines payments to sellers under purchase
price holdbacks subsequent to the periods to which such holdbacks apply, and
because holdbacks are not allocated to specific guaranteed accounts or specific
fiscal periods, the Company reduces gross MRR lost during a period by the
amount of guaranteed accounts provided for in purchase agreements with sellers.
However, in some cases, the Company has not retained the full amount of such
holdback to which the Company is contractually entitled. If guaranteed
accounts for which the Company was not compensated by the seller were taken
into account in calculating net MRR attrition, net MRR attrition would have
been higher in each period presented in the table above.
Generally, net MRR attrition is less than actual "net account
attrition," which the Company defines as canceled subscriber accounts net of
reconnects, conversions and guaranteed accounts. Estimated net account
attrition is the basis upon which the Company determines the period over which
it amortizes its investment in subscriber accounts. The Company amortizes such
investment over 10 years based on current estimates. If actual subscriber
account attrition were to exceed such estimated attrition, the Company could be
required to amortize its investment in subscriber accounts over a shorter
period, thus increasing amortization expense in the period in which such
adjustment is made and in future periods. Since a significant portion of the
subscriber accounts acquired by the Company since its formation were purchased
recently, there can be no assurance that the actual attrition rates for such
accounts will not be greater than the rate assumed by the Company.
The table below sets forth the change in the Company's subscriber base
over the periods indicated:
<TABLE>
<CAPTION>
Twelve Months Ended June 30,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Number of subscribers:
Beginning of period . . . . . . . . . . . . . . . . 76,112 131,166
Additions through portfolio acquisitions and Dealer
Program, net of sales of subscriber accounts . 68,891 80,967
Installations by Company personnel . . . . . . . . 1,644 984
Reconnects and conversions . . . . . . . . . . . . 3,465 4,243
Gross subscriber attrition . . . . . . . . . . . . (18,946) (29,228)
-------- --------
End of period . . . . . . . . . . . . . . . . 131,166 188,132
======= =======
</TABLE>
Joint Ventures and Alliances. To evaluate other potential sources of
subscriber growth, the Company has initiated an analysis of companies that may
have an interest in entering the residential security alarm market. In
addition, certain companies in industries facing deregulation (such as the
telecommunications and electric utility industries) have expressed to the
Company an interest in offering security alarm services to develop more
comprehensive relationships with their customers. As of the date of this Form
10-Q, the Company is discussing with certain of such companies, and intends to
continue to explore, possible joint ventures, co-marketing arrangements and
other strategic alliances as a method of enhancing its subscriber growth and
reducing its cost of generating new subscribers. As of the date of this Form
10-Q, the Company has not entered into any agreement or arrangement for any
such joint venture or other alliance.
13
<PAGE> 15
Recent Developments On June 28, 1996, the Company acquired Metrol
Security Services, Inc. (together with its subsidiaries, "Metrol"), for $30.7
million, including the repayment of $15.7 million of Metrol's debt. To finance
the acquisition, the Company issued 417,885 shares of Common Stock to Metrol's
stockholders and borrowed $24.0 million under the Revolving Credit Facility.
Metrol, previously the 28th largest security alarm company in the United
States, had approximately 18,500 subscribers (approximately 5,500 of which
subscribed to Metrol's alarm response service), and provide other ancillary
security services, including guard services, a national accounts program, an
integrated system division and a probation monitoring operation. The acquired
subscriber accounts (approximately 70% of which are residential) represent
approximately $500,000 of MRR and $50,000 of recurring alarm response revenues.
Approximately 95% of the acquired Metrol subscribers are located in Phoenix and
Tucson, Arizona; the remainder are in Albuquerque and Santa Fe, New Mexico. As
a result of the Metrol acquisition, the Company believes that, based upon
number of subscribers, it has enhanced its position as the largest residential
security alarm monitoring company in Arizona.
On June 27, 1996, the Credit Agreement was amended to increase the
maximum amount of borrowings available under the Revolving Credit Facility to
$100 million, to reduce the interest rate payable on such borrowings, to extend
the term of the Revolving Credit Facility to January 3, 2000 and to make
certain other changes favorable to the Company.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated.
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
------------------------------- ----------------------------------
1995 1996 1995 1996
--------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues:
Monitoring and Service 86.1% 90.5% 83.7% 89.5%
Other 13.9 9.5 16.3 10.5
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of revenues:
Monitoring and Service 21.0% 24.0% 20.9% 24.4%
Other 12.8 8.1 14.7 9.0
----- ----- ----- -----
Total cost of revenues 33.8 32.1 35.6 33.4
----- ----- ----- -----
Gross profit 66.2 67.9 64.4 66.6
Selling, general and administrative expenses 19.8 18.9 21.0 19.5
Loss on acquisition terminations 1.5 -- 0.5 --
Acquisition and transition expenses 5.0 6.0 6.1 5.9
Amortization of subscriber accounts & goodwill 29.4 32.5 27.9 31.1
----- ----- ----- -----
Operating income 10.5% 10.5% 8.9% 10.1%
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Revenues. Revenues for the nine months ended June 30, 1996 increased
by approximately $12.8 million, or 32.9%, to $51.8 million from $39.0 million
in the comparable period in 1995. Monitoring and service revenues increased by
approximately $13.8 million, or 42.2%, a substantial majority of which resulted
from the addition of subscribers through the acquisition of portfolios of
subscriber accounts and purchases of subscriber accounts from independent alarm
dealers with whom the Company has exclusive purchase agreements (the "Dealer
Program"). The Company's subscriber base increased by 43.4% to approximately
188,000 subscribers at the end of the third quarter of fiscal 1996 as compared
to approximately 131,000 subscribers at the end of the third quarter of fiscal
1995. The sale of enhanced services and new subscribers generated by Company
personnel comprised the remainder of revenue growth. Other revenues, consisting
primarily of revenues generated by the Company's patrol and alarm response,
installation and lock businesses, decreased by $0.9 million, or 14.6%, to $5.4
million. Such
14
<PAGE> 16
decrease was caused primarily by a decline in installation revenues of 36.9%,
or approximately $1.1 million. The decline in installation revenues (and the
decline in installation expense described below) resulted from the Company's
continued emphasis on growth through acquisitions and the Dealer Program,
rather than through the sale of new alarm systems by Company personnel.
Cost of revenues. Cost of revenues for the nine months ended June 30,
1996 increased by approximately $3.5 million, or 24.9%, to $17.3 million. Cost
of revenues as a percentage of total revenues declined to 33.4% for the three
quarters of fiscal 1996 from 35.6% for the comparable period in fiscal 1995.
Monitoring and service expenses increased by approximately $4.5 million, or
55.2%, primarily due to increased activity at the Company's central monitoring
station and field service branches due to a substantially larger subscriber
base. Monitoring and service expenses as a percentage of monitoring and service
revenues increased to 27.3% for the nine months ended June 30, 1996 from 25.0%
during the comparable period in fiscal 1995. Such increase reflects a higher
level of staffing at the Company's central monitoring station as well as a
lower MRR per subscriber in the nine months ended June 30, 1996, due primarily
to the acquisition of portfolios of subscriber accounts that had a lower
average MRR per subscriber than the Company's average at that time. Other
expenses decreased by approximately $1.0 million, or 18.3%, to approximately
$4.7 million for the nine months ended June 30, 1996 from $5.7 million for the
first nine months of fiscal 1995. The decrease primarily was caused by a 38.1%
decrease ($0.9 million) in installation expense.
Gross profit. Gross profit for the nine months ended June 30, 1996 was
approximately $34.5 million, which represents an increase of approximately $9.4
million, or 37.4%, over the $25.1 million of gross profit recognized in the
comparable period in fiscal 1995. Gross profit as a percentage of total
revenues was 66.6% for the nine months ended June 30, 1996 compared to 64.4%
for the comparable period in fiscal 1995. This increase was caused primarily by
an increase in monitoring and service revenues as a percentage of total
revenues to 89.5% in the nine months ended June 30, 1996 compared to 83.7% in
the comparable period in fiscal 1995. Gross profit from other revenues
increased slightly to approximately $0.7 million for the first nine months of
fiscal 1996 from $0.6 million for the comparable period in fiscal 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses rose to approximately $10.1 million in the first nine
months of fiscal 1996, which represents an increase of approximately $1.9
million, or 23.3%, over selling, general and administrative expenses in the
comparable period in fiscal 1995. Such figure as a percentage of total revenues
declined from 21.0% in the nine months ended June 30, 1995 to 19.5% in the
comparable period in fiscal 1996, due primarily to the growth rate in revenues
exceeding that of selling general and administrative expenses. Sales and
marketing expenses declined due to the Company's continued emphasis on growth
through acquisitions and the Dealer Program, rather than through sales of new
alarm systems by Company personnel. The increase in general and
administrative expenses was caused by increases in corporate and branch
management and overhead expenses incurred to supervise a larger employee base
associated with a larger subscriber base. Advertising and marketing expenses
are expensed as incurred and comprised less than 1% of revenues in each of the
nine month periods ended June 30, 1995 and 1996. The provision for doubtful
accounts increased to approximately $1.5 million for the nine months ended June
30, 1996 from approximately $1.2 million for the comparable period in fiscal
1995.
Acquisition and transition expenses. Acquisition and transition
expenses for the nine months ended June 30, 1996 totaled approximately $3.0
million compared to $2.4 million for the comparable period in fiscal 1995.
Such increase reflects the Company's increased acquisition and Dealer Program
activity during the nine months ended June 30, 1996. Such expenses will
fluctuate from quarter to quarter based primarily on the amount of the
Company's acquisition activity and its ability to require sellers to bear
certain of such acquisition-related expenses.
Amortization of subscriber accounts and goodwill. Amortization expense
during the nine months ended June 30, 1996 increased by approximately $5.2
million, or 48.4%, to $16.1 million. This increase is the
15
<PAGE> 17
result of the addition to the Company's intangible asset reflecting the
acquisition of portfolios of subscriber accounts and the purchase of subscriber
accounts through the Dealer Program.
Operating income. Operating income for the nine months ended June 30,
1996 was approximately $5.2 million, compared to approximately $3.5 million in
the comparable period in fiscal 1995. Operating income as a percentage of
total revenues was 10.1% in the first nine months of fiscal 1996, compared to
8.9% in the comparable period in fiscal 1995. The increase in such figure over
the comparable period in fiscal 1995 reflects the increase in gross profit as a
percentage of total revenues and the achievement of economies of scale.
Interest expense, net and amortization of debt issuance costs and OID.
Interest expense, net and amortization of debt issuance costs and OID increased
by $6.7 million, or 70.0%, to $16.2 million in the nine months ended June 30,
1996, reflecting the Company's use of debt to finance a substantial portion of
its subscriber account growth. Because the Company refinanced its cash
interest-paying subordinated debt in May of 1995 with non-cash interest-paying
subordinated debt (see"- Liquidity and Capital Resources"), amortization of
debt issuance costs and original issue discount ("OID") increased during the
nine months ended June 30, 1996 to approximately $13.2 million.
Balance sheet data. At June 30, 1996, the Company's working capital
deficit was $11.0 million, as compared to a working capital deficit of $9.2
million at September 30, 1995. The increase in the working capital deficit was
caused primarily by increases in purchase holdbacks, deferred revenue and
acquisition transition costs of $15.0 million offset by increases in cash,
accounts receivable, inventories and prepaid expenses of $13.4. Subscriber
accounts and intangibles, net increased to $238.9 million at June 30, 1996 from
$162.2 million at September 30, 1995. This increase of $76.7 million, or 47.3%,
was caused by the addition of new subscribers, net of amortization expense.
Total stockholders' equity increased to approximately $30.9 million at June 30,
1996 from $6.3 million at September 30, 1995. The increase in such figure
reflects the Company's public offering of 2.5 million shares of Common Stock
(resulting in approximately $23.1 million of net proceeds) and the conversion
of the Company's Series H Redeemable Preferred Stock to Common Stock in
February 1996 (approximately $6.1 million) and the issuance of 417,885 shares
of Common Stock as a portion of the purchase price payment for the Metrol
Security Services acquisition (resulting in an increase to shareholder's equity
of approximately $6.8 million) partially offset by approximately $11.3 million
of losses in the first nine months of fiscal 1996.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Revenues. Revenues for the three months ended June 30, 1996 (the
"third quarter of fiscal 1996") increased by approximately $4.9 million, or
36.0%, to $18.6 million from $13.7 million in the comparable period in 1995.
Monitoring and service revenues increased by approximately $5.1 million, or
43.1%, a substantial majority of which resulted from the addition of
subscribers through the acquisition of portfolios of subscriber accounts and
the Dealer Program. The Company's subscriber base increased by 43.4% to
approximately 188,000 subscribers at the end of the third quarter of fiscal
1996 as compared to approximately 131,000 subscribers at the end of the third
quarter of fiscal 1995. The sale of enhanced services and new subscribers
generated by Company personnel comprised the remainder of revenue growth. Other
revenues decreased by $0.2 million, or 7.6%, to $1.8 million. Such decrease was
caused primarily by a decline in installation revenues of 22.9%, or
approximately $0.2 million.
Cost of revenues. Cost of revenues for the third quarter of fiscal
1996 increased by approximately $1.4 million, or 29.2%, to $6.0 million. Cost
of revenues as a percentage of total revenues declined to 32.1% for the third
quarter of fiscal 1996 from 33.8% for the comparable period in fiscal 1995.
Monitoring and service expenses increased by approximately $1.6 million, or
55.3%, primarily due to increased activity at the Company's central monitoring
station and field service branches. Monitoring and service expenses as a
percentage of monitoring and service revenues increased to 26.5% for the third
quarter of fiscal 1996 from 24.4% during the comparable period in fiscal 1995.
Such increase reflects both a higher level of
16
<PAGE> 18
staffing at the Company's central monitoring station, and the acquisition of
portfolios of subscriber accounts that had a lower average MRR per subscriber
than the Company's average at the time. Other expenses decreased by
approximately $0.2 million, or 13.6%, to approximately $1.5 million for the
third quarter in fiscal 1996 from $1.7 million for the third quarter of fiscal
1995. The decrease primarily was caused by a 29.1% decrease ($0.2 million) in
installation expense.
Gross profit. Gross profit for the third quarter of fiscal 1996 was
approximately $12.6 million, which represents an increase of approximately $3.6
million, or 39.5%, over the $9.1 million of gross profit recognized in the
comparable period in fiscal 1995. Gross profit as a percentage of total
revenues was 67.9% for the third quarter of fiscal 1996 compared to 66.2% for
the comparable period in fiscal 1995. This increase was caused primarily by an
increase in monitoring and service revenues as a percentage of total revenues
to 90.5% in the third quarter of fiscal 1996 compared to 86.1% in the
comparable period in 1995. Gross profit from other revenues increased to
approximately $0.3 million for the third quarter of fiscal 1996 from $0.2
million for the comparable period in fiscal 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses rose to approximately $3.5 million in the third quarter
of fiscal 1996, which represents an increase of approximately $0.8 million, or
30.3%, over selling, general and administrative expenses in the comparable
period in fiscal 1995. Such figure as a percentage of total revenues declined
from 19.8% in the third quarter of fiscal 1995 to 18.9% in the third quarter of
fiscal 1996. The increase in selling, general and administrative expenses was
caused by increases in corporate and branch management and overhead expenses
incurred to supervise a larger employee base associated with a larger
subscriber base. Advertising and marketing expenses comprised less than 1% of
revenues in each of the quarters ending June 30, 1995 and 1996. The provision
for doubtful accounts increased to approximately $0.5 million for the third
quarter of fiscal 1996 from $0.3 million for the comparable period in fiscal
1995.
Acquisition and transition expenses. Acquisition and transition
expenses for the third quarter of fiscal 1996 totaled approximately $1.1
million compared to $0.7 million for the comparable period in fiscal 1995.
Such increase was caused by significant acquisition activity in the third
quarter of fiscal 1996, as well as the assimilation of several large portfolios
of subscriber accounts acquired at the end of the second quarter of fiscal
1996.
Amortization of subscriber accounts and goodwill. Amortization expense
for the third quarter of fiscal 1996 increased by approximately $2.0 million,
or 50.4% to $6.0 million. This increase is the result of the addition of
subscriber accounts through the acquisition of portfolios of subscriber
accounts and the Dealer Program.
Operating income. Operating income for the third quarter of fiscal
1996 was approximately $2.0 million, compared to approximately $1.4 million in
the comparable period in fiscal 1995. Operating income as a percentage of
total revenues was 10.5% in the third quarter of fiscal 1996, compared to 10.5%
in the comparable period in fiscal 1995. Increases in acquisition, transition
and amortization expenses as a percentage of total revenues reflect the
Company's increased acquisition and Dealer Program activity.
Interest expense, net, and amortization of debt issuance costs and
OID. These amounts increased by $1.9 million, or 48.9%, to $5.7 million in the
third quarter of fiscal 1996, reflecting the Company's use of debt to finance a
substantial portion of its subscriber account growth. See "Liquidity and
Capital Resources" below.
17
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
General. Since September 1991, the Company has financed its operations
and growth from a combination of long-term debt, including the proceeds of the
$50.0 million principal amount of Senior Subordinated Notes issued in November
1993 and the $166.0 million principal amount ($105.2 million net proceeds) of
Discount Notes issued in May 1995, short-term borrowings under its Revolving
Credit Facility, sales of stock and, to a lesser extent, cash flows from
operations. In February 1996, the Company completed a public offering of 4.0
million shares of Common Stock (2.5 million shares of which were sold by the
Company and 1.5 million shares of which were sold by two selling stockholders).
Net proceeds from such offering were approximately $23.1 million, all of which
were used to reduce borrowings under the Revolving Credit Facility. The
Company believes that, based on the amount of net cash provided by operating
activities in fiscal 1994 and 1995 and the nine months ended June 30, 1996,
cash flows from operations will be sufficient to fund the Company's interest
payments on its debt and capital expenditures, which are the Company's
principal uses of cash other than the purchases of subscriber accounts from the
Company's dealers and acquisitions of portfolios of subscriber accounts.
On a long-term basis, the Company has several material commitments.
Borrowings under the Revolving Credit Facility were approximately $80.9 million
at June 30, 1996 and could be as high as $100.0 million through January 3, 2000,
the current maturity date of the Revolving Credit Facility. Although the
Company 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 maturity date,
there can be no assurance that the Company will be able to do so. The Discount
Notes require the Company to begin to make interest payments on such obligations
on December 31, 1998. Based on an interest rate of 13 5/8%, such payment will
be approximately $11.3 million semiannually, or $22.6 million on an annual
basis. As a result, a substantial portion of the Company's cash flows from
operations will be required to make interest payments on the Discount Notes, and
there can be no assurance that the Company's cash flow from operations will be
sufficient to meet such obligation, or that there will be sufficient funds
available to the Company after such interest payments to meet other debt,
capital expenditure and operational obligations. The $166.0 million principal
amount of Discount Notes matures on June 30, 2005. There can be no assurance
that the Company will have the cash necessary to repay the Discount Notes at
maturity or will be able to refinance such obligations. The Company maintains a
$2.0 million letter of credit sub-facility under its Revolving Credit Facility,
and has extended an approximately $1.2 million letter of credit to a seller,
scheduled payments under which are approximately $0.4 million during each of
fiscal 1997, 1998 and 1999.
The Company intends to use the remaining cash flows from operations,
together with borrowings under the Revolving Credit Facility, to finance the
addition of subscriber accounts. Although the Company anticipates that it will
continue to acquire portfolios of subscriber accounts, the Company cannot
estimate the number, size or timing of such acquisitions. Depending on such
factors, additional funds beyond those currently available to the Company under
the Revolving Credit Agreement may be required to continue the acquisition
program and to finance the Dealer Program. In this regard, in August 1996, the
Company filed a shelf registration statement with the Securities and Exchange
Commission to register for sale to the public up to $150 million aggregate
principal amount of senior and subordinated debt securities. There can be no
assurance that any such public offering will be completed or that the Company
will be able to obtain such financing on acceptable terms or at all.
As noted above, the Company has had, and expects to continue to have,
a working capital deficit. There are two principal categories of current
liabilities that cause the Company to have a working capital deficit: (i)
"purchase holdbacks," which represent the portion of the aggregate acquisition
cost of subscriber accounts retained by the Company to offset lost MRR arising
from the cancellation of acquired accounts; and (ii) "deferred revenue," which
represents billings and cash collections received by the Company from its
subscriber base in advance of performance of services.
For the nine months ended June 30, 1996, the Company's net cash
provided by operating activities was $16.6 million, compared to $2.6 million
for the comparable period in fiscal 1995. The increase in net cash provided by
operations of approximately $14.0 million was a result of higher earnings
before interest,
18
<PAGE> 20
taxes, depreciation and amortization and lower cash interest payments. The
decline in cash interest payments was due to the refinancing of cash interest
paying debt with the Discount Notes as described above.
For the first nine months of fiscal 1996, the Company's net cash used
in investing activities was $80.8 million, compared to $55.0 million during the
first nine months of fiscal 1995, primarily as a result of the acquisition of
portfolios of subscriber accounts.
During the first nine months of fiscal 1996, the Company's net cash
provided by financing activities was $71.4 million, compared to $52.1 million
in the comparable period in fiscal 1995. Financing activities reflect the
Company's borrowings under its Revolving Credit Facility and proceeds from the
Company's secondary stock offering in February 1996.
Restrictions on Dividends. POI has never paid any cash dividends on
the Common Stock and does not intend to pay cash dividends in the foreseeable
future. Both the Revolving Credit Facility and the Indenture governing the
Discount Notes restrict POI's ability to declare or pay any dividend on, or
make any other distribution in respect of, POI's capital stock.
Capital Expenditures. During the nine months ended June 30, 1996, the
Company made approximately $4.7 million of capital expenditures, of which $3.0
million were made for the routine replacement and required upgrading and
expansion of vehicles, computers, phone switches and other capital items, and
the remainder were made for the upgrading of its monitoring and administrative
hardware and software. The Company believes the installation of the new
computer software will create efficiencies Company-wide, and particularly in
the customer service, data entry and field service functions. The
implementation of the new software is scheduled to be completed in fiscal 1997.
In addition, the Company anticipates making capital expenditures totaling
$500,000 in fiscal 1997 and 1998 to expand the capacity of the central
monitoring station to approximately 500,000 subscribers. The Company believes
cash flows from operations, together with borrowing under the Revolving Credit
Facility, will be sufficient to fund the Company's capital expenditures in the
remainder of fiscal 1996 and fiscal 1997.
19
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 5. In February 1996, POI entered into one-year consulting agreement with
Dr. Ben Enis pursuant to which Dr. Enis advises the Company with
respect to advertising and marketing matters and is compensated for
such services at the rate of $7,500 per month.
ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------ -----------------------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement to Purchase and Sell Stock dated as of May 23, 1996, among Metrol Security Services, Inc.
("Metrol"), the persons named therein as the "Shareholders" (the "Shareholders"), Protection One Alarm
Monitoring, Inc. ("Monitoring") and Protection One, Inc. ("POI"). (1)
2.2 Amendment No. 1 to Agreement dated as of June 28, 1996, among Metrol, the Shareholders, Monitoring, and
POI. (2)
2.3 Escrow Agreement dated May 31, 1996, among Metrol, the Shareholders, Monitoring, POI and First National
Bank of Denver, N.A. as the Escrow Agent. (3)
10.1 Registration Rights Agreement dated as of June 28, 1996, among POI and the Shareholders. (4)
10.2 Amended and Restated Credit Agreement dated as of June 7, 1996, among Monitoring, Heller Financial, Inc.
("Heller") and the other Lenders named therein and Heller as Agent for such Lenders.
10.3 Amended and Restated Employment Agreement dated as of May 24, 1996 between POI and James M. Mackenzie, Jr.
10.4 Amended and Restated Employment Agreement dated as of May 24, 1996 between POI and John W. Hesse.
10.5 Amended and Restated Employment Agreement dated as of May 24, 1996 between POI and John E. Mack, III.
10.6 Amended and Restated Employment Agreement dated as of May 24, 1996 between POI and Thomas K. Rankin.
10.7 Consulting Agreement dated as of February 19, 1996 between POI and Dr. Ben Enis.
(1) Incorporated by reference to Exhibit 2.1 to Registration Statement on Form S-3 (Commission File No.
333-5849) filed by POI with the Securities and Exchange Commission (the "Commission") on June 12, 1996
(the "June 1996 Form S-3").
(2) Incorporated by reference to Exhibit 2.2 to the June 1996 Form S-3.
(3) Incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K filed by POI and Monitoring
with the Commission reporting an event dated June 7, 1996 (the "June 1996 Form 8-K").
(4) Incorporated by reference to Exhibit 99.1 to the June 1996 Form 8-K.
</TABLE>
20
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORMS 8-K (CONT.).
(b) Reports on Form 8-K.
The following reports on Form 8-K have been filed during the quarter
for which this report is filed:
1. Current Report on Form 8-K dated May 23, 1996, filed by POI
and Monitoring with the Commission on May 24, 1996, and reporting in response
to Item 2 the entering into by POI and Monitoring of the agreement to purchase
all of the capital stock of Metrol filed as an exhibit to this report.
2. Current Report on Form 8-K dated June 7, 1996, filed by POI
and Monitoring with the Commission on July 2, 1996, as amended, reporting in
response to Item 2 Monitoring's acquisition of all of the outstanding capital
stock of Metrol and in response to Item 5 the entering into by POI and
Monitoring of the Amended and Restated Credit Agreement filed as an exhibit to
this report. Such report as amended also included the consolidated financial
statements of Metrol and its subsidiaries and pro forma financial information
with respect to the Metrol acquisition.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
August 14, 1996 PROTECTION ONE, INC.
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ John W. Hesse
--------------------------
John W. Hesse
Executive Vice President
and Chief Financial Officer
</TABLE>
22
<PAGE> 1
EXHIBIT 10.2
=================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF JUNE 7, 1996
AMONG
PROTECTION ONE ALARM MONITORING, INC.,
AS BORROWER
HELLER FINANCIAL, INC.,
AS AGENT AND AS LENDER
AND
THE OTHER LENDERS PARTY HERETO
================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement . . 18
1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.4 Effect of Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2 AMOUNTS AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.1 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(A) Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(B) Borrowing Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(C) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(D) Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(1) Maximum Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(2) Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(3) Conditions of Issuance of Lender Letter of Credit . . . . . . . . . . 21
(4) Request for Letters of Credit . . . . . . . . . . . . . . . . . . . . 21
(5) Other Letter of Credit Provisions . . . . . . . . . . . . . . . . . . 21
(a) Obligations Absolute . . . . . . . . . . . . . . . . . . . . 22
(b) Nature of Lenders' Duties . . . . . . . . . . . . . . . . . . 22
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(A) Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(B) Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(C) Computation and Payment of Interest . . . . . . . . . . . . . . . . . . . . . 24
(D) Interest Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(E) Conversion or Continuation . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(A) Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(B) Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(C) Lender Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.4 Payments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(A) Manner and Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(B) Payments on Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(C) Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(1) Revolving Loan Overadvance . . . . . . . . . . . . . . . . . . . . . . 27
(2) Prepayments from Asset Dispositions . . . . . . . . . . . . . . . . . 27
(3) Prepayment from Equity Offerings . . . . . . . . . . . . . . . . . . . 27
(D) Termination of Revolving Loan Commitment by Borrower . . . . . . . . . . . . . 27
(E) Application of Prepayments and Repayments . . . . . . . . . . . . . . . . . . 28
2.5 Term of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.6 Borrower's Loan Account and Statements . . . . . . . . . . . . . . . . . . . . . . . . 28
2.7 Special Provisions Governing LIBOR Rate Loans . . . . . . . . . . . . . . . . . . . . . 29
(A) Determination of Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . 29
(B) Substituted Rate of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . 29
(C) Required Termination and Prepayment . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C> <C>
(D) Options of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(E) Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(F) Booking of LIBOR Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . 31
(G) Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(H) Assumptions Concerning Funding of LIBOR Rate Loans . . . . . . . . . . . . . . 31
(I) LIBOR Rate Loans After Default . . . . . . . . . . . . . . . . . . . . . . . . 32
2.8 Capital Adequacy and Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 32
2.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(A) No Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(B) Changes in Tax Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(C) Foreign Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.10 Optional Prepayment/Replacement of Lender in Respect of Increased Costs . . . . . . . . 34
SECTION 3 CONDITIONS TO LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.1 Conditions to Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.2 Conditions to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(A) Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(B) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 35
(C) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(D) Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(E) Compliance with Indebtedness Ratio Test . . . . . . . . . . . . . . . . . . . 35
3.3 Conditions to All Subsequent Acquisitions and Subsequent Acquisition Loans . . . . . . 35
(A) Subsequent Acquisition Compliance Certificate . . . . . . . . . . . . . . . . 35
(B) Subsequent Acquisition Documents . . . . . . . . . . . . . . . . . . . . . . . 35
(C) Borrower's Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(1) UCC Financing Statements . . . . . . . . . . . . . . . . . . . . . . . 35
(2) Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 36
(3) Termination of Prior Liens . . . . . . . . . . . . . . . . . . . . . . 36
(4) Other Borrower's Documents . . . . . . . . . . . . . . . . . . . . . . 36
(D) Notice of Borrowing; Letter of Direction . . . . . . . . . . . . . . . . . . . 36
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 36
4.1 Organization, Powers, Capitalization, Good Standing, Business and Subsidiaries . . . . 36
(A) Organization and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(B) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(C) Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(D) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(E) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(A) Authorization of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(B) No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(C) Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C> <C>
(D) Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(E) Subordinated Discount Note Documents . . . . . . . . . . . . . . . . . . . . . 38
4.3 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(A) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(B) Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4 Indebtedness and Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . 39
4.5 No Material Adverse Change; No Stock Payments . . . . . . . . . . . . . . . . . . . . . 39
4.6 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.7 Litigation; Adverse Facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.8 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.9 Adverse Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.10 Performance of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.11 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(A) No Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(B) ERISA and IRC Compliance and Liability . . . . . . . . . . . . . . . . . . . . 40
(C) Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(D) Prohibited Transactions and Payments . . . . . . . . . . . . . . . . . . . . . 41
(E) No Termination Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(F) ERISA Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.14 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
4.15 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(A) No Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(B) Storage of Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . 42
(C) Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . 42
4.16 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.17 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.18 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.19 Use of Proceeds and Margin Security . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.22 Representations and Warranties from the Acquisition Documents . . . . . . . . . . . . . 44
(A) Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(B) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.23 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.24 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.25 No Defaults under Existing Credit Agreement . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 5 BORROWER'S AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.1 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . 45
(A) Monthly Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page No
-------
<S> <C> <C> <C>
(B) Year-End Financials . . . . . . . . . . . . . . . . . . . . . 45
(C) Borrower's Compliance Certificate . . . . . . . . . . . . . . 46
(D) Accountants' Certification . . . . . . . . . . . . . . . . . . 46
(E) Accountants' Reports . . . . . . . . . . . . . . . . . . . . . 46
(F) Management Report . . . . . . . . . . . . . . . . . . . . . . 46
(G) Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(H) Projections . . . . . . . . . . . . . . . . . . . . . . . . . 47
(I) SEC Filings and Press Releases . . . . . . . . . . . . . . . . 47
(J) Subordinated Indebtedness Notices . . . . . . . . . . . . . . 47
(K) Events of Default, etc. . . . . . . . . . . . . . . . . . . . 47
(L) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(M) Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 47
(N) Termination Events . . . . . . . . . . . . . . . . . . . . . . 48
(O) ERISA Notices . . . . . . . . . . . . . . . . . . . . . . . . 48
(P) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(Q) Supplemented Schedules; Notice of Corporate Changes . . . . . 48
(R) Other Information . . . . . . . . . . . . . . . . . . . . . . 49
5.2 Access to Accountants . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.3 Corporate Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . 49
5.4 Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . . . . 49
5.5 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . 49
5.6 Inspection; Lender Meeting . . . . . . . . . . . . . . . . . . . . . . 50
5.7 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . 50
(A) Environmental Laws . . . . . . . . . . . . . . . . . . . . . . 50
(B) Remedial Action . . . . . . . . . . . . . . . . . . . . . . . 50
(C) Further Assurance . . . . . . . . . . . . . . . . . . . . . . 50
5.8 Environmental Disclosure . . . . . . . . . . . . . . . . . . . . . . . 50
5.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.10 Covenants in Acquisition Documents . . . . . . . . . . . . . . . . . . 51
5.11 Mortgages; Title Insurance; Surveys . . . . . . . . . . . . . . . . . . 52
(A) Additional Mortgaged Property . . . . . . . . . . . . . . . . 52
(B) Title Insurance . . . . . . . . . . . . . . . . . . . . . . . 52
(C) Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.13 Enforcement of Remedies under Acquisition Documents . . . . . . . . . . 53
SECTION 6 FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.1 Capital Expenditure Limits . . . . . . . . . . . . . . . . . . . . . . 53
6.2 Senior Interest Coverage . . . . . . . . . . . . . . . . . . . . . . . 53
6.3 Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.4 EBIDAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.5 Maximum MRR Attrition . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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SECTION 7 BORROWER'S NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.2 Liens and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(A) No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(B) No Negative Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(C) No Restrictions on Subsidiary Distributions to Borrower . . . . . . . . . . . 55
7.3 Investments; Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.4 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.5 Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.6 Restriction on Fundamental Changes; Subsequent Acquisitions . . . . . . . . . . . . . . 57
7.7 Disposal of Assets or Subsidiary Stock . . . . . . . . . . . . . . . . . . . . . . . . 58
7.8 Restriction on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.9 Sales and Lease-Backs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.11 Management Fees and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.12 Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.13 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.14 Changes Relating to Subordinated Indebtedness and Holdings Preferred Stock . . . . . . 60
7.15 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.16 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.17 Press Release; Public Offering Materials . . . . . . . . . . . . . . . . . . . . . . . 61
7.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.19 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 8 DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(A) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(B) Default in Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 62
(C) Breach of Certain Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 62
(D) Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(E) Other Defaults Under Loan Documents . . . . . . . . . . . . . . . . . . . . . 62
(F) Involuntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . 62
(G) Voluntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . 63
(H) Governmental Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(I) Judgment and Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(J) Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(K) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(L) Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(M) ERISA - Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(N) ERISA - Multiemployer Plans . . . . . . . . . . . . . . . . . . . . . . . . . 64
(O) Invalidity of Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
v
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<TABLE>
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<S> <C> <C> <C>
(P) Damage, Strike, Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(Q) Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(R) Failure of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(S) Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.2 Suspension of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.3 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.4 Performance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 9 ASSIGNMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9.1 Assignments and Participations in Loans and Notes . . . . . . . . . . . . . . . . . . . 65
9.2 Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(A) Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(B) Nature of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(C) Rights, Exculpation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(D) Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(E) Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(F) Heller Individually . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(G) Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(1) Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(2) Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . 68
(3) Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(H) Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(1) Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . 69
(2) Confirmation of Authority; Execution of Releases . . . . . . . . . . . 69
(3) Absence of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(I) Agency for Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.3 Amendments, Consents and Waivers for Certain Actions . . . . . . . . . . . . . . . . . 70
9.4 Set Off and Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.5 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.6 Disbursements of Advances, Payments and Information . . . . . . . . . . . . . . . . . . 72
(A) Revolving Loan Advances and Payments; Fee Payments . . . . . . . . . . . . . . 72
(B) Availability of Lender's Pro Rata Share . . . . . . . . . . . . . . . . . . . 73
(C) Return of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
(D) Dissemination of Information . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.1 Expenses and Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.4 Retention of Borrower's Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.6 Survival of Warranties and Certain Agreements . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
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10.7 Failure or Indulgence Not Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . 78
10.8 Marshaling; Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.9 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.11 Lenders' Obligations Several; Independent Nature of Lenders' Rights . . . . . . . . . . 78
10.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.13 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.14 Successors and Assigns; Subsequent Holders of Notes . . . . . . . . . . . . . . . . . . 79
10.15 No Fiduciary Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.16 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.17 No Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.18 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.19 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.20 CONSENT TO JURISDICTION AND SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . 80
10.21 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.22 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.23 Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>
vii
<PAGE> 9
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1(A) - Compliance Certificate
Exhibit 1.1(C) - Notice of Borrowing
Exhibit 1.1(D) - Revolving Note
Exhibit 1.1(E) - Security Agreement
Exhibit 2.2(E) - Notice of Conversion/Continuation
Exhibit 3.1 - Financial Condition Certificate
Exhibit 3.3 - Subsequent Acquisition Compliance Certificate
Exhibit 5.1 - Customer Account and MRR Attrition Report
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
1.1 (B) Prior Indebtedness
1.1 (C) Initial Capital Expenditures
1.1 (D) Initial Pro Forma
1.1 (E) Qualified Dealer Contracts
3.1 Conditions to Initial Loans
4.1 (A) Organization of Loan Parties
4.1 (B) Capitalization of Loan Parties
4.1 (C) Qualification of Loan Parties
4.1 (D) Business of Loan Parties
4.1 (E) Subsidiaries
4.3 Projections
4.4 Indebtedness and Contingent Obligations
4.7 Litigation
4.12 Employee Benefit Plans
4.13 Intellectual Property Claims
4.14 Broker's Fees
4.15(A) Environmental Claims
4.15(B) Hazardous Materials
4.15(C) Compliance with Environmental Laws
4.16 Employee Matters; Employment Contracts
4.20 Insurance Policies
4.21 Bank Accounts
4.24 Investments
5.4 Tax Audits
7.4 Contingent Obligations
7.10 Transactions with Shareholders and Affiliates
7.11 Management Fees and Compensation
</TABLE>
viii
<PAGE> 10
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June 7, 1996
and entered into by and among PROTECTION ONE ALARM MONITORING, INC., a Delaware
corporation ("Borrower"), with its principal place of business at 3900 S.W.
Murray Boulevard, Beaverton, Oregon 97005, HELLER FINANCIAL, INC., a Delaware
corporation (in its individual capacity, "Heller"), with offices at 500 West
Monroe Street, Chicago, Illinois 60661, for itself, as Lender, and as agent for
all other Lenders (such term and other capitalized terms used herein are
defined in Section 1 of this Agreement), and such other Persons as are
executing this Agreement as Lenders.
RECITALS
WHEREAS, Borrower, Heller, individually and as agent, and certain
other Persons (including the other Lenders), as lenders, are parties to a
certain Credit Agreement dated as of November 3, 1993, as heretofore amended,
modified and supplemented from time to time (as so amended, modified and
supplemented, the "Existing Credit Agreement"), pursuant to which Heller and
such other lenders have provided to Borrower a revolving credit facility in an
aggregate principal amount not to exceed $75,000,000; and
WHEREAS, the aggregate outstanding principal balance of Borrower's
revolving loan obligations under the Existing Credit Agreement as of the
Closing Date is $51,932,070.31 (the "Existing Loans") and the aggregate amount
of "Lender Letter of Credit Liability" with respect to all "Lender Letters of
Credit" (as such terms are defined in the Existing Credit Agreement") as of the
Closing Date is $1,236,000 (the "Existing Lender Letter of Credit Liability");
and
WHEREAS, Borrower, Agent and Lenders wish to amend and restate the
Existing Credit Agreement on the terms and subject to the conditions set forth
herein, including among other things to provide for a revolving credit facility
to Borrower in an aggregate principal amount not to exceed $100,000,000, the
proceeds of which credit facility will be used by Borrower (i) to restate a
portion of the Existing Loans outstanding in the Closing Date, (ii) to repay a
portion of the Existing Loans together with accrued interest and fees thereon
and to pay fees and expenses related to the transactions contemplated by this
Agreement and (iii) to fund Subsequent Acquisitions and related transaction
costs, to provide working capital financing for Borrower and to provide funds
for other general corporate purposes of Borrower; and
WHEREAS, prior to the effectiveness of this Agreement, Protection One
Alarm Services, Inc. ("Services"), an Oregon corporation and a wholly-owned
Subsidiary of Borrower, has been merged with and into Borrower, with Borrower
as the surviving corporation in such merger (the "Services Merger");and
WHEREAS, Borrower desires to secure all of its obligations under the
Loan Documents by granting to Agent, on behalf of Lenders, a security interest
in and lien upon all of its personal and real property; and
WHEREAS, Protection One, Inc., a Delaware corporation ("Holdings"), is
willing to guaranty all of the obligations of Borrower to Lenders under the
Loan Documents and to grant to Agent, on behalf of Lenders, a security
interest in all of the capital stock of Borrower to secure such guaranty;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrowers, Lenders, and Agent agree
as follows:
<PAGE> 11
SECTION 1
DEFINITIONS
SECTION 1.1 Certain Defined Terms.
The terms defined below are used in this Agreement as so defined.
Terms defined in the preamble and recitals to this Agreement are used in this
Agreement as so defined.
"Accreted Value" has the meaning given such term in the Subordinated
Discount Note Indenture.
"Acquisition" means any of the Prior Acquisitions or any Subsequent
Acquisition.
"Additional Mortgaged Property" has the meaning given in subsection
5.11.
"Affiliate" means any Person (other than Agent, any Lender or Heller
in its capacity as a stockholder of Holdings): (a) directly or indirectly
controlling, controlled by, or under common control with, Borrower; or (b) five
percent (5%) or more of whose voting stock or other equity interest is directly
or indirectly owned or held by Borrower. For purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession directly
or indirectly of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
by contract or otherwise.
"Agent" means Heller in its capacity as agent for the Lenders under
this Agreement and any successor in such capacity appointed pursuant to
subsection 9.2.
"Agreement" means this Credit Agreement (including all schedules,
exhibits, annexes and appendices hereto).
"Asset Disposition" means the disposition whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise of any of the
following: (a) any of the stock of any of Borrower's Subsidiaries; or (b) any
or all of the assets of Borrower or any of its Subsidiaries other than sales of
inventory in the ordinary course of business.
"Bank Agency Agreement" means an agreement satisfactory to Agent among
Agent, for the benefit of the Lenders, each Borrower and each bank at which
either Borrower maintains depository accounts.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time and all rules and regulations
promulgated thereunder.
"Base Rate" means a variable rate of interest per annum equal to the
higher of: (i) the rate of interest from time to time published by the Board
of Governors of the Federal Reserve System as the "Bank Prime Loan" rate in
Federal Reserve statistical release H.15(519) entitled "Selected Interest
Rates" or any successor publication of the Federal Reserve System reporting the
Bank Prime Loan rate or its equivalent or (ii) the Federal Funds Effective
Rate. The statistical release generally sets forth a Bank Prime Loan rate for
each business day. The applicable Bank Prime Loan rate for any date not set
forth shall be the rate set forth for the last preceding date. In the event
the Board of Governors of the Federal Reserve System ceases to publish a Bank
Prime Loan rate or equivalent, the term "Base Rate" shall mean a variable rate
of interest per
<PAGE> 12
annum equal to the highest of the "prime rate," "reference rate," "base rate"
or other similar rate announced from time to time by any of Bankers Trust
Company or The Chase Manhattan Bank, National Association (with the
understanding that any such rate may merely be a reference rate and may not
necessarily represent the lowest or best rate actually charged to any customer
by such bank).
"Base Rate Loans" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2(A)(1).
"Big Six Accounting Firm" means any of Arthur Andersen & Co., KPMG
Peat Marwick, Coopers & Lybrand, Ernst & Young, Deloitte & Touche and Price
Waterhouse or any of their respective successors.
"Borrower" has the meaning given in the preamble to this Agreement.
"Business Day" means (a) for all purposes other than as covered by
clause (b) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the Commonwealth of Pennsylvania or the State
of Illinois, or the State of Oregon or is a day on which banking institutions
located in any such states are closed, and (b) with respect to all notices,
determinations, fundings and payments in connection with Loans bearing interest
at the LIBOR Rate, any day that is a Business Day described in clause (a) above
and that is also a day for trading by and between banks in Dollar deposits in
the applicable interbank LIBOR market.
"Capital Expenditures" means, without duplication, for any period, the
aggregate of all expenditures on a consolidated basis including deposits
(whether paid in cash or property or accrued as liabilities and including the
aggregate amount of all principal payments due for the entire term of all
Capital Leases which are required to be capitalized on the balance sheet) made
by Borrower and its Subsidiaries that, in conformity with GAAP, are required to
be included in the property, plant, or equipment, or similar fixed asset
account; provided, however, there shall be excluded from the calculation of
Capital Expenditures permitted under subsection 6.1 hereof only that portion of
all such expenditures which Borrower is permitted to reinvest or use for
replacement or restoration of assets through the use of insurance proceeds,
awards of compensation arising from condemnation or eminent domain proceedings
or from Net Proceeds of Asset Dispositions.
"Capital Lease" means any lease of any property (whether real,
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease.
"Capitalization Documents" means, collectively: (a) any or all of the
stock certificates, warrant certificates or notes representing the Holdings
Capital Stock and the Holdings Warrants; (b) the Subordinated Discount Note
Documents, the Holdings Warrant Agreement and the Heller Purchase Agreement;
and (c) any stockholders agreement or other agreement among or between the
holders of the Holdings Capital Stock and the Holdings Warrants and Holdings or
Borrower.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
commercial paper maturing no more than one year from the date issued and, at
the time of acquisition, having a rating of at least A-1 from Standard & Poor's
Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within one year from
the date
<PAGE> 13
of issuance thereof issued by, or overnight reverse repurchase agreements from,
any commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia having combined capital and
surplus of not less than $500,000,000 and not subject to setoff rights in favor
of such bank; and (d) time deposits maturing no more than thirty (30) days from
the date of creation thereof with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts not exceeding the lesser of
$100,000 or the maximum amount of insurance applicable to the aggregate amount
of Borrower's deposits at such institution.
"Closing Date" means June 7, 1996.
"Collateral" means, collectively: (a) all capital stock and other
property pledged pursuant to the Pledge Agreement; (b) all "Collateral" as
defined in the Security Agreement; (c) all real property mortgaged pursuant to
the Mortgages; and (d) any property or interest provided in addition to or in
substitution for any of the foregoing.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit 1.1(A).
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (a) with respect
to any indebtedness, lease, dividend or other obligation of another Person if
the primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; (b) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings; (c) under Interest Rate Agreements; or (d) under any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement
designed to protect that Person against fluctuations in currency values.
Contingent Obligations shall include (i) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (ii) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, and (iii) any liability of such Person for the
obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or
to maintain the solvency, financial condition or any balance sheet item or
level of income of another. The amount of any Contingent Obligation shall be
equal to the amount of the obligation so guaranteed or otherwise supported or,
if not a fixed and determined amount, the maximum amount so guaranteed.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of Borrower or Holdings who (i) was a member
of such Board of Directors on the Closing Date or (ii) was nominated for
election or elected to such Board of Directors with the affirmative vote of a
majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"Contractual Obligation", as applied to any Person, means any
indenture, mortgage, deed of trust, contract, undertaking, agreement or other
instrument to which that Person is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject
including, without limitation, the Related Transaction Documents.
<PAGE> 14
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Deferred Payment Obligations" means all obligations of Holdings or
Borrower for amounts deferred or withheld in connection with the Acquisitions
(or in connection with any other acquisition of Subscriber Accounts prior to
the Original Closing Date), including amounts withheld as potential set-offs
against Subscriber Account terminations or deferred in connection with
post-closing purchase price adjustments or otherwise. For purposes of this
Agreement, (i) Deferred Payment Obligations shall be deemed to be incurred as
of the closing date of the related Acquisition and (ii) the amount of Deferred
Payment Obligations outstanding at any date of determination shall be deemed to
be the then maximum projected amount thereof; provided, however, that, with
respect to Deferred Payment Obligations constituting amounts deferred or
withheld as potential set-offs against Subscriber Account terminations, the
amount thereof outstanding at any date of determination shall be deemed to be
fifty percent (50%) of the then outstanding amount of such obligations as
reflected on Holdings' and Borrowers' books and records, so long as the
outstanding amount reflected on such books and records does not exceed
$2,000,000, and otherwise shall be deemed to be the lesser of (i) the then
outstanding amount of such obligations as reflected on Holdings' and Borrower's
books and records and (ii) fifty percent (50%) of the amount of such
obligations initially recorded as outstanding on Holdings' and Borrower's books
and records at the time of incurrence thereof. Notwithstanding the foregoing,
Deferred Payment Obligations shall not include amounts outstanding under any
promissory note issued by Borrower in favor of Ion Leasing, Inc.; provided that
simultaneously with the issuance of such promissory note (or any increase in
the principal amount thereof in connection with the purchase of any additional
Subscriber Accounts pursuant to the Ion Acquisition Documents), Borrower has
defeased such promissory note (including any increase in the principal amount
thereof) by irrevocably depositing cash in a segregated trust account in such
amount as will be sufficient to make all payments (including without
limitation, principal and interest) due thereunder.
"Disqualified Stock" means any capital stock of Holdings which, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final stated maturity of the Subordinated Discount Notes.
"Dollars" and the sign "$" mean the lawful money of the United States
of America.
"EBIDAT" means, without duplication, for any period, the following,
each calculated for such period: (a) Net Income; plus (b) any provision for
(or less any benefit from) income or franchise taxes included in the
determination of Net Income; plus (c) interest expense deducted in the
determination of Net Income; plus (d) amortization and depreciation deducted in
the determination of Net Income; plus (e) losses from (or less gains from)
Asset Dispositions or other non-recurring items included in the determination
of Net Income, including gains arising from any reduction in the reserve for
Transition Costs maintained by Borrower; less (f) after tax extraordinary gains
(or plus after tax extraordinary losses) (in each case as defined under GAAP);
less (g) Other Capitalized Costs paid.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six years been maintained for the employees of any Loan Party or any current or
former ERISA Affiliate.
<PAGE> 15
"Environmental Claims" has the meaning assigned to that term in
subsection 4.15(A).
"Environmental Laws" means all present and future federal, state or
local laws, statutes, ordinances, codes, rules, regulations, orders, decrees or
directives imposing liability or standards of conduct for relating to the
environment, industrial hygiene, land use or the protection of human health and
safety, natural resources, pollution or waste management.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
all rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who
is a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection
8.1.
"Exchange Act" means the Securities Exchange Act of 1934.
"Expiry Date" means the earlier of (a) the termination of the
Revolving Loan Commitment pursuant to subsection 8.3 or (b) the Termination
Date.
"Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published on
the immediately following Business Day by the Federal Reserve Bank of New York
or, if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by the Agent from three
Federal funds brokers of recognized standing selected by Agent.
"Financial Condition Certificate" means a certificate delivered to
Agent by Borrower pursuant to subsection 3.1(B).
"Fiscal Year" means a twelve month period ending on the last day of
September in each year.
"Fixed Charge Coverage" means, for any period, (a) EBIDAT less the
unfinanced portion of Capital Expenditures divided by (b) Fixed Charges.
"Fixed Charges" means, without duplication, for any period, the
following, each calculated for such period: (a) Interest Expenses (less
interest income); plus (b) any provision for (or less any benefit from) income
or franchise taxes included in the determination of Net Income, excluding
changes in deferred tax assets and liabilities; plus (c) scheduled payments of
principal with respect to all Indebtedness (including scheduled payments of
Capital Leases) of Holdings, Borrower and Borrower's Subsidiaries on a
consolidated basis, but excluding reductions of the Revolving Loan, plus (d)
Restricted Junior Payments made in cash to any Person other than Holdings,
Borrower and Borrower's Subsidiaries.
"Funding Date" means the date of each funding of a Loan or issuance of
a Lender Letter of Credit.
<PAGE> 16
"GAAP" means generally accepted accounting principles as set forth in
statements from Auditing Standards No. 69 entitled "The Meaning of 'Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports'" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"Hazardous Material" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable Environmental Laws as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "TLCP" toxicity, "EP toxicity"; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment which contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.
"Heller Purchase Agreement" means the Stock Purchase Agreement dated
the Original Closing Date between Holdings and Heller, as amended, supplemented
or modified from time to time.
"Heller Stock" means the 181,269 shares of Common Stock, par value
$.01 per share, of Holdings issued by Holdings to Heller pursuant to the Heller
Purchase Agreement.
"Holdings Capital Stock" means the Common Stock par value $.01 per
share, of Holdings.
"Holdings Guaranty" means the amended and restated continuing guaranty
to be executed and delivered by Holdings, in favor of Agent for the benefit of
the Lenders, in form and substance satisfactory to Agent.
"Holdings Pledge Agreement" means the amended and restated stock
pledge agreement to be executed and delivered by Holdings, in favor of Agent,
for the benefit of Lenders, in form and substance satisfactory to Agent.
"Holdings Warrant Agreement" means collectively, (a) that certain
Warrant Agreement dated the Original Closing Date between Holdings and United
States Trust Company of New York, as Warrant Agent and (b) that certain Warrant
Agreement dated May 17, 1995 between Holdings and State Street Bank and Trust
Company, a successor to the First National Bank of Boston, as Warrant Agent.
"Holdings Warrants" means the warrants to purchase Holdings Common
Stock pursuant to the Holdings Warrant Agreement.
"Indebtedness", as applied to any Person, means: (a) all indebtedness
for borrowed money; (b) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed
money; (d) all Deferred Payment Obligations and any other obligation owed for
all or any part of the deferred purchase price of property or services if the
purchase price is due more than six months from the date the obligation is
incurred or is evidenced by a note or similar written instrument; (e) all
indebtedness secured by any Lien on any property or asset owned or
<PAGE> 17
held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is nonrecourse to the credit of that
Person; and (f) all Obligations with respect to Lender Letters of Credit.
Obligations under Interest Rate Agreements constitute Contingent Obligations
and not Indebtedness. Notwithstanding the foregoing, Indebtedness shall not
include amounts outstanding under any promissory note issued by Borrower in
favor of Ion Leasing, Inc.; provided that simultaneously with the issuance of
such promissory note (or any increase in the principal amount thereof in
connection with the purchase of any additional Subscriber Accounts pursuant to
the Ion Acquisition Documents), Borrower has defeased such promissory note
(including any increase in the principal amount thereof) by irrevocably
depositing cash in a segregated trust account in such amount as will be
sufficient to make all payments (including without limitation, principal and
interest) due thereunder. The term "Indebtedness", as defined herein and for
purposes of the financial definitions herein, shall include the Accreted Value
of the Subordinated Discount Notes from time to time, without deduction for any
original issue discount arising from the allocation of a portion of the issue
price thereof to the Holdings Warrants.
"Indebtedness Ratio Test" means, as of any date of determination, that
(i) the Senior Indebtedness to Annualized EBIDAT Ratio as of such date does not
exceed: 3.00 as of any date of determination prior to September 30, 1998; 2.75
as of any date of determination during the period from September 30, 1998 to
June 30, 1999; and 2.50 as of any date of determination on or after June 30,
1999; (ii) the Total Indebtedness to Annualized EBIDAT Ratio as of such date
does not exceed 6.0; and (iii) the Senior Indebtedness to MRR Ratio as of such
date does not exceed: 21 as of any date of determination prior to September 30,
1998; and 19 as of any date of determination on or after September 30, 1998.
All calculations shall be based upon the EBIDAT and MRR for the most recent
month for which financial statements are required to be delivered pursuant to
Subsection 5.1(A), adjusted to include (a) pro forma EBIDAT and MRR for any
prior acquisitions made during the course of the month covered by such
financial statements and (b) pro forma EBIDAT and MRR for any prior
acquisitions made subsequent to the date of such financial statements.
"Interest Expenses" means, without duplication, for any period, the
aggregate of (i) all GAAP interest expenses of Borrowers with respect to the
Obligations; (ii) all interest, fees and costs payable with respect to
Indebtedness (including the interest portion of Capitalized Leases); (iii) fees
and charges with respect to letters of credit or similar instruments; but
excluding (a) fees and costs with respect to the Related Transactions or any
Subsequent Related Transactions which, in accordance with GAAP, are capitalized
as transaction costs and excluding any amortization thereof; and (b) any
interest expenses not required to be paid in cash; provided, that "Interest
Expenses" shall include the amortization of original issue discount in respect
of the Subordinated Discount Notes (excluding original issue discount arising
from the allocation of a portion of the issue price thereof to the Holdings
Warrants).
"Interest Payment Date" means, with respect to any LIBOR Rate Loan,
the last day of the applicable Interest Period for such Loan (except that for
each LIBOR Rate Loan having an Interest Period longer than three months,
Interest Payment Date shall also mean the last day of each three-month interval
during such Interest Period), and at maturity, whether by acceleration or
otherwise.
"Interest Period" means any interest period applicable to a LIBOR Rate
Loan as determined pursuant to subsection 2.2(B).
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Borrowers or any of its
Subsidiaries against fluctuations in interest rates.
<PAGE> 18
"Interest Rate Determination Date" means the date on which Agent
determines the interest rate applicable to any LIBOR Rate Loan pursuant to
subsection 2.2(A) which shall be the second Business Day prior to the first day
of the Interest Period applicable to such LIBOR Rate Loan.
"Investment" means (a) any direct or indirect purchase or other
acquisition by Borrower or any of its Subsidiaries of any beneficial interest
in, including stock, partnership interest or other Securities of, any other
Person (other than a Person that prior to the relevant purchase or acquisition
was a Subsidiary of Borrower); or (b) any direct or indirect loan, advance or
capital contribution by Borrower or any of its Subsidiaries to any other Person
(other than a Subsidiary of Borrower), including all indebtedness and accounts
receivable from that other Person that are not current assets or did not arise
from sales to that other Person in the ordinary course of business. The amount
of any Investment shall be the original cost of such Investment plus the cost
of all additions thereto, without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with respect to such investment.
"Ion Acquisition" means the acquisition by Borrower of certain of the
assets of Ion Leasing, Inc. pursuant to the Ion Acquisition Documents.
"Ion Acquisition Documents" means, collectively, the Asset Purchase
Agreement dated as of September 24, 1993 among Borrower and Ion Leasing, Inc.
and its shareholders, and all other documents, agreements or certificates
executed in connection therewith.
"IRC" means the Internal Revenue Code of 1986, and any rule or
regulation promulgated thereunder from time to time.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, regardless of the legal form of such arrangement.
"Lender" or "Lenders" means Heller and each other financial
institution listed on the signature pages hereof together with their successors
and permitted assigns pursuant to subsection 9.1.
"Lender Addition Agreement" means an agreement among Agent, a Lender
and such Lender's assignee regarding their respective rights and obligations
with respect to assignments of the Loans, the Revolving Loan Commitments and
other interests under this Agreement and the other Loan Documents.
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(D).
"'Letter of Credit Liability' means all reimbursement obligations of
Borrower to Agent and Lenders in connection with each Lender Letter of Credit
including: (a) the amount available to be drawn or which may become available
to be drawn; (b) all amounts which have been paid or made available by the
issuer thereof to the extent not reimbursed; and (c) all unpaid interest, fees
and expenses."
"Letter of Credit Reserve" means, at any time, an amount equal to (a)
the aggregate amount of Letter of Credit Liability with respect to all Lender
Letters of Credit outstanding at such time plus (b) to the extent not included
in clause (a), the aggregate amount theretofore paid by Agent or any Lender
under Lender Letters of Credit for which Agent or such Lender has not been
reimbursed, including by debit to the Loan Account pursuant to subsection
2.1(D)(2).
<PAGE> 19
"LIBOR Rate" means, for each Interest Period, a rate of interest
determined by Agent equal to:
(a) the rate of interest determined by Agent at which
deposits in Dollars for the relevant Interest Period are offered based
on information presented on the Reuters Screen LIBO Page as of 11:00
A.M. (London time) on the day which is two (2) Business Days prior to
the first day of such Interest Period; provided that if at least two
such offered rates appear on the Reuters Screen LIBO Page in respect
of such Interest Period, the arithmetic mean of all such rates will be
the rate used; provided further that if fewer than two offered rates
appear or if Reuters ceases to provide LIBOR quotations, such rate
shall be the rate of interest at which deposits in Dollars are offered
for the relevant Interest Period by either of Bankers Trust Company or
The Chase Manhattan Bank, National Association to first class banks in
the London interbank market as of 11:00 A.M. (London time) on the
applicable Interest Rate Determination Date, divided by
(b) a number equal to 1.0 minus the aggregate (but
without duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on the day which is two (2) Business
Days prior to the beginning of such Interest Period (including,
without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as now and from time to time in
effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are
required to be maintained by a member bank of the Federal Reserve
System;
(such rate to be rounded upward to the next whole multiple of one-sixteenth of
one percent (1/16 of 1%)).
"LIBOR Rate Loans" means Loans bearing interest at rates determined by
reference to the LIBOR Rate as provided in subsection 2.2(A)(2).
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Revolving
Loan Commitment.
"Loan Account" has the meaning assigned to that term in subsection
2.6.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Pledge Agreement, the Loan Guaranty, the Subsidiary Guaranties
and all other instruments, documents and agreements executed by or on behalf of
any Loan Party and delivered concurrently herewith or at any time hereafter to
or for the benefit of Agent or any Lender in connection with the Loans and
other transactions contemplated by this Agreement, all as amended, supplemented
or modified from time to time, but excluding all Acquisition Documents,
Capitalization Documents and Subordinated Discount Note Documents.
"Loan Guaranty" means the Holdings Guaranty.
"Loan Party" means, collectively, Holdings, Borrower, Borrower's
Subsidiaries and any other Person (other than Agent or any Lender) which is or
becomes a party to any Loan Document.
<PAGE> 20
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of any Loan Party on an individual basis; or (b) the impairment of the ability
of any Loan Party to perform its obligations under any Loan Document to which
it is a party or of Agent or any Lender to enforce or collect any of the
Obligations, including the obligations of any Loan Party to perform or of Agent
or any Lender to enforce any Loan Guaranty or Subsidiary Guaranty. In
determining whether any individual event would result in a Material Adverse
Effect, notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events would result in a
Material Adverse Effect.
"Maximum Revolving Loan Amount" has the meaning assigned to that term
in subsection 2.1(A)(1).
"Mortgage" means each of the mortgages, deeds of trust, leasehold
mortgages, leasehold deeds of trust, collateral assignments of leases or other
real estate security documents delivered by any Loan Party to Agent, with
respect to any Additional Mortgaged Property, all in form and substance
satisfactory to Agent.
"MRR" means monthly recurring alarm monitoring and extended service
plan revenues from services provided under Subscriber Accounts, excluding
patrol revenues.
"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), 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"); less MRR
attributable to account guaranties enforced during such
period; divided by
(B) the quotient of (i) Beginning MRR plus Ending MRR divided by
(ii) two (2).
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Loan Party or any ERISA Affiliate is
making, or is accruing an obligation to make, contributions or has made, or
been obligated to make, contributions within the preceding six years.
"Net Income" means, for any period, the net income (or loss) of
Holdings, Borrower and Borrower's Subsidiaries on a consolidated basis after
provision for or benefit from income and franchise taxes determined in
accordance with GAAP, but excluding: (a) the income (or loss) of any Person
(other than Borrower and its wholly-owned Subsidiaries) in which Holdings,
Borrower or any of Borrower's Subsidiaries has an ownership interest unless
received by Holdings, Borrower or any such Subsidiary in a cash distribution;
and (b) the income (or loss) of any Person accrued prior to the date it became
a wholly-owned Subsidiary of Borrower or is merged into or consolidated with
Borrower or such Person's assets are acquired by Borrower or any of its
Subsidiaries.
<PAGE> 21
"Net Proceeds" means cash proceeds (including insurance proceeds)
received by Borrower or any of its Subsidiaries from any Asset Disposition
(including payments under notes or other debt securities received in connection
with any Asset Disposition and insurance proceeds and awards of condemnation
but excluding proceeds permitted under this Agreement to be used for
replacement assets), net of (a) the costs of such sale, lease, transfer or
other disposition (including taxes attributable to such sale lease or
transfer); and (b) amounts applied to repayment of Indebtedness (other than the
Obligations) secured by a Lien on the asset or property disposed.
"Note" or "Notes" means one or more of the Revolving Notes.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit 1.1(C).
"Notice of Conversion/Continuation" means a notice substantially in
the form of Exhibit 2.2(E).
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Agent or any Lender
under the Loan Documents including the principal amount of all debts, claims
and indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable whether before or
after the filing of a proceeding under the Bankruptcy Code by or against either
Borrower any of the Other Subsidiaries.
"Original Closing Date" means November 3, 1993.
"Other Capitalized Costs" means, for any fiscal period, the gross
amount capitalized for long term assets (net of cash received in respect of
long term assets), other than (a) Capital Expenditures, (b) fees and expenses
capitalized with respect to the Related Transactions or any Subsequent Related
Transactions and (c) Transition Costs capitalized with respect to acquired
Subscriber Accounts in an amount not exceeding a multiple of two and one-half
times the MRR of such acquired Subscriber Accounts.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Part 3 of Title I of
ERISA, Title IV of ERISA or Section 412 of the IRC and which (a) is maintained
for employees of any Loan Party or any of their ERISA Affiliates or (b) has at
any time within the preceding six years been maintained for the employees of
any Loan Party any of their current or former ERISA Affiliates.
"Permitted Encumbrances" means the following:
(a) Liens (other than Liens relating to Environmental
Claims or ERISA) for taxes, assessments or other governmental charges
not yet due and payable;
(b) Statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which
are incurred in the ordinary course of business for sums not more than
thirty (30) days delinquent or which are being contested in good
faith; provided that a reserve or other appropriate provision shall
have been made therefor;
<PAGE> 22
(c) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory
obligations, surety, stay, customs and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(d) Deposits, in an aggregate amount not to exceed
$200,000, made in the ordinary course of business to secure real
property leases and/or liability to insurance carriers;
(e) Liens for purchase money obligations; provided that:
(i) the purchase of the asset subject to any such Lien is permitted
under subsection 6.1; (ii) the Indebtedness secured by any such Lien
is permitted under subsection 7.1; and (iii) any such Lien encumbers
only the asset so purchased;
(f) Any attachment or judgment Lien not constituting an
Event of Default under subsection 8.1(I) of this Agreement;
(g) Leases or subleases granted to others not interfering
in any material respect with the business of any Loan Party or any of
its Subsidiaries;
(h) Easements, rights-of-way, restrictions, and other
similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of any Loan Party or
any of its Subsidiaries;
(i) Any interest or title of a lessor or sublessor under
any lease permitted by subsection 7.8 of this Agreement;
(j) Liens arising from filing UCC financing statements
regarding leases permitted by this Agreement;
(k) Liens in favor of Agent, on behalf of Lenders;
(l) Liens in favor of Ion Leasing, Inc. to the extent
such Liens encumber only the cash (and any investment contracts and
life insurance policies purchased therewith) deposited by Borrower in
a segregated trust account to defease the promissory note issued by
Borrower to Ion Leasing Inc. in accordance with the Ion Acquisition
Documents; and
(m) Liens existing on the date hereof and renewals and
extensions thereof, which Liens are set forth on Schedule II to the
Security Agreement.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof
and their respective permitted successors and assigns (or in the case of a
governmental person, the successor functional equivalent of such Person).
"Pledge Agreement" means the Holdings Pledge Agreement.
<PAGE> 23
"Principals" means Morgan Stanley Venture Capital Fund, L.P. and funds
managed by Patricof & Co. Ventures, Inc.
"Prior Acquisition" means any "Acquisition" (as defined in the
Existing Credit Agreement) made prior to the Closing Date.
"Pro Rata Share" means, with respect to matters relating to a
Revolving Loan Commitment of a Lender (including the making or repayment of
Loans pursuant to that Revolving Loan Commitment), the percentage obtained by
dividing (i) such Revolving Credit Commitment of that Lender by (ii) all
Revolving Credit Commitments of all Lenders, as such percentage may be adjusted
by assignments permitted pursuant to subsection 9.1.
"Projections" means Holdings' forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a business segment by business
segment basis and otherwise consistent with Holdings' historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Qualified Dealer Contract" means (i) any of the agreements listed on
Schedule 1.1(E) and (ii) any agreement hereafter entered into between Borrower
and any alarm monitoring system dealer providing for the purchase on a
continuous basis of Subscriber Accounts by such Borrower from such dealer so
long as such agreement contains substantially the same terms as are contained
in the agreements listed on Schedule 1.1(E) and so long as not less than two
(2) Business Days prior to entering into any such agreement, Agent shall have
received a true and correct copy of such agreement together with a schedule of
all Qualified Dealer Contracts in effect at such time.
"Qualified MRR" means, with respect to any Subsequent Acquisition, the
MRR associated with the Subscriber Accounts acquired pursuant to such
Subsequent Acquisition which is defined as "qualified MRR", "qualified
recurring revenue" or in similar terms in the related Subsequent Acquisition
Documents and consistent with Borrowers' current practices.
"Related Party" means, with respect to any Principal (A) any
controlling stockholder, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (B) any trust
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons holding an 80% or more controlling interest of
which consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (A).
"Related Transactions" means the execution and delivery of the Related
Transactions Documents, each borrowing under the Revolving Loan on the Closing
Date and the payment of all fees, costs and expenses associated with all of the
foregoing.
"Related Transactions Documents" means the Loan Documents.
"Requisite Lenders" means Lenders having (a) 51% or more of the sum of
the Revolving Loan Commitments; or (b) if all Revolving Loan Commitments have
been terminated, 51% or more of the aggregate outstanding principal amount of
the Revolving Loan.
<PAGE> 24
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of Holdings, Borrower or any of Borrower's Subsidiaries now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock
to the holders of that class; (b) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of stock of Holdings,
Borrower or any of Borrower's Subsidiaries now or hereafter outstanding; (c)
any payment or prepayment of principal of, premium, if any, or interest on,
redemption, conversion, exchange, purchase, retirement, defeasance, sinking
fund or similar payment with respect to, any Subordinated Indebtedness; and (d)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of stock of
Holdings, Borrower or any of Borrower's Subsidiaries now or hereafter
outstanding.
"Revolving Loan" means all advances made by Lenders pursuant to
subsection 2.1(A) and any amounts added to the principal balance of the
Revolving Loan pursuant to this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment
of such Lender to make Revolving Loans as set forth on the signature page of
this Agreement opposite such Lender's signature or in the most recent Lender
Addition Agreement, if any, executed by such Lender and (b) as to all Lenders,
the aggregate commitment of all Lenders to make Revolving Loans and to purchase
participations in Lender Letters of Credit pursuant to subsection 2.1(D).
"Revolving Note" means each promissory note of Borrowers substantially
in the form of Exhibit 1.1(D).
"Securities" means any stock, shares, voting trust certificates,
bonds, debentures, options, warrants, notes, or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or otherwise, or
in general any instruments commonly known as "securities" or any certificates
of interest, shares or participations in temporary or interim certificates for
the purchase or acquisition of, or any right to subscribe to, purchase or
acquire, any of the foregoing.
"Security Agreement" means the amended and restated security agreement
to be executed and delivered by Borrower in favor of Agent for the benefit of
Lenders, substantially in the form of Exhibit 1.1(E).
"Security Documents" means all instruments, documents and agreements
executed by or on behalf of any Loan Party to guaranty or provide collateral
security with respect to the Obligations and other transactions contemplated by
this Agreement including, without limitation, the Loan Guaranty, the Subsidiary
Guaranties, the Pledge Agreements, the Mortgages, the Security Agreement and
all instruments, documents and agreements executed pursuant to the terms of the
foregoing, including, without limitation, those executed pursuant to the
Security Agreement.
"Senior Indebtedness to Annualized EBIDAT Ratio" means, at any date of
determination, the ratio of (a) the aggregate principal amount of all
Indebtedness (excluding Subordinated Indebtedness) of Holdings, Borrower and
Borrower's Subsidiaries as of such date on a consolidated basis to (b) EBIDAT
for the one month period ending on such date multiplied by twelve(12).
"Senior Indebtedness to MRR Ratio" means, at any date of
determination, the ratio of (a) the aggregate principal amount of all
Indebtedness (excluding Subordinated Indebtedness) of Holdings, Borrower and
Borrower's Subsidiaries as of such date on a consolidated basis to (b) MRR of
Holdings,
<PAGE> 25
Borrower and Borrower's Subsidiaries on a consolidated basis for the one-month
period ending on such date.
"Senior Interest" means, for any period, without duplication; the
total of the following for Holdings, Borrower and Borrower's Subsidiaries on a
consolidated basis, each calculated for such period: (i) Interest Expenses
with respect to Indebtedness including the Obligations but excluding Interest
Expenses related to Subordinated Indebtedness less (ii) interest income.
"Senior Interest Coverage" means, for any period, (a) EBIDAT less the
unfinanced portion of Capital Expenditures divided by (b) Senior Interest.
"Subordinated Discount Note Indenture" means the Indenture dated as of
May 17, 1995 by and among State Street Bank and Trust Company, as successor to
The First National Bank of Boston, as trustee, Holdings and Borrower with
respect to the Subordinated Discount Notes.
"Subordinated Discount Note Placement Agreement" means the Placement
Agreement among Holdings, Borrower and Morgan Stanley and Co. and Montgomery
Securities with respect to the issuance and sale of the Subordinated Discount
Notes and the Holdings Warrants.
"Subordinated Discount Note Documents" means the Subordinated Discount
Note Placement Agreement, the Subordinated Discount Note Indenture, the
Subordinated Discount Notes, and all instruments, documents and agreements
executed pursuant to the terms of the foregoing.
"Subordinated Discount Notes" means those Senior Subordinated Discount
Notes Due 2005 of Monitoring issued on May 17, 1995, and the substantially
identical subordinated notes registered under the Securities Act of 1933 which
were issued in exchange for such initial Subordinated Discount Notes, as
contemplated by the Subordinated Discount Note Documents.
"Subordinated Indebtedness" means all Indebtedness under the
Subordinated Discount Note Documents and all other Indebtedness of Borrower or
any of Borrower's Subsidiaries which is subordinated in right of payment to the
Obligations.
"Subscriber Accounts" means alarm monitoring accounts or alarm
services accounts of customers arising under written contracts with such
customers pursuant to which Borrower provides alarm monitoring or other
security services or sells, installs and services security alarm systems.
"Subsequent Acquisition" means any acquisition by Borrower after the
Closing Date of a Person which is engaged in installing security alarm systems
and/or providing monitoring and other security alarm system services, or of the
Subscriber Accounts, or Subscriber Accounts and other assets, of such a Person.
"Subsequent Acquisition Compliance Certificate" means a certificate
duly executed by the chief executive officer or chief financial officer of
Borrower appropriately completed and in the form of Exhibit 3.3.
"Subsequent Acquisition Documents" means, with respect to any
Subsequent Acquisition, the purchase agreement entered into in connection with
such Subsequent Acquisition, including any agreement merging the Target of such
Subsequent Acquisition with and into Borrower, and all other documents,
agreements or certificates executed in connection therewith.
<PAGE> 26
"Subsequent Related Transaction Documents" means the Subsequent
Acquisition Documents and Loan Documents executed in connection with any
Subsequent Acquisition.
"Subsequent Related Transactions" means, in connection with any
Subsequent Acquisition, such Subsequent Acquisition, the execution and delivery
of all Subsequent Related Transaction Documents in connection therewith, the
funding of any Loan advance in connection therewith and the incurrence of any
Deferred Payment Obligation in connection therewith, and the repayment of any
Target Indebtedness and payment of all fees, costs and expenses associated
therewith.
"Subsidiary" means, with respect to any Person, any corporation,
partnership association or other business entity of which more than 50% of the
total voting power of shares of stock (or equivalent ownership or controlling
interest) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of
the other Subsidiaries of that Person or a combination thereof.
"Subsidiary Guarantees" means the continuing guaranties, if any, to be
executed and delivered by Subsidiaries of Borrower in favor of Agent, for the
benefit of Lenders, in form and substance satisfactory to Agent.
"Target" means, with respect to any Acquisition, any Person being
acquired, or whose Subscriber Accounts (or whose Subscriber Accounts and other
assets) are being acquired, by Borrower pursuant to such Acquisition.
"Termination Date" has the meaning assigned to that term in subsection
2.5.
"Termination Event" means: (a) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder; or (b) the
withdrawal of any Loan Party or any ERISA Affiliate from a Pension Plan during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) or 4068(f) of ERISA; or (c) the termination of a Pension Plan, the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA; or (d) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; or (e) any other event or condition
which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan; or (f) the partial or complete withdrawal of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan; or (g) the imposition of a Lien pursuant
to Section 412 of the IRC or Section 302 of ERISA; or (h) any event or
condition which results in the reorganization or insolvency of a Multiemployer
Plan under Sections 4241 or 4245 of ERISA; or (i) any event or condition which
results in the termination of a Multiemployer Plan under Section 4041A of ERISA
or the institution by the PBGC of proceedings to terminate a Multiemployer Plan
under Section 4042 of ERISA.
"Total Indebtedness to Annualized EBIDAT Ratio" means, at any date of
determination, the ratio of (a) the aggregate principal amount of all
Indebtedness of Holdings, Borrower and Borrower's Subsidiaries as of such date
on a consolidated basis plus the aggregate liquidation preference or redemption
amount of all Disqualified Stock as of such date to (b) EBIDAT for the one
month period ending on such date multiplied by twelve(12).
<PAGE> 27
"Transition Costs" means the costs and expenses incurred by Borrowers
in the ordinary course of business and capitalized as acquisition costs in
connection with converting acquired Subscriber Accounts to Subscriber Accounts
of Borrowers.
"UCC" means the Uniform Commercial Code as in effect on the date
hereof in the State of Illinois, or as in effect in any jurisdiction in which
Collateral is located.
SECTION 1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement.
For purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to such terms in conformity
with GAAP. Financial statements and other information furnished to Agent or
any Lender pursuant to subsection 5.1 shall be prepared in accordance with GAAP
as in effect at the time of such preparation. No "Accounting Changes" (as
defined below) shall effect financial covenants, standards or terms in this
Agreement; provided, that Borrower shall prepare footnotes to each Compliance
Certificate and the financial statements required to be delivered hereunder
that show the differences between the financial statements delivered (which
reflect such Accounting Changes) and the basis for calculating financial
covenant compliance (without reflecting such Accounting Changes). "Accounting
Changes" means: (a) changes in accounting principles required by GAAP and
implemented by Holdings or Borrower; (b) changes in accounting principles
recommended by Holdings or Borrower's certified public accountants; and (c)
changes in carrying value of Holdings' or Borrower's (or any of Borrower's
Subsidiaries') assets, liabilities or equity accounts resulting from the
application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) to the Related Transactions. All such adjustments
resulting from expenditures made subsequent to the Closing Date (including, but
not limited to, capitalization of costs and expenses or payment of pre-Closing
Date liabilities) shall be treated as expenses in the period the expenditures
are made and deducted as part of the calculation of EBIDAT in such period. For
purposes of computing the financial covenants and definitions contained herein,
financial data with respect to any Target shall be included only with respect
to periods commencing on and after the closing date of the Acquisition of such
Target.
SECTION 1.3 Other Definitional Provisions.
References to "Sections", "subsections", "Exhibits" and "Schedules"
shall be to Sections, subsections, Exhibits and Schedules, respectively, of
this Agreement unless otherwise specifically provided. Any of the terms
defined in subsection 1.1 may, unless the context otherwise requires, be used
in the singular or the plural depending on the reference. In this Agreement,
"hereof," "herein," "hereto," "hereunder" and the like mean and refer to this
Agreement as a whole and not merely to the specific section, paragraph or
clause in which the respective word appears; words importing any gender include
the other genders; references to "writing" include printing, typing,
lithography and other means of reproducing words in a tangible visible form;
the words "including," "includes" and "include" shall be deemed to be followed
by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
SECTION 1.4 Effect of Restatement.
<PAGE> 28
This Agreement shall supersede the Existing Credit Agreement from and
after the Closing Date with respect to the transactions hereunder and with
respect to the Existing Loans and the Existing Lender Letter of Credit
Liability. The parties hereto acknowledge and agree, however, that (i) this
Agreement and all other Loan Documents executed and delivered herewith do not
constitute a novation, payment and reborrowing or termination of the
Obligations under the Existing Credit Agreement and the other Loan Documents as
in effect prior to the Closing Date, (ii) such Obligations are in all respects
continuing and outstanding (including without limitation all accrued interest
on the Existing Loans to the Closing Date and all accrued fees under the
Existing Credit Agreement to the Closing Date, which accrued interest and fees
shall be payable in accordance with the terms of the Existing Credit Agreement)
with only the terms being modified from and after the Closing Date as provided
in this Agreement and the other Loan Documents, (iii) the liens and security
interest in favor of Agent for the benefit of Lenders securing payment of such
Obligations are in all respects continuing and in full force and effect with
respect to all Obligations and (iv) all references in the other Loan Documents
to the Existing Credit Agreement shall be deemed to refer without further
amendment to this Agreement.
SECTION 2
AMOUNTS AND TERMS OF LOANS
SECTION 2.1 Loans.
(A) Revolving Loan . Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
contained herein, each Lender agrees, severally and not jointly, to lend to
Borrower from time to time during the period from the Closing Date to and
excluding the Expiry Date, its Pro Rata Share of the Revolving Loan. The
aggregate amount of all Revolving Loan Commitments shall be $100,000,000 as
reduced from time to time pursuant to subsection 2.4. The parties hereto
acknowledge and agree that the outstanding principal balance of the Existing
Loans held by Lenders shall be restated as part of the Revolving Loan pursuant
to this Agreement. Amounts borrowed under this subsection 2.1(A) may be repaid
and reborrowed at any time prior to the Expiry Date. No Lender shall have any
obligation to make advances under this subsection 2.1(A) to the extent any
requested advance would cause the principal balance of the Revolving Loan then
outstanding to exceed the Maximum Revolving Loan Amount; provided that all
Lenders may, in their sole discretion, elect from time to time to make
Revolving Loans in excess of the Maximum Revolving Loan Amount.
"Maximum Revolving Loan Amount" means, as of any date of
determination, the Revolving Loan Commitments as of such date of determination
minus the Letter of Credit Reserve minus the aggregate outstanding amount of
all Deferred Payment Obligations as of such date of determination. If Loans in
excess of the Maximum Revolving Loan Amount are made pursuant to the approval
of all Lenders as set forth in the provision to the immediately preceding
sentence, then for purposes of subsection 2.4(C)(1), the Maximum Revolving Loan
Amount shall be deemed increased by such amount subject to the limitations
contained in such approval.
(B) Borrowing Mechanics. Base Rate Loans made on any Funding
Date shall be in an aggregate minimum amount of $100,000 and integral multiples
of $50,000 in excess of that amount. LIBOR Rate Loans made on any Funding Date
shall be in an aggregate minimum amount of $500,000 and integral multiples of
$500,000 in excess of that amount. When Borrower desires to borrow under this
<PAGE> 29
subsection 2.1, Borrower shall deliver to Agent a fully and properly completed
Notice of Borrowing no later than 1:00 P.M. (Chicago time) at least (i) one
Business Day in advance of the proposed Funding Date in the case of a requested
Base Rate Loan and (ii) three Business Days in advance of the proposed Funding
Date in the case of a requested LIBOR Rate Loan. Loans may be continued as or
converted into Base Rate Loans and LIBOR Rate Loans in the manner provided in
subsection 2.2(E). In lieu of delivering the above described Notice of
Borrowing, Borrower may give Agent telephonic notice by the required time of
the proposed borrowing; provided that such notice shall be promptly, and in any
event within one Business Day, confirmed in writing by delivery of a Notice of
Borrowing to Agent. Neither Agent nor any Lender shall incur any liability to
Borrower for acting upon any telephonic notice that Agent believes in good
faith to have been given by a duly authorized officer or other person
authorized to borrow on behalf of Borrower or for otherwise acting in good
faith under this subsection 2.1(B). The making of an advance pursuant to
telephonic notice shall constitute a Loan under this Agreement. Except as
provided in subsection 2.7(D), a Notice of Borrowing for a LIBOR Rate Loan (or
telephonic notice in lieu thereof) shall be irrevocable once given, and
Borrower shall be bound to make a borrowing in accordance therewith. Each such
advance to Borrower under the Revolving Loan shall, on the Funding Date, be
deposited, in immediately available funds, in such account as Borrower, may
from time to time designate to Agent in writing. Existing Loans which are
LIBOR Rate Loans under the Existing Credit Agreement shall be continued as
LIBOR Rate Loans hereunder at the respective LIBOR Rates and for the remaining
portion of the respective Interest Periods elected by Borrower under the
Existing Credit Agreement.
(C) Notes . Borrower shall execute and deliver to each Lender a
Revolving Note to evidence the Revolving Loan, such Revolving Note to be in the
principal amount of the Revolving Loan Commitment of such Lender and with other
appropriate insertions. In the event of an assignment under subsection 9.1,
Borrower shall, upon surrender of the assigning Lender's Notes, issue new Notes
to reflect the new Revolving Loan Commitments of the assigning Lender and its
assignee.
(D) Letters of Credit . Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, the Revolving Loan Commitment may, in addition to
advances under the Revolving Loan, be utilized, upon the request of Borrower,
for the issuance of letters of credit by Agent (each such letter of credit, a
"Lender Letter of Credit") on behalf of each Lender having a Revolving Loan
Commitment (severally and not jointly) according to such Lender's Pro Rata
Share of the Revolving Loan Commitment. Borrower agrees that each Lender
Letter of Credit shall become part of Borrower's Obligations and secured by the
Collateral as of the date each such Lender Letter of Credit is issued. The
parties hereto acknowledge and agree that all Lender Letters of Credit issued
under the Existing Credit Agreement and outstanding on the Closing Date shall
constitute Lender Letters of Credit under this Agreement.
(1) Maximum Amount . The aggregate amount of Lender
Letter of Credit Liability with respect to all Lender Letters of Credit
outstanding at any time shall not exceed $2,000,000.
(2) Reimbursement . In the event Agent determines to
honor a request for a drawing under a Lender Letter of Credit, Agent shall
promptly notify Borrower and Borrower shall be irrevocably and unconditionally
obligated without presentment, demand, protest or other formalities of any
kind, to reimburse Agent upon demand for any amounts paid by Agent with respect
to such Lender Letter of Credit. Borrower hereby authorizes and directs Agent,
at Agent's option and without the need for prior notice, to debit the Loan
Account (by increasing the principal balance of the Revolving Loan) in the
amount of any payment made by Agent with respect to any Lender Letter of
Credit. All amounts paid by Agent with respect to any Lender Letter of Credit
that are not immediately repaid by Borrower with the proceeds of the
<PAGE> 30
Revolving Loan or otherwise shall bear interest at the interest rate applicable
to Revolving Loans. In the event that Borrower shall fail to reimburse Agent
on the date of any payment by Agent under a Lender Letter of Credit in an
amount equal to the amount of such payment, Agent shall promptly notify each
Lender of the unreimbursed amount of such payment together with accrued
interest thereon and each Lender agrees to purchase, and shall be deemed to
have purchased, a participation in such Lender Letter of Credit in an amount
equal to its Pro Rata Share of the unpaid amount together with accrued interest
thereon. Upon one Business Day's notice from Agent, each Lender shall deliver
to Agent an amount equal to its respective participation in same day funds, at
the place and on the date and by the time notified by Agent. The obligation of
each Lender to deliver to Agent an amount equal to its respective participation
pursuant to the foregoing sentence shall be absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuation of an
Event of Default or Default or the failure to satisfy any condition set forth
in Section 3. In the event any Lender fails to make available to Agent the
amount of such Lender's participation in such Lender Letter of Credit as
provided in this subsection 2.1(D)(2), Agent shall be entitled to recover such
amount on demand from such Lender together with interest at the Base Rate.
Nothing in this subsection 2.1(D)(2) shall be deemed to relieve any Lender from
its obligation to make Revolving Loans on the terms and conditions set forth in
this Agreement, and Borrower shall retain any and all rights it may have
against any Lender resulting from the failure of such Lender to make such
Revolving Loans under this subsection 2.1(D)(2).
(3) Conditions of Issuance of Lender Letter of Credit .
In addition to all other terms and conditions set forth in this Agreement, the
issuance by Agent of any Lender Letter of Credit shall be subject to the
conditions precedent that the Lender Letter of Credit shall support a
transaction entered into by Borrower in the ordinary course of its businesses
and shall be in such form, be for such amount, and contain such terms as may be
reasonably satisfactory to Agent. The expiration date of each Lender Letter of
Credit shall be on a date which is the earlier of (a) one year from the date of
issuance, or (b) the thirtieth day before the Termination Date.
(4) Request for Letters of Credit . Borrower shall give
Agent at least fifteen (15) Business Days prior notice (or such shorter period
as may be agreed to by Agent in any particular instance) specifying the date a
Lender Letter of Credit is to be issued, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby.
The notice shall be accompanied by the proposed to be supported thereby. The
notice shall be accompanied by the proposed form of the Lender Letter of
Credit.
(5) Other Letter of Credit Provisions .
(a) Obligations Absolute . The obligations of
Borrower to reimburse Agent and Lenders for payments made under any Lender
Letter of Credit shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including the following circumstances:
(i) any lack of validity or
enforceability of any Lender Letter of Credit;
(ii) the existence of any claim, set-off,
defense or other right which Borrower or any of its Affiliates, Agent or any
Lender may at any time have against a beneficiary or any transferee of any
Lender Letter of Credit (or any persons or entities from whom any such
transferee may be acting), Agent, any Lender, or any other Person, whether in
connection with this Agreement, the
<PAGE> 31
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Affiliates and the
beneficiary for which the Lender Letter of Credit was procured);
(iii) any draft, demand, certificate or
any other document presented under any Lender Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) payment by Agent or any Lender under
any Lender Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Lender Letter of Credit; provided that, in the case of any payment by Agent or
any Lender under any Lender Letter of Credit, Agent or such Lender has not
acted with gross negligence or willful misconduct (as determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Lender Letter of Credit complies on its face with any applicable requirements
for a demand for payment under such Lender Letter of Credit;
(v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or
(vi) the fact that a Default or an Event
of Default shall have occurred and be continuing.
(b) Nature of Lenders' Duties . As between Agent
and Borrower and each Lender and Borrower, Borrower assumes all risks of the
acts and omissions of, or misuse of any Lender Letter of Credit by
beneficiaries of any Lender Letter of Credit. In furtherance and not in
limitation of the foregoing, neither Agent nor any Lender shall be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document by an party in connection with the application for and issuance
of any Lender Letter of Credit, even if it should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason; (iii) for failure of the
beneficiary of any Lender Letter of Credit to comply fully with conditions
required in order to demand payment under such Lender Letter of Credit;
provided that, in the case of any payment by Agent under any Lender Letter of
Credit, Agent has not acted with gross negligence or willful misconduct (as
determined by a court of competent jurisdiction) in determining that the demand
for payment under such Lender Letter of Credit complies on its face with any
applicable requirements for a demand for payment under such Lender Letter of
Credit; (iv) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (v) for errors in interpretation of technical
terms; (vi) for any loss or delay in the transmission or otherwise of any
document required in order to make a payment under any Lender Letter of Credit
or of the proceeds thereof; (vii) for the application by the beneficiary of the
proceeds of any drawing under any Lender Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of Agent or any Lender.
None of the above shall affect, impair, or prevent the vesting of any of
Agent's or any Lender's rights or powers hereunder.
In furtherance and extension of and not in limitation
of, the specific provisions hereinabove set forth, any action taken or omitted
by Agent or any Lender under or in connection with any
<PAGE> 32
lender Letter of Credit, if taken or omitted in good faith, shall not put Agent
or any Lender under any resulting liability to Borrower.
Notwithstanding anything to the contrary contained in this subsection
2.1(D)(5)(b), Borrower shall retain all rights, if any, it may have against
Agent or any Lender for any liability arising solely out of the gross negligence
or willful misconduct of Agent or such Lender, as determined by a final judgment
of a court of competent jurisdiction.
SECTION 2.2 Interest.
(A) Rate of Interest. The Loans and all other Obligations shall
bear interest from the date such Loans are made or such other Obligations
become due to the date paid at a rate per annum determined by reference to the
Base Rate or the LIBOR Rate. The applicable basis for determining the rate of
interest shall be selected by Borrower initially at the time a Notice of
Borrowing is given pursuant to subsection 2.1(B). The basis for determining
the interest rate with respect to any Loan may be changed from time to time
pursuant to subsection 2.2(E). If on any day a Loan is outstanding with
respect to which notice has not been delivered to Agent in accordance with the
terms of this Agreement specifying the basis for determining the rate of
interest, then for that day that Loan shall bear interest determined by
reference to the Base Rate.
The Loans shall bear interest through maturity as follows:
(1) if a Base Rate Loan, then at the sum of the Base
Rate plus one percent (1.00%) per annum; and
(2) if a LIBOR Rate Loan, then at the sum of the LIBOR
Rate plus two and one-half of one percent (2.50%) per annum.
Notwithstanding the foregoing, at the election of Agent in its sole
discretion prior to an acceleration Of the Obligations pursuant to subsection
8.3 or at the election of Requisite Lenders after an acceleration of the
Obligations pursuant to subsection 8.3, after the occurrence of an Event of
Default and for so long as such Event of Default continues, the Loans and all
other Obligations shall bear interest until paid in full at a rate per annum
that is two percent (2.0%) in excess of the rate of interest otherwise payable
under this Agreement; provided that, in the case of LIBOR Rate Loans, until the
expiration of any then applicable Interest Period, all such LIBOR Rate Loans
shall bear interest payable upon demand at a rate which is four and one-half of
one percent (4.5%) in excess of the LIBOR Rate. Thereafter, upon the
expiration of the Interest Period in effect at the time any such increase in
interest rate is effective, unless otherwise permitted by the terms of
subsection 2.7(I), such LIBOR Rate Loans shall thereupon become Base Rate Loans
and thereafter bear interest payable upon demand at a rate which is two percent
(2.0%) per annum in excess of the interest rate otherwise payable under this
Agreement for Base Rate Loans.
(B) Interest Periods. In connection with each LIBOR Rate Loan,
except as otherwise provided in the last sentence of subsection 2.1(B), Borrower
shall elect an interest period (each an "Interest Period") to be applicable to
such Loan, which Interest Period shall be either a one, two, three or six month
period provided that:
(1) the initial Interest Period for any Loan shall commence
on the Funding Date of such Loan;
<PAGE> 33
(2) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day on
which the next preceding Interest Period expires;
(3) if an Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that if any Interest Period
would otherwise expire on a day that is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding
Business Day;
(4) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to part (5) below, end on the last Business Day
of a calendar month;
(5) no Interest Period shall extend beyond the Expiry
Date;
(6) the Interest Period for a Loan that is converted
pursuant to subsection 2.2(E) shall commence on the date of such
conversion and shall expire on the date on which the Interest Period
for the Loans so converted expires; and
(7) there shall be no more than five (5) Interest Periods
relating to LABOR Rate Loans outstanding at any time.
(C) Computation and Payment of Interest. Interest on the Loans
and all other Obligations shall be computed on the daily principal balance on
the basis of a 360-day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of
funding of the Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a LIBOR Rate
Loan, the date of conversion of such LIBOR Rate Loan to such Base Rate Loan
shall be included and the date of payment of such Loan or the expiration date
of an Interest Period applicable to such Loan, or with respect to a Base Rate
Loan being converted to a LIBOR Rate Loan, the date of conversion of such Base
Rate Loan to such LIBOR Rate Loan, shall be excluded; provided that if a Loan
is repaid on the same day on which it is made, one day's interest shall be paid
on that Loan. Interest on the Base Rate Loans and all other Obligations other
than LIBOR Rate Loans shall be payable to Agent, for the benefit of Lenders,
monthly in arrears on the first day of the month following the Closing Date and
the first day of each month thereafter, on the date of any prepayment of Loans
and at maturity, whether by acceleration or otherwise. Interest on LIBOR Rate
Loans shall be payable to Agent, for the benefit of Lenders, on the last day of
the applicable Interest Period for such Loan, and at maturity, whether by
acceleration or otherwise. In addition, for each LIBOR Rate Loan having an
Interest Period longer than three months, interest accrued on such Loan shall
also be payable on the last day of such three-month interval during such
Interest Period.
(D) Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the other Loan Documents, Borrower shall not be
required to pay, and neither Agent nor any Lender shall be permitted to
collect, any amount of interest in excess of the maximum amount of interest
permitted by law ("Excess Interest"). If any Excess Interest is provided for
or determined by a court of competent jurisdiction to have been provided for in
this Agreement or in any of the other Loan Documents, then in such event: (1)
the provisions of this subsection shall govern and control; (2) neither
Borrower nor any other
<PAGE> 34
Loan Party shall be obligated to pay any Excess Interest; (3) any Excess
Interest that Agent or any Lender may have received hereunder shall be, at
Agent's option, (a) applied as a credit against the outstanding principal
balance of the Obligations or accrued and unpaid interest (not to exceed the
maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any
combination of the foregoing; (4) the interest rate(s) provided for herein
shall be automatically reduced to the maximum lawful rate allowed from time to
time under applicable law (the "Maximum Rate"), and this Agreement and the
other Loan Documents shall be deemed to have been and shall be, reformed and
modified to reflect such reduction; and (5) neither Borrower nor any other Loan
Party shall have any action against Agent or any Lender for any damages arising
out of the payment or collection of any Excess Interest. Notwithstanding the
foregoing, if for any period of time interest on any Obligation is calculated
at the Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Obligations shall remain at the Maximum Rate until
each Lender shall have received the amount of interest which such Lender would
have received during such period on such Obligations had the rate of interest
not been limited to the Maximum Rate during such period.
(E) Conversion or Continuation. Subject to the provisions of
subsection 2.7 and the limitation on the number of Interest Periods contained
in subsection 2.2(B)(8), Borrower shall have the option to (1) convert at any
time all or any part of outstanding Loans equal to $500,000 and integral
multiples of $500,000 in excess of that amount from Loans bearing interest at a
rate determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis, or (2) upon the expiration of
any Interest Period applicable to a LIBOR Rate Loan, to continue all or any
portion of such Loan equal to $500,000 and integral multiples of $500,000 in
excess of that amount as a LIBOR Rate Loan and the succeeding Interest
Period(s) of such continued Loan shall commence on the last day of the Interest
Period of the Loan to be continued; provided that LIBOR Rate Loans may only be
converted into Loans bearing interest determined by reference to an alternative
basis on the expiration date of an Interest Period applicable thereto; and
provided, further, that no outstanding Loan may be continued as, or be
converted into, a LIBOR Rate Loan when any Event of Default or Default has
occurred and is continuing.
Borrower shall deliver a fully and properly completed Notice of
Conversion/Continuation to Agent no later than 11:00 A.M. (Chicago time) at
least three (3) Business Days in advance of the proposed
conversion/continuation date. In lieu of delivering the above-described Notice
of Conversion/Continuation, Borrower may give Agent telephonic notice by the
required time of any proposed conversion/ continuation under this subsection
2.2(E); provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to Agent on or before the
proposed conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to Borrower in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person
authorized to act on behalf of Borrower or for otherwise acting in good faith
under this subsection 2.2(E).
Except as provided in subsection 2.7(D), a Notice of
Conversion/Continuation for conversion to, or continuation of, a LIBOR Rate
Loan (or telephonic notice in lieu thereof) shall be irrevocable once given,
Borrower shall be bound to convert or continue in accordance therewith and
Agent shall have no liability for acting in accordance with Borrower's
instructions contained therein.
SECTION 2.3 Fees.
<PAGE> 35
(A) Certain Fees. Borrower shall pay (i) to Heller,
individually, the fees specified in that certain letter agreement dated the
Closing Date between Borrower and Heller and (ii) to each other Lender,
individually, the fees specified in that certain letter agreement dated the
Closing Date between Borrower and such Lender.
(B) Unused Line Fee. From and after the Closing Date, Borrower
shall pay to Agent, for the benefit of Lenders, a fee in an amount equal to the
Revolving Loan Commitment less the sum of the average daily balance of the
Revolving Loan plus the average daily face amount of Lender Letter of Credit
Reserve during the preceding month multiplied by one-half of one percent (.50%)
per annum, such fee to be payable monthly in arrears on the first day of the
month following the Closing Date and the first day of each month thereafter.
(C) Lender Letter of Credit Fees. Borrower shall pay to Agent,
for the ratable benefit of Lenders, fees for each Lender Letter of Credit for
the period from and including the date of issuance of same to and excluding the
date of expiration or termination, equal to the daily average face amount of
Letter of Credit Liability multiplied by three percent (3.0%) per annum, such
fees to be payable monthly in arrears on the first day of each month
thereafter. Borrower shall also reimburse Agent for any and all fees and
expenses, if any, paid by Agent to the issuer of the letter of credit.
SECTION 2.4 Payments and Prepayments.
(A) Manner and Time of Payment. All payments of the Obligations
shall (except as otherwise set forth herein) be made by Borrower without
deduction, defense, setoff or counterclaim and in same day funds and delivered
to Agent by wire transfer to Agent's account, ABA No. 0710-0001-3, Account No.
55-00540 at The First National Bank of Chicago, One First National Plaza,
Chicago, IL 60670, Reference: Heller Corporate Finance Group for the benefit
of Protection One Alarm Monitoring, Inc., or at such other place as Agent may
direct from time to time by notice to Borrower. Borrower shall receive credit
for such funds on the date received if Borrower has given Agent telephonic
notice by 11:00 a.m. (Chicago time) of the transfer of such funds and such
funds are received by Agent by 12:00 noon (Chicago time) on such day. In the
absence of timely notice and receipt, such funds shall be deemed to have been
paid by Borrower on the next succeeding Business Day. In order to cause timely
payment to be made to Agent of all Obligations as and when due, Borrower hereby
authorizes and directs Agent, at Agent's option, to debit the Loan Account (by
increasing the principal balance of the Revolving Loan) when such Obligations
become due.
(B) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
(C) Mandatory Prepayments.
(1) Revolving Loan Overadvance. 2(a) At any time that
the principal balance of the Revolving Loan exceeds the Maximum Revolving Loan
Amount, Borrower shall immediately repay the Revolving Loan to the extent
necessary to reduce the principal balance to an amount that is equal to or less
than the Maximum Revolving Loan Amount.
(a) If Borrower is not in
compliance with the Indebtedness Ratio Test as of any date of determination
thereof, Borrower shall immediately repay the Revolving Loan to the extent
<PAGE> 36
necessary so that the outstanding balance of the Revolving Loan after giving
effect to such repayment is an amount which, if outstanding on such date of
determination, would have caused Borrower to be in compliance with the
Indebtedness Ratio Test on such date of determination.
(2) Prepayments from Asset Dispositions. Immediately
upon receipt by Borrower or any of its Subsidiaries of Net Proceeds of any
Asset Disposition, which proceeds when aggregated with all other Net Proceeds
from Asset Dispositions received during the same Fiscal Year exceed $1,000,000
(it being understood that if the proceeds exceed $1,000,000, the entire
proceeds and not just the portion in excess of the foregoing amount shall be
subject to this subsection), Borrower shall prepay the Revolving Loan in an
amount equal to the Net Proceeds of such Asset Disposition (which prepayment
shall not constitute a permanent reduction of the Revolving Loan Commitment
except as provided in the following sentence). Unless, within 360 days after
the date of any such Asset Disposition, Borrower shall apply the Net Proceeds
thereof to make Capital Expenditures or Subsequent Acquisitions permitted under
the terms of this Agreement or to pay any accrued tax liability in connection
with such Asset Disposition, the Revolving Loan Commitment shall immediately,
upon the expiration of such period, be permanently reduced by the amount of
such Net Proceeds which were not so applied.
(3) Prepayment from Equity Offerings. In the event that
Holdings or Borrower issues capital stock for cash, no later than the third
Business Day following the date of receipt of the proceeds from any sale of
such stock (other than: (a) proceeds, if any, from the issuance of Holdings
Capital Stock to employees of Borrower or (b) proceeds received by Holdings
upon the exercise of any warrants or options to purchase Holdings Capital Stock
unless such proceeds exceed $100,000 for any individual transaction or for any
series of related transactions), Borrower shall prepay the Revolving Loans
(which prepayment shall not constitute a permanent reduction of the Revolving
Loan Commitment) in an amount equal to one hundred percent (100%) of such
proceeds, net of underwriting discounts and commissions and other reasonable
costs associated therewith.
(D) Termination of Revolving Loan Commitment by Borrower. Except
as provided in subsection 2.4(C), Borrower may only terminate the Revolving
Loan Commitment in whole and not in part. Borrower may, at any time upon not
less than three Business Days prior notice to Agent of its intention to
terminate the Revolving Loan Commitment in whole, repay the Revolving Loan in
full. Upon such prepayment, the Revolving Loan Commitment shall terminate and
Borrower shall cause Agent and each Lender to be released from all liability
under any Lender Letters of Credit or, at Agent's option, Borrower will deposit
cash collateral with Agent in an amount equal to the Letter of Credit Liability
with respect to each Lender Letter of Credit that will remain outstanding after
prepayment or repayment. After notice of prepayment is given, all Obligations,
including the fees due under subsection 2.3, shall become due and payable on
the prepayment date specified in such notice.
(E) Application of Prepayments and Repayments. All prepayments
and repayments shall include payment of accrued interest on the principal
amount so prepaid and repaid and shall be applied to the payment of interest
before application to principal. Any prepayment under this Section 2.4 shall be
applied first to Base Rate Loans to the full extent thereof before application
to LIBOR Rate Loans, in the order determined by Agent.
SECTION 1.2 Term of this Agreement.
This Agreement shall be effective until the earlier of
<PAGE> 37
(a) the date on which the Loans are paid in full and all other Obligations have
been satisfied or (b) January 3, 2000 (the "Termination Date"), and the
Revolving Loan Commitments shall (unless earlier terminated) terminate
concurrently on the Termination Date. In addition, this Agreement may be
terminated as set forth in Section 8.3 hereof. Upon termination in accordance
with Section 8.3 or on the Termination Date, all Obligations shall become
immediately due and payable without notice or demand. Notwithstanding any
termination, until all Obligations have been fully paid and satisfied and all
Lender Letters of Credit have been terminated, Agent, on behalf of Lenders,
shall be entitled to retain security interests in and liens upon all
Collateral, and even after payment of all Obligations hereunder and termination
of Agent's security interests and liens upon the Collateral, Borrower's
Obligation to indemnify Agent and Lenders in accordance with the terms hereof
shall continue.
SECTION 1.3 Borrower's Loan Account and Statements.
Agent shall maintain a loan account (the "Loan Account") on its books
to record: (a) all Loans and payments made under Lender Letters of Credit; (b)
all payments made by Borrower; and (c) all other appropriate debits and credits
as provided in this Agreement with respect to the Obligations. All entries in
the Loan Account shall be made in accordance with Agent's customary accounting
practices as in effect from time to time. Borrower promises to pay all of the
Obligations as such amounts become due or are declared due pursuant to the
terms of this Agreement. After the occurrence and during the continuance of an
Event of Default, Borrower irrevocably waives the right to direct the
application of any and all payments at any time or times thereafter received by
Agent or any Lender from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Agent shall have the continuing exclusive right to
apply and to reapply any and all payments received at any time or times after
the occurrence and during the continuance of an Event of Default against the
Obligations in such manner as Agent may deem advisable notwithstanding any
previous entry by Agent upon the Loan Account or any other books and records.
The balance in the Loan Account, as recorded on Agent's most recent
printout or other written statement, shall be presumptive evidence of the
amounts due and owing to Lenders by Borrower; provided that any failure to so
record or any error in so recording shall not limit or otherwise affect
Borrower's obligation to pay the Obligations. Not more than twenty (20) days
after the last day of each calendar month, Agent shall render to Borrower, a
statement setting forth the principal balance of the Loan Account and the
calculation of interest due thereon. Each statement shall be subject to
subsequent adjustment by Agent but shall, absent manifest errors or omissions,
be presumed correct and binding upon Borrower, and shall constitute an account
stated unless, within thirty (30) days after receipt of such statement,
Borrower, shall deliver to Agent its written objection thereto specifying the
error or errors, if any, contained in such statement. In the absence of a
written objection delivered to Agent as set forth above, Agent's statement of
the Loan Account shall be conclusive evidence against Borrower of the amount of
the Obligations.
SECTION 1.4 Special Provisions Governing LIBOR Rate Loans.
Notwithstanding any other provision of this Agreement, the following
provisions shall govern with respect to LIBOR Rate Loans as to the matters
covered:
(A) Determination of Interest Rate. As soon as practicable after
11:00 A.M. (Chicago time) on each Interest Rate Determination Date, Agent shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) the interest rate that shall apply to
the LIBOR Rate Loans for which an interest rate is then being determined for
the applicable Interest Period and shall promptly give notice thereof (in
writing or by telephone confirmed in writing) to Borrower, and each
<PAGE> 38
Lender. In the event that Agent shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto), on any
Interest Rate Determination Date with respect to any LIBOR Rate Loans, that by
reason of circumstances affecting the interbank Eurodollar market, adequate and
fair means do not exist for determining the interest rate applicable to such
Loans on the basis provided for in the definition of LIBOR Rate, Agent shall on
such date give notice (by telecopy or by telephone confirmed in writing) to
Borrower and each Lender of such determination, whereupon (1) no Loans may be
made as, or converted into, LIBOR Rate Loans until such time as Agent notifies
Borrower and Lenders that the circumstances giving rise to such notice no
longer exist and (2) any Notice of Borrowing or Notice of
Conversion/Continuation given by Borrower with respect to the Loans in respect
of which such determination was made shall be deemed to be modified by Borrower
and the LIBOR Rate Loans then being requested shall be made or continued by
Lenders as Base Rate Loans.
(B) Substituted Rate of Borrowing. If any Lender (including
Agent) shall have determined (which determination shall be final and conclusive
and binding upon all parties), with respect to any LIBOR Rate Loan and any
pending Interest Period that by reason of (a) any change after the date hereof
in any applicable law or governmental rule, regulation or order (or any
interpretation thereof and including the introduction of any new law or
governmental rule, regulation or order) or (b) other circumstances affecting
that Lender or the LIBOR market or the position of that Lender in such market
(such as for example, but not limited to, official reserve requirements
required by Regulation D to the extent not given effect in the LIBOR Rate), the
LIBOR Rate shall not represent the effective pricing to that Lender for Dollar
deposits of comparable amounts for the relevant period, then, and in any such
event, that Lender shall be an "Affected Lender" and it shall promptly (and in
any event as soon as possible after being notified of a borrowing, conversion
or continuation) give notice (by telephone confirmed in writing) to Borrower
and Agent (which notice Agent shall promptly transmit to each other Lender) of
such determination. Thereafter, Borrower shall pay to the Affected Lender,
upon written demand therefor, such additional amounts in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as the Affected Lender in its sole discretion shall determine. A certificate
as to additional amounts owed the Affected Lender, showing in reasonable detail
the basis for the calculation thereof, submitted in good faith to Borrower and
Agent by the Affected Lender shall, absent manifest error, be final and
conclusive and binding upon all of the parties hereto.
(C) Required Termination and Prepayment. If on any date any
Lender shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of its
LIBOR Rate Loans has become unlawful or impossible by compliance by that Lender
in good faith with any law, governmental rule, regulation or order (whether or
not having the force of law and whether or not failure to comply therewith
would be unlawful), then, and in any such event, that Lender shall be an
"Affected Lender" and it shall promptly give notice (by telephone confirmed in
writing) to Borrower and Agent (which notice Agent shall promptly transmit to
each Lender) of that determination. Subject to the prior withdrawal of a
Notice of Borrowing or a Notice of Conversion/Continuation or prepayment of the
LIBOR Rate Loans of the Affected Lender as contemplated by the following
subsection 2.7(D), the obligation of the Affected Lender to make or maintain
its LIBOR Rate Loans during any such period shall be terminated at the earlier
of the termination of the Interest Period then in effect or when required by
law and Borrower shall no later than the termination of the Interest Period in
effect at the time any such determination pursuant to this subsection 2.7(C) is
made or, earlier, when required by law, repay or prepay the LIBOR Rate Loans of
the Affected Lender, together with all interest accrued thereon.
<PAGE> 39
(D) Options of Borrower. In lieu of paying an Affected Lender
such additional moneys as are required by subsection 2.7(B) or the prepayment
of an Affected Lender required by subsection 2.7(C), Borrower may exercise any
one of the following options:
(1) If the determination by an Affected Lender relates
only to LIBOR Rate Loans then being requested by Borrower pursuant to
a Notice of Borrowing or a Notice of Conversion/Continuation, Borrower
may by giving notice (by telephone confirmed in writing) to Agent (who
shall promptly give similar notice to each Lender) no later than the
date immediately prior to the date on which such LIBOR Rate Loans are
to be made, withdraw that Notice of Borrowing or Notice of
Conversion/Continuation and the LIBOR Rate Loans then being requested
shall be made by Lenders as Base Rate Loans; or
(2) Upon written notice to Agent and each Lender,
Borrower may terminate the obligations of Lenders to make or maintain
Loans as, and to convert Loans into, LIBOR Rate Loans and in such
event, Borrower shall, prior to the time any payment pursuant to
subsection 2.7(C) is required to be made or, if the provisions of
subsection 2.7(B) are applicable, at the end of the then current
Interest Period, convert all of the LIBOR Rate Loans into Base Rate
Loans in the manner contemplated by subsection 2.2(E) but without
satisfying the advance notice requirements therein.
(E) Compensation. Borrower shall compensate each Lender, upon
written request by that Lender (which request shall set forth in reasonable
detail the basis for requesting such amounts and which shall, absent manifest
error, be conclusive and binding upon all parties hereto), for all reasonable
losses, expenses and liabilities (including, without limitation, any loss
(including interest paid) sustained by that Lender in connection with the
re-employment of such funds), that Lender may sustain: (1) if for any reason
(other than a default by that Lender or a delivery of notice by Agent to
Borrower pursuant to the second sentence of subsection 2.7(A)) a borrowing of
any LIBOR Rate Loan does not occur on a date specified therefor in a Notice of
Borrowing, a Notice of Conversion/Continuation or a telephonic request for
borrowing or conversion/continuation therefor is given pursuant to subsection
2.2(E); (2) if any prepayment (other than a prepayment required under
subsection 2.7(C)) of any of its LIBOR Rate Loans occurs on a date that is not
the last day of an Interest Period applicable to that Loan; (3) if any
prepayment of any of its LIBOR Rate Loans is not made on any date specified in
a notice of prepayment given by Borrower; or (4) as a consequence of any other
default by Borrower to repay its LIBOR Rate Loans when required by the terms of
this Agreement; provided that during the period while any such amounts have not
been paid, Lenders shall reserve an equal amount from amounts otherwise
available to be borrowed under the Revolving Loan.
(F) Booking of LIBOR Rate Loans. Any Lender may make, carry or
transfer LIBOR Rate Loans at, to, or for the account of, any of its branch
offices or the office of an affiliate of that Lender.
(G) Increased Costs. Except as provided in subsection 2.7(B)
with respect to certain determinations on Interest Rate Determination Dates,
if, after the date hereof by reason of, (1) the introduction of or any change
(including, without limitation, any change by way of imposition or increase of
reserve requirements) in or in the interpretation of any treaty, law, rule, or
regulation, or (2) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally (whether or
not having the force of law):
<PAGE> 40
(a) any Lender (or its applicable lending office) shall
be subject to any tax (except for taxes covered by subsection 2.9 or
taxes excluded from the definition of Tax Liabilities in subsection
2.9), duty, levy, cost or other charge (except for taxes on the
overall net income or alternative minimum taxable income of such
Lender or its applicable lending office imposed by the jurisdiction in
which such Lender's principal executive office or applicable lending
office is organized, located or is doing business) with respect to its
LIBOR Rate Loans or its obligation to make LIBOR Rate Loans, or the
recording, registration, notarization or other formalization of the
LIBOR Rate Loans or the basis of taxation of payments to any Lender of
the principal of or interest or commitment fees or any amount payable
on its LIBOR Rate Loans or its obligation to make LIBOR Rate Loans
shall change; or
(b) any reserve (including, without limitation, any
imposed by the Board of Governors of the Federal Reserve System),
special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender's
applicable lending office shall be imposed on any Lender or its
applicable lending office or the interbank LIBOR market,
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining LIBOR Rate Loans, or
there shall be a reduction in the amount received or receivable by that Lender
or its applicable lending office, then Borrower shall from time to time, upon
written notice from and demand by that Lender (with a copy of such notice and
demand to Agent), pay to Agent for the account of that Lender, within five (5)
Business Days after receipt of such notice, demand and appropriate proof of
such cost, additional amounts sufficient to indemnify that Lender against such
increased cost or reduced amount. A certificate as to the amount of such
increased cost or reduced amount, submitted to Borrower and Agent by that
Lender, shall, except for manifest error, be final, conclusive and binding for
all purposes. Any payments to be made by Borrower under subsections 2.7(B),
2.7(E), 2.7(G) or 2.8 in respect of LIBOR Rate Loans are to be without
duplication.
(H) Assumptions Concerning Funding of LIBOR Rate Loans.
Calculation of all amounts payable to a Lender under this subsection 2.7 shall
be made as though that Lender had actually funded its relevant LIBOR Rate Loan
through the purchase of a LIBOR deposit bearing interest at the LIBOR Rate in
an amount equal to the amount of that LIBOR Rate Loan and having a maturity
comparable to the relevant Interest Period and through the transfer of such
LIBOR deposit from an offshore office to a domestic office in the United States
of America; provided, however, that each Lender may fund each of its LIBOR Rate
Loans in any manner it sees fit and the foregoing assumption shall be utilized
only for the calculation of amounts payable under this subsection 2.7.
(I) LIBOR Rate Loans After Default. Unless Agent and Requisite
Lenders shall otherwise agree, after the occurrence of and during the
continuance of a Default or Event of Default, Borrowers may not elect to have a
Loan be made or continued as, or converted to, a LIBOR Rate Loan after the
expiration of any Interest Period then in effect for that Loan.
SECTION 1.5 Capital Adequacy and Other Adjustments.
In the event that any Lender shall have determined that the adoption
after the date hereof of any law, treaty, governmental (or quasi-governmental)
rule, regulation, guideline or order regarding capital adequacy, reserve
requirements or similar requirements or compliance by any Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements (whether or not
having the force of law and whether or not failure to comply therewith
<PAGE> 41
would be unlawful) from any central bank or governmental agency or body having
jurisdiction does or shall have the effect of increasing the amount of capital,
reserves or other funds required to be maintained by such Lender or any
corporation controlling such Lender and thereby reducing the rate of return on
such Lender's or such corporation's capital as a consequence of its obligations
hereunder, then Borrower shall from time to time within fifteen (15) days after
notice and demand from such Lender (together with the certificate referred to
in the next sentence and with a copy to Agent) pay to Agent, for the account of
such Lender, additional amounts sufficient to compensate such Lender for such
reduction. A certificate as to the amount of such cost and showing the basis
of the computation of such cost submitted by such Lender to Borrower and Agent
shall, absent manifest error, be final, conclusive and binding for all
purposes.
SECTION 1.6 Taxes.
(A) No Deductions. Any and all payments or reimbursements made
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however, the
following: taxes imposed on the net income of a Lender or Agent by the
jurisdiction under the laws of which such Lender or Agent is organized or doing
business or any political subdivision thereof and taxes imposed on its net
income by the jurisdiction of such Lender's or Agent's applicable lending
office or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
excluding such taxes imposed on net income, herein "Tax Liabilities"). If
Borrower shall be required by law to deduct any such amounts from or in respect
of any sum payable hereunder to any Lender or Agent, then the sum payable
hereunder shall be increased as may be necessary so that, after making all
required deductions, such Lender or Agent receives an amount equal to the sum
it would have received had no such deductions been made, and Borrower shall
indemnify such Lender and Agent for Tax Liabilities imposed by any jurisdiction
on account of amounts paid or payable pursuant to this sentence. Within 30
days after the date of any payment of such amount deducted by Borrower in
respect of any payment to any Lender or Agent, Borrower shall furnish to such
Lender or Agent the original or certified copy of a receipt evidencing payment
thereof.
(B) Changes in Tax Laws. In the event that, subsequent to the
Closing Date (or, in the case of any Foreign Lender, the date upon which such
Foreign Lender becomes a Lender under this Agreement), (1) any changes in any
existing law, regulation, treaty or directive or in the interpretation or
application thereof, (2) any new law, regulation, treaty or directive enacted
or any change in the interpretation or application thereof, or (3) compliance
by Agent or any Lender with any request (whether or not having the force of
law) from any governmental authority, agency or instrumentality:
(a) does or shall subject Agent or any Lender to any tax
of any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made hereunder, or change the basis of taxation
of payments to Agent or such Lender of principal, fees, interest or
any other amount payable hereunder (except for net income taxes, or
franchise taxes imposed in lieu of net income taxes, imposed generally
by federal, state or local taxing authorities with respect to interest
or commitment or other fees payable hereunder or changes in the rate
of tax on the overall net income of Agent or such Lender); or
(b) does or shall impose on Agent or any Lender any other
condition or increased cost (other than those determined in accordance
with subsection 2.7) in connection with the transactions contemplated
hereby or participations herein;
<PAGE> 42
and the result of any of the foregoing is to increase the cost to Agent or any
such Lender of making or continuing any Loan hereunder, as the case may be, or
to reduce any amount receivable hereunder, then, in any such case, Borrower
shall promptly pay to Agent or such Lender, upon its demand, any additional
amounts necessary to compensate Agent or such Lender, on an after-tax basis,
for such additional cost or reduced amount receivable, as determined by Agent
or such Lender with respect to this Agreement or the other Loan Documents. If
Agent or such Lender becomes entitled to claim any additional amounts pursuant
to this subsection, it shall promptly notify Borrower of the event by reason of
which Agent or such Lender has become so entitled and shall furnish to Borrower
a certificate setting forth the basis and amount of such claim. Such
certificate as to any additional amounts payable pursuant to the foregoing
sentence submitted by Agent or such Lender to Borrower and Agent shall, absent
manifest error, be final, conclusive and binding for all purposes.
(C) Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which
payments to be made under this Agreement or under the Notes are exempt from
United States withholding tax or are subject to United States withholding tax
at a reduced rate under an applicable statute or tax treaty shall provide to
Monitoring and Agent (1) a properly completed and executed Internal Revenue
Service Form 4224 or Form 1001 or other applicable form, certificate or
document prescribed by the Internal Revenue Service of the United States
certifying as to such Foreign Lender's entitlement to such exemption or reduced
rate of withholding with respect to payments to be made to such Foreign Lender
under this Agreement and under the Notes (a "Certificate of Exemption") or (2)
a letter from any such Foreign Lender stating that it is not entitled to any
such exemption or reduced rate of withholding (a "Letter of Non-Exemption").
Prior to becoming a Lender under this Agreement and within fifteen (15) days
after a reasonable written request of Borrower or Agent from time to time
thereafter, each Foreign Lender that becomes a Lender under this Agreement
shall provide a Certificate of Exemption or a Letter of Non-Exemption to
Borrower and Agent.
If a Foreign Lender is entitled to an exemption with respect to
payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption to
and Agent within the time periods set forth in the preceding paragraph,
Borrower shall withhold taxes from payments to such Foreign Lender at the
applicable statutory rates and Borrower shall not be required to pay any
additional amounts as a result of such withholding; provided, however, that all
such withholding shall cease upon delivery by such Foreign Lender of a
Certificate of Exemption to Borrower and Agent.
SECTION 1.7 Optional Prepayment/Replacement of Lender in Respect of
Increased Costs.
Within thirty (30) days after receipt by Borrower of written notice
and demand from any Lender (an "Affected Lender") for payment of additional
costs as provided in subsection 2.8 or 2.9, Borrower may, at its option, notify
Agent and such Affected Lender of its intention to do one of the following:
(A) Borrower may obtain, at Borrower's expense, a replacement
Lender ("Replacement Lender") for such Affected Lender, which Replacement
Lender shall be reasonably satisfactory to Agent. In the event Borrower
obtains a Replacement Lender within ninety (90) days following notice of its
intention to do so, the Affected Lender shall sell and assign its Loans and
Commitments to such Replacement Lender provided that Borrower has reimbursed
such Affected Lender for its increased costs for which it is entitled to
reimbursement under this Agreement through the date of such sale and
assignment.
<PAGE> 43
(B) Borrower may prepay in full all outstanding Obligations owed
to such Affected Lender and to terminate such Affected Lender's Commitments.
Borrower shall, within ninety (90) days following notice of its intention to do
so, prepay in full all outstanding Obligations owed to such Affected Lender
(including such Affected Lender's increased costs for which it is entitled to
reimbursement under this Agreement through the date of such prepayment but
excluding the prepayment fee referenced in subsection 2.3(D)) and terminate
such Affected Lender's Commitments.
SECTION 2
CONDITIONS TO LOANS
The obligations of each Lender to make the Loans are subject to
satisfaction of all of the applicable conditions set forth below.
SECTION 2.1 Conditions to Initial Loans.
The obligations of Lenders to make the initial Loans on the Closing
Date and of Agent to issue any Lender Letters of Credit on the Closing Date
are, in addition to the conditions precedent specified in subsection 3.2,
subject to the prior or concurrent satisfaction of the conditions set forth in
Schedule 3.1.
SECTION 2.2 Conditions to All Loans.
The obligations of Agent and each Lender to make Loans and the
obligation of Agent to issue Lender Letters of Credit on each Funding Date are
subject to the further conditions precedent set forth below.
(A) Notice of Borrowing. Agent shall have received, in
accordance with the provisions of subsection 2.1, a Notice of Borrowing
certifying as to the matters set forth in clauses (B), (C), (D) and (E) below.
(B) Representations and Warranties. The representations and
warranties contained herein and in the Loan Documents shall be true, correct
and complete in all material respects on and as of that Funding Date to the
same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date and taking
into account any amendments to the Schedules or Exhibits as a result of any
disclosures made in writing by Borrower to Agent after the Closing Date and
approved by Agent.
(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 Discount Note Indenture.
(D) Orders. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Agent
or any Lender from making any Loans.
<PAGE> 44
(E) Compliance with Indebtedness Ratio Test. Borrower shall be
in compliance with the Indebtedness Ratio Test as of the end of the most recent
month and shall be in compliance with the Indebtedness Ratio Test on a pro
forma basis after giving effect to the funding of such Loan.
SECTION 2.3 Conditions to All Subsequent Acquisitions and Subsequent
Acquisition Loans.
Each Subsequent Acquisition, and the obligations of Agent and each
Lender to make Loans to fund any Subsequent Acquisition, are subject to the
further conditions set forth below, as applicable, in addition to the
conditions precedent set forth in subsections 3.2 and 7.6(b).
(A) Subsequent Acquisition Compliance Certificate. At least two
(2) Business Days prior to the closing date of any Subsequent Acquisition
(other than an acquisition of Subscriber Accounts pursuant to a Qualified
Dealer Contract), Agent shall have received a Subsequent Acquisition Compliance
Certificate in the form of Exhibit 3.3, duly executed by the chief executive
officer or chief financial officer of Borrower certifying the matters contained
therein and completed to the satisfaction of Agent;
(B) Subsequent Acquisition Documents. Agent shall receive within
two (2) Business Days following the closing date of any Subsequent Acquisition
(other than an acquisition of Subscriber Accounts pursuant to a Qualified
Dealer Contract), executed or conformed copies of all Subsequent Acquisition
Documents and amendments thereto together with evidence satisfactory to Agent
(and certified to by an officer of Borrower) that the Subsequent Acquisition
has been consummated in accordance with the terms of the Subsequent Acquisition
Documents.
(C) Borrower's Documents. On or before the closing date of any
Subsequent Acquisition, Borrower shall deliver or cause to be delivered to
Agent the documents listed below, to the extent applicable in connection with
such Subsequent Acquisition, each in form and substance satisfactory to Agent
and in quantities designated by Agent.
(1) UCC Financing Statements. Evidence of the proper
filing of UCC financing statements perfecting security interests in favor of
Agent, on behalf of Lenders, in any additional Collateral acquired in such
Subsequent Acquisition, to the extent necessary to perfect such security
interests in such additional Collateral.
(2) Government Approvals. Satisfactory evidence of
Borrowers' receipt of all governmental approvals required in connection with
such Subsequent Acquisition.
(3) Termination of Prior Liens. Duly executed UCC-3
termination statements, mortgage releases, pay-off letter and such other
instruments, in form and substance satisfactory to Agent, as shall be necessary
to terminate and satisfy all Liens (except Permitted Liens) encumbering any
Collateral acquired in such Subsequent Acquisition.
(4) Other Borrower's Documents. Such other documents
respecting Borrower as Agent may reasonably request.
(D) Notice of Borrowing; Letter of Direction. Prior to making
any Loan to fund a Subsequent Acquisition, Agent shall have received the Notice
of Borrowing referred to in subsection 3.2(A) and a letter of direction from
Borrower addressed to Agent with respect to the disbursement of the proceeds of
such Loan.
<PAGE> 45
SECTION 3
BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Agent and each Lender to enter into this Agreement and to
make Loans and to issue Lender Letters of Credit, Borrower represents and
warrants to Agent and each Lender that the following statements are and, after
giving effect to the Related Transactions and to any Subsequent Related
Transaction, as applicable, will be true, correct and complete:
SECTION 3.1 Organization, Powers, Capitalization, Good Standing, Business
and Subsidiaries.
(A) Organization and Powers. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation (which jurisdiction is set forth on
Schedule 4.1(A)). Each of the Loan Parties has (or, with respect to any
Subsequent Related Transaction, will have at the time thereof) all requisite
corporate power and authority to own and operate its properties, to carry on
its business as now conducted and proposed to be conducted, to enter into each
Related Transactions Document and Subsequent Related Transaction Document to
which it is or becomes a party and to carry out the Related Transactions and
any Subsequent Related Transaction.
(B) Capitalization. The authorized capital stock of each of the
Loan Parties is as set forth on Schedule 4.1(B). All issued and outstanding
shares of capital stock of each of the Loan Parties are duly authorized and
validly issued, fully paid, nonassessable, free and clear of all Liens other
than those in favor of Agent, for the benefit of Lenders, and such shares were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. The capital stock of each of the Loan Parties is owned
by the stockholders and in the amounts set forth on Schedule 4.1(B). No shares
of the capital stock of any Loan Party, other than those described above, are
issued and outstanding. There are no preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or understandings
for the purchase or acquisition from any Loan Party of any shares of capital
stock or other securities of any such entity, except as set forth in Schedule
4.1(B) with respect to Holdings Capital Stock. No shares of Holdings Capital
Stock, nor do any shares of capital stock of Borrower or any of its
Subsidiaries, constitute Disqualified Stock.
(C) Qualification. Each of the Loan Parties is duly qualified
and in good standing wherever necessary to carry on its present business and
operations, except in jurisdictions in which the failure to be qualified and in
good standing could not reasonably be expected to have a Material Adverse
Effect. All jurisdictions in which each Loan Party is qualified to do business
are set forth on Schedule 4.1(C).
(D) Conduct of Business. On the date hereof and after any
Subsequent Acquisition the Loan Parties will be engaged only in businesses of
the type described on Schedule 4.1(D).
(E) Subsidiaries. Neither Holdings nor Borrower has any
Subsidiaries except as set forth on Schedule 4.1(E) and Schedule 4.1(E)
accurately sets forth the percentage ownership by Holdings and Borrower, as
applicable, of each of their respective Subsidiaries.
SECTION 3.2 Authorization of Borrowing, etc..
<PAGE> 46
(A) Authorization of Borrowing. Borrower has the corporate power
and authority to incur the Indebtedness evidenced by the Notes. The execution,
delivery and performance of each of the Related Transactions Documents and any
Subsequent Related Transactions Documents and the consummation of the Related
Transactions and any Subsequent Related Transaction by Holdings and Borrower
have been (or, in the case of any Subsequent Related Transaction or Subsequent
Related Transaction Document, will be at the time thereof) duly authorized by
all necessary corporate and shareholder action. On the Closing Date, the
execution, delivery and performance of the Related Transactions Documents by
each other Loan Party and signatory thereto will have been duly authorized by
all necessary corporate and shareholder action. On any Subsequent Acquisition
Closing Date, the execution, delivery and performance of each Subsequent
Related Transaction Document by each other Loan Party and signatory thereto
will 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 Related Transactions Document to which it is a party, and of
each Subsequent Related Transactions Documents to which it hereafter becomes a
party, and the consummation of the Related Transactions and any Subsequent
Related Transaction 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
(4) 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 (a) such approvals or consents to be obtained on or
before the Closing Date, which are disclosed on Schedule 4.2(B) (or in the case
of any Subsequent Related Transaction Document or any Subsequent Related
Transactions, which are obtained on or before the applicable Subsequent
Acquisition Closing Date and disclosed in writing to Agent prior to such date)
and (b) such violations, conflicts, breaches, Liens and defaults which could
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
(C) Governmental Consents. The execution, delivery and
performance by each Loan Party of each Related Transactions Document or
Subsequent Related Transactions Document to which it is or hereafter becomes a
party, and the consummation of the Related Transactions and any Subsequent
Related Transactions do not and will not require any registration with, consent
or approval of, or notice to, or other action to, with or by, any federal,
state or other governmental authority or regulatory body except for filings
required by federal or state securities laws have been, or in the case of
future filings will be, timely made and complete copies of which have been or
will be delivered to Agent), filings required in connection with the perfection
of security interests granted pursuant to the Loan Documents, and other
filings, authorizations, consents and approvals, all of which have been or will
be timely made or obtained or the absence of which would not have a Material
Adverse Effect.
(D) Binding Obligation. This Agreement is, and the other Related
Transactions Documents and Subsequent Related Transaction Documents, including
the Notes, 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.
(E) Subordinated Discount Note Documents. Borrower has delivered
to Agent and each of the Lenders a complete and correct copy of the
Subordinated Discount Note Documents and each of the representations and
warranties given by Holdings or Borrower therein was true and correct in all
material
<PAGE> 47
respects as of the date given. The subordination provisions of the
Subordinated Discount Note Documents are enforceable against the holders of the
Subordinated Discount 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 of subordination created by the
Subordinated Discount Note Documents. The principal of and interest on the
Notes and all other Obligations will constitute "senior debt" as that or any
similar term is or may be used in any other instrument evidencing or applicable
to any other Subordinated Indebtedness of Borrower. Borrower acknowledges that
Agent and each Lender are entering into this Agreement and/or each Lender
Addition Agreement and are extending the Revolving Loan Commitment in reliance
upon the subordination provisions of the Subordinated Discount Note Documents
and this subsection 4.2(E).
SECTION 3.3 Financial Condition.
(A) Financial Statements. All financial statements concerning
Holdings, Borrower and Borrower's Subsidiaries which have been or will
hereafter be furnished by Borrower to Agent or any Lender pursuant to this
Agreement, including those listed below, have been or will be prepared in
accordance with GAAP consistently applied (except as disclosed therein) and do
or will present fairly the financial condition of the corporations covered
thereby as at the dates thereof and the results of their operations for the
periods then ended:
(1) Audited consolidated balance sheet of Holdings,
Borrower and Borrower's Subsidiaries as of September 30, 1995 and the related
consolidated statements of income, stockholders' equity and cash flow for the
Fiscal Year then ended; and
(2) Unaudited consolidated balance sheet of Holdings,
Borrower and Borrower's Subsidiaries as of March 31, 1996 and the related
consolidated statements of income, stockholders' equity and cash flow for the
six-month period then ended.
(B) Projections. The Projections delivered and to be delivered
(including the most recent Projections delivered pursuant to the Existing
Credit Agreement) have been and will be prepared by Borrower in light of the
past operations of the business of Holdings, Borrower and, to the extent
applicable, any Target. The Projections represent and will represent as of the
date thereof the good faith estimate of Borrowers and Borrower's senior
management concerning the most probable course of Borrower's business.
SECTION 3.4 Indebtedness and Contingent Obligations.
As of the Closing Date after giving effect to the Related
Transactions, neither Holdings nor Borrower has any Indebtedness or Contingent
Obligations except (a) as set forth on Holdings', Borrower's and Borrower's
Subsidiaries' unaudited consolidated balance sheet as of March 31, 1996 and (b)
as set forth on Schedule 4.4.
SECTION 3.5 No Material Adverse Change; No Stock Payments.
Since September 30, 1995 no event or change has occurred that has
caused or evidences, either individually or together with such other events or
changes, a Material Adverse Effect. None of Holdings, Borrower nor any of
Borrower's Subsidiaries has or will have, as of the Closing Date, directly or
indirectly declared, ordered, paid or made or set apart any sum or property for
any Restricted Junior Payment or agreed to do so except as permitted by
subsection 7.5 or, prior to the Closing Date, except as permitted by
<PAGE> 48
subsection 7.5 of the Existing Credit Agreement or as otherwise heretofore
consented to in writing by the lenders under the Existing Credit Agreement.
SECTION 3.6 Title to Properties; Liens.
Each of the Loan Parties has good, sufficient and legal title, subject
to Permitted Encumbrances, to all their respective material properties and
assets. Except for Permitted Encumbrances, all such properties and assets are
free and clear of Liens. To the best knowledge of Borrower after due inquiry,
there are no actual, threatened or alleged defaults with respect to any leases
of real property under which Borrower or any of its Subsidiaries is lessee or
lessor which, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
SECTION 3.7 Litigation; Adverse Facts.
Except as set forth on Schedule 4.7, there are no judgments
outstanding against any Loan Party or affecting any property of any Loan Party,
nor is there any action, charge, claim, demand, suit, proceeding, petition,
governmental investigation or arbitration now pending or, to the best knowledge
of Borrower after due inquiry, threatened against any Loan Party or affecting
any property of any Loan Party. No Loan Party has received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed
to any liability or disadvantage which could reasonably be expected to result
in any Material Adverse Effect. The actions, charges, claims, demand, suits,
proceedings, petitions, investigations and arbitrations set forth on Schedule
4.7 or disclosed pursuant to subsection 5.1(O) will not result, if adversely
determined, and could not reasonably be expected to result, either individually
or in the aggregate, in any Material Adverse Effect and do not relate to and
will not affect the consummation of the Related Transactions or any Subsequent
Related Transaction.
SECTION 3.8 Payment of Taxes.
Except to the extent permitted by subsection 5.4, all material tax
returns and reports of Holdings, Borrower and each of Borrower's Subsidiaries
(and their predecessors in interest) required to be filed by any of them have
been timely filed, and all taxes, assessments, fees and other governmental
charges upon such Persons and upon their respective properties, assets, income
and franchises which are shown on such returns as due and payable have been
paid when due and payable. Except as set forth on Schedule 5.4, none of the
United States income tax returns of Holdings, Borrower and Borrower's
Subsidiaries are under audit. No tax liens have been filed and, except to the
extent permitted by subsection 5.4, no claims are being asserted with respect
to any such taxes. The charges, accruals and reserves on the books of
Holdings, Borrower and each of Borrower's Subsidiaries in respect of any taxes
or other governmental charges are in accordance with GAAP.
SECTION 3.9 Adverse Contracts.
None of the Loan Parties and none of their respective Subsidiaries is
a party to nor is it or any of its property subject to or bound by any forward
purchase contract, futures contract, covenant not to compete, unconditional
purchase, take or pay or other agreement which restricts its ability to conduct
its business or, either individually or in the aggregate, has a Material
Adverse Effect or could reasonably be expected to have a Material Adverse
Effect.
SECTION 3.10 Performance of Agreements.
<PAGE> 49
None of the Loan Parties is in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation of any such Person, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default.
SECTION 3.11 Governmental Regulation.
None of the Loan Parties and none of their respective Subsidiaries is,
or after giving effect to any Loan will be, subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940 or to any federal or state statute or regulation
limiting its ability to incur indebtedness for borrowed money or otherwise
subjecting Agent or Lenders to regulating approval in connection with the
exercise of rights and remedies under this Agreement or the other Loan
Documents.
SECTION 3.12 Employee Benefit Plans.
(A) No Other Plans. No Loan Party nor any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Employee Benefit
Plans other than those identified on Schedule 4.12. Borrower has provided
Agent accurate and complete copies of all contracts, agreements and documents
described on Schedule 4.12.
(B) ERISA and IRC Compliance and Liability. Each Loan Party and
each ERISA Affiliate is in compliance with all applicable provisions of ERISA
and the regulations and published interpretations thereunder with respect to
all Employee Benefit Plans except where failure to comply would not result in a
material liability to any Loan Party and except for any required amendments for
which the remedial amendment period as defined in Section 401(b) of the Code
has not yet expired. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the IRC has been determined by the Internal
Revenue Service ("IRS") to be so qualified, and each trust related to such plan
has been determined to be exempt under Section 501(a) of the IRC. No material
liability has been incurred by any Loan Party or ERISA Affiliate which remains
unsatisfied for any taxes or penalties with respect to any Employee Benefit
Plan or any Multiemployer Plan.
(C) Funding. No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the IRC) been
incurred (without regard to any waiver granted under Section 412 of the IRC),
nor has any funding waiver from the IRS been received or requested with respect
to any Pension Plan, nor has any Loan Party, or any ERISA Affiliate failed to
make any contributions or to pay any amounts due and owing as required by
Section 412 of the IRC, Section 302 of ERISA or the terms of any Pension Plan
prior to the due dates of such contributions under Section 412 of the IRC or
Section 302 of ERISA, nor has there been any event requiring any disclosure
under Section 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA with respect to any
Pension Plan.
(D) Prohibited Transactions and Payments. No Loan Party nor any
ERISA Affiliate has: (1) engaged in a nonexempt prohibited transaction
described in Section 406 of ERISA or Section 4975 of the IRC; (2) incurred any
liability to the PBGC which remains outstanding other than the payment of
premiums and there are no premium payments which are due and unpaid; (3) failed
to make a required contribution or payment to a Multiemployer Plan; or (4)
failed to make a required installment or other required payment under Section
412 of the IRC.
<PAGE> 50
(E) No Termination Event. No Termination Event has occurred or
is reasonably expected to occur.
(F) ERISA Litigation. No material proceeding, claim, lawsuit
and/or investigation is existing or, to the best knowledge of Borrowers after
due inquiry, threatened concerning or involving any (1) employee welfare
benefit plan (as defined in Section 3(1) of ERISA) currently maintained or
contributed to by any Loan Party or any ERISA Affiliate, (2) Pension Plan or
(3) Multiemployer Plan.
SECTION 3.13 Intellectual Property.
Borrower and each of its Subsidiaries own, are licensed to use or
otherwise have the right to use, all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the
conduct of their business as currently conducted that are material to the
condition (financial or other), business or operations of Borrower or its
Subsidiaries (collectively called "Intellectual Property") and all such
Intellectual Property is identified on Schedule 4.13 and fully protected and/or
duly and properly registered, filed or issued in the appropriate office and
jurisdictions for such registrations, filing or issuances. All Intellectual
Property that is registered or for which application for registration is
pending is identified on Schedule 4.13, to the extent set forth on Schedule
4.13. Except as disclosed in Schedule 4.13, no material claim has been
asserted by any Person with respect to the use of any Intellectual Property, or
challenging or questioning the validity or effectiveness of any Intellectual
Property. Except as disclosed in Schedule 4.13, the use of such Intellectual
Property by Borrower and its Subsidiaries does not infringe on the rights of
any Person, subject to such claims and infringements as do not, in the
aggregate, give rise to any liabilities on the part of Borrower and its
Subsidiaries that are material to Borrower or its Subsidiaries.
SECTION 3.14 Broker's Fees.
No broker's or finder's fee, commission or similar compensation will
be payable with respect to the issuance and sale of the Notes or any of the
other transactions contemplated hereby or by any Related Transactions
Documents. No other similar fees or commissions will be payable by any Loan
Party for any other services rendered to Borrower or any of its Subsidiaries
ancillary to the transactions contemplated hereby.
SECTION 3.15 Environmental Compliance.
(A) No Environmental Claims. Except as set forth on Schedule
4.15(A), there are no claims, liabilities, investigations, litigation,
administrative proceedings, whether pending or threatened, or judgments or
orders relating to any Hazardous Materials (collectively called "Environmental
Claims") asserted or threatened against any Loan Party or relating to any real
property currently or formerly owned, leased or operated by any Loan Party.
No Loan Party or any other Person has caused or permitted any Hazardous
Material to be used, generated, reclaimed, transported, released, treated,
stored or disposed of in a manner which could form the basis for an
Environmental Claim against any Loan Party. Except as set forth on Schedule
4.15(A), no Loan Party has assumed (by contract or by operation of law) any
liability of any Person for cleanup, remediation compliance or required Capital
Expenditures in connection with any Environmental Claim. The items disclosed
pursuant to this subsection 4.15(A) could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
<PAGE> 51
(B) Storage of Hazardous Materials. Except as set forth on
Schedule 4.15(B), no Hazardous Materials are or were stored or otherwise
located, and no underground storage tanks or surface impoundments are or were
located, on real property currently or formerly owned, leased or operated by
any Loan Party, or to the best knowledge of Borrowers after due inquiry, on
adjacent parcels of real property, and no part of such real property or, to the
best knowledge of Borrowers after due inquiry, no part of such adjacent parcels
of real property, including the groundwater located thereon, is presently
contaminated by Hazardous Materials. The items disclosed pursuant to this
subsection 4.15(B) could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
(C) Compliance with Environmental Laws. Except as set forth on
Schedule 4.15(C), each Loan Party has been and is currently in compliance with
all applicable Environmental Laws, including obtaining and maintaining in
effect all permits, licenses or other authorizations required by applicable
Environmental Laws. The items disclosed pursuant to this subsection 4.15(C)
will not, either individually or in the aggregate, have a Material Adverse
Effect.
SECTION 3.16 Employee Matters.
Except as set forth on Schedule 4.16, (a) no Loan Party nor any of its
employees is subject to any collective bargaining agreement, (b) no petition
for certification or union election is pending with respect to the employees of
any Loan Party and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any Loan Party
and (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of Borrowers after due inquiry, threatened
between any Loan Party and its respective employees, other than employee
grievances arising in the ordinary course of business which could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Except as set forth on Schedule 4.16, neither
Borrower nor any of its Subsidiaries is subject to an employment contract.
SECTION 3.17 Solvency.
As of and from and after the date of this Agreement and after giving
effect to the consummation of the Related Transactions and any Subsequent
Related Transactions, Borrower: (a) owns and will own assets the fair saleable
value of which are (i) greater than the total amount of liabilities (including
contingent liabilities) of Borrower and (ii) greater than the amount that will
be required to pay the probable liabilities of Borrower's then existing debts
as they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to Borrower; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or
any contemplated or undertaken transaction; and (c) does not intend to incur
and does not believe that it will incur debts beyond its ability to pay such
debts as they become due.
SECTION 3.18 Disclosure.
No representation or warranty of Borrower or any other Loan Party
contained in this Agreement, the financial statements referred to in subsection
4.3, the other Related Transactions Documents or any other document,
certificate or written statement furnished to Agent or any Lender by or on
behalf of any such Person for use in connection with the Loan Documents or the
Related Transactions Documents contain any untrue statement of a material fact
or omitted, omits or will omit to state a material fact necessary in order to
make the statements contained herein or therein not misleading in light of the
circumstances in which the same were made. The Projections and pro forma
financial information contained in such
<PAGE> 52
materials are based upon good faith estimates and assumptions believed by such
Persons to be reasonable at the time made, it being recognized by Lenders that
such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ from the projected results. There is no material fact known to Borrower
that has had or will have a Material Adverse Effect and that has not been
disclosed herein or in such other documents, certificates and statements
furnished to Agent or any Lender for use in connection with the transactions
contemplated hereby.
SECTION 3.19 Use of Proceeds and Margin Security.
Borrower shall use the proceeds of Revolving Loan advances solely for
Borrower's internal working capital requirements and general corporate purposes
and to fund Acquisitions permitted under this Agreement.
Borrower shall use the proceeds of all Loans for proper business
purposes (as described in the recitals to this Agreement) consistent with all
applicable laws, statutes, rules and regulations. No portion of the proceeds
of any Loan shall be used by Borrower or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X or any other
regulation of the Board of Governors of the Federal Reserve System or to
violate the Exchange Act.
SECTION 3.20 Insurance.
Schedule 4.20 sets forth a complete and accurate description of all
policies of insurance that will be in effect as of the Closing Date for
Borrower and its Subsidiaries. Borrower and its Subsidiaries are adequately
insured under such policies, no notice of cancellation has been received with
respect to such policies and Borrower and its Subsidiaries are in compliance
with all conditions contained in such policies.
SECTION 3.21 Bank Accounts.
Schedule 4.21 sets forth the account numbers and location of all bank
accounts of Borrower and its Subsidiaries, other than petty cash accounts with
an aggregate balance in all such accounts not exceeding $100,000.
SECTION 3.22 Representations and Warranties from the Acquisition Documents.
(A) Warranties. Borrower represents and warrants that each of
the representations and warranties given by each party to each Acquisition
Document were or will be true and correct in all material respects as of the
date of the respective Prior Acquisition in the case of any Prior Acquisition
and as of the date of the respective Subsequent Acquisition in the case of any
Subsequent Acquisition, and such representations and warranties are and will be
hereby incorporated herein by this reference as of such dates with the same
effect as though set forth in their entirety herein.
(B) Survival. Notwithstanding anything in any Acquisition
Document to the contrary, the representations and warranties of each party to
any Acquisition Document incorporated in this Agreement by subsection 4.22(A)
shall, solely for the purposes of this Agreement, survive the execution and
delivery of such Acquisition Document, the execution and delivery of this
Agreement, the making of the Loans hereunder and the execution and delivery of
the Notes.
<PAGE> 53
SECTION 3.23 Compliance with Laws.
Each Loan Party is not in violation of any law, ordinance, rule,
regulation, order, policy, guideline or other requirement of any domestic or
foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of their respective businesses or the ownership
of their respective properties, including, without limitation, any violation
relating to any use, release, storage, transport or disposal of any Hazardous
Material, which violation would subject any Loan Party or any such Subsidiary,
or any of their respective officers to criminal liability or could reasonably
be expected to have, either individually or together with all such other
violations, a Material Adverse Effect and no such violation has been alleged.
Each Loan Party has filed in a timely manner all reports, documents and other
materials required to be filed by them with any governmental bureau, agency or
instrumentality (and the information contained in each of such filings is true,
correct and complete in all respects), except where failure to make such
filings would not have a Material Adverse Effect. Each Loan Party has retained
all records and documents required to be retained by it pursuant to any law,
ordinance, rule, regulation, order, policy, guideline or other requirement of
any governmental authority, except where failure to retain such records would
not subject any Loan Party or such Subsidiary or any of their respective
officers to criminal liability and could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
SECTION 3.24 Investments.
Except as set forth on Schedule 4.24, neither Borrower nor any of its
Subsidiaries has an Investment in any Person other than Investments permitted
under subsection 7.3.
SECTION 3.25 No Defaults under Existing Credit Agreement.
As of the Closing Date, no default or event of default has occurred
and is continuing under the Existing Credit Agreement.
SECTION 4
BORROWER'S AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as the Revolving Loan
Commitments hereunder shall be in effect and until payment in full of all
Obligations and termination of all Lender Letters of Credit, unless Requisite
Lenders shall otherwise give their prior written consent, Borrower shall
perform and comply with, and shall cause each of its Subsidiaries to perform
and comply with, all covenants in this Section 5 applicable to such Person.
SECTION 4.1 Financial Statements and Other Reports.
Borrower will maintain, and cause Holdings and each of the Borrower's
Subsidiaries to maintain, a system of accounting established and administered
in accordance with sound business practices to permit preparation of financial
statements in conformity with GAAP. Borrower will deliver to Agent (with
sufficient copies for each Lender) the financial statements and other reports
described below.
<PAGE> 54
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Borrower will deliver (1)
the consolidated balance sheet of Holdings, Borrower and Borrower's
Subsidiaries (showing intercompany eliminations), as at the end of such month
and the related consolidated statements of income (showing intercompany
eliminations), stockholders' equity and cash flow for such month and for the
period from the beginning of the then current fiscal year to the end of such
month, together with comparative figures for the corresponding periods of the
previous fiscal year and comparative figures from the most recent Projections
for the current fiscal year delivered to Lender pursuant to subsection 5.1(J),
and (2) a schedule of the outstanding Indebtedness for borrowed money of
Holdings, Borrower and Borrower's Subsidiaries describing in reasonable detail
each such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan.
(B) Year-End Financials. As soon as available and in any event
within ninety (90) days after the end of each fiscal year, Borrower will
deliver: (1) the consolidated balance sheet of Holdings, Borrower and
Borrower's Subsidiaries as at the end of such year and the related consolidated
statements of income, stockholders' equity and cash flow for such fiscal year;
(2) a schedule of the outstanding Indebtedness for borrowed money of Holdings,
Borrower and Borrower's Subsidiaries describing in reasonable detail each such
debt issue or loan outstanding and the principal amount and amount of accrued
and unpaid interest with respect to each such debt issue or loan; and (3) a
report with respect to the financial statements from a Big Six Accounting Firm
selected by Borrower, which report shall be without Qualification and shall
state that (a) such consolidated financial statements present fairly the
consolidated financial position of Holdings, Borrower and Borrower's
Subsidiaries as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and (b) that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards. As used in this
subsection 5.1(B), "Qualification" means, with respect to any certificate
covering financial statements, a qualification to such certificate (such as a
"subject to" or "except for" statement or emphasis paragraph therein) (a)
resulting from a limitation on the scope of examination of such financial
statements or the underlying data, (b) as to the capability of the Person whose
financial statements are certified to continue operations as a going concern,
or (c) which could be eliminated by changes in financial statements or notes
thereto covered by such certificate (such as by the creation of or increase in
a reserve or a decrease in the carrying value of assets) and which if so
eliminated by the making of any such change and after giving effect thereto
would occasion a Default or an Event of Default; provided that, without
limitation, neither of the following shall constitute a Qualification: (x) a
consistency exception relating to a change in accounting principles with which
the independent public accountants for the Person whose financial statements
are being certified have concurred, or (y) a qualification relating to the
outcome or disposition of threatened litigation, pending litigation being
contested in good faith, pending or threatened claims or other contingencies,
the impact of which litigation, claims or contingencies cannot be determined
with sufficient certainty to permit qualification in such financial statements.
(C) Borrower's Compliance Certificate. Together with each
delivery of financial statements of Holdings, Borrower and Borrower's
Subsidiaries pursuant to subdivisions (A) and (B) above, Borrower will deliver
a fully and properly completed Compliance Certificate signed by Borrower's
chief executive officer or chief financial officer, together with supporting
detail.
(D) Accountants' Certification. Together with each delivery of
consolidated financial statements of Holdings, Borrower and Borrower's
Subsidiaries pursuant to subsection 5.1(B), Borrower will deliver (1) a written
statement by its independent certified public accountants (a) stating that the
<PAGE> 55
examination has included a review of the terms of this Agreement as same relate
to accounting matters and (b) stating whether, in connection with the
examination, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof and
(2) a letter addressed to Agent and Lenders from such accountants stating that
such accountants have been informed that a primary intent of Borrower was for
the professional services such accountants provided to Borrower in preparing
their audit report and the letter referred to in this Section 5.1(D) to benefit
or influence Lenders, and identifying Lenders as a party that Borrower have
indicated intends to rely on such professional services provided to Borrower by
such accountants.
(E) Accountants' Reports. Promptly upon receipt thereof,
Borrower will deliver copies of all significant reports submitted to Holdings
or Borrower by independent public accountants in connection with each annual,
interim or special audit of the financial statements of Holdings or Borrower
made by such accountants, including the comment letter submitted by such
accountants to management in connection with their annual audit.
(F) Management Report. Together with each delivery of financial
statements of Borrower and its Subsidiaries pursuant to subdivisions (A) and
(B) of this subsection 5.1, Borrower will deliver a management report: (1)
describing the operations and financial condition of Holdings, Borrower and
Borrower's Subsidiaries for the month then ended and the portion of the current
fiscal year then elapsed (or for the fiscal year then ended in the case of
year-end financials); (2) setting forth in comparative form the corresponding
figures for the corresponding periods of the previous fiscal year and the
corresponding figures from the most recent Projections for the current fiscal
year delivered to Lenders pursuant to 5.1(J); (3) discussing the reasons for
any significant variations; (4) containing a completed Subscriber Account and
MRR Attrition Report in the form of Exhibit 5.1. The information above shall
be presented in reasonable detail and shall be certified by the chief financial
officer of Borrower to the effect that such information fairly presents the
results of operations and financial condition of Holdings, Borrower and
Borrower's Subsidiaries as at the dates and for the periods indicated.
(G) Appraisals. At the request of Agent at any time while and so
long as an Event of Default shall have occurred and be continuing, Borrower
will obtain and deliver to Agent appraisal reports in form and substance and
from appraisers satisfactory to Agent, stating (1) the then current fair market
and orderly liquidation values of all or any portion of the equipment and real
estate owned by Borrower or any of its Subsidiaries and/or (2) the then current
business value of Borrower or any of its Subsidiaries.
(H) Projections. As soon as available and in any event no later
than thirty (30) days prior to the end of each Fiscal Year of Borrower,
Borrower will deliver Projections of Holdings, Borrower and Borrower's
Subsidiaries for the forthcoming three Fiscal Years, year by year, and for the
forthcoming Fiscal Year, month by month, which Projections shall be in
substantially the same form as the initial Projections delivered herewith.
(I) SEC Filings and Press Releases. Promptly upon their becoming
available, Borrower will deliver copies of: (1) all financial statements,
reports, notices and proxy statements sent or made available by Holdings,
Borrower or any of Borrower's Subsidiaries to their security holders; (2) all
regular and periodic reports and all registration statements and prospectuses,
if any, filed by Holdings, Borrower or any of Borrower's Subsidiaries with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (3) all press releases and
other statements made
<PAGE> 56
available by Holdings, Borrower or any of Borrower's Subsidiaries to the public
concerning developments in the business of any such Person.
(J) Subordinated Indebtedness Notices. Borrower shall promptly
deliver copies of all notices given or received by Borrower or Holdings with
respect to noncompliance with any term or condition related to any Subordinated
Indebtedness, and shall notify Agent within two (2) Business Days of any
potential or actual event of default with respect to any Subordinated
Indebtedness.
(K) Events of Default, etc. Promptly upon any officer of
Borrower obtaining knowledge of any of the following events or conditions,
Borrower shall deliver a certificate of its chief executive officer specifying
the nature and period of existence of such condition or event and what action
Borrower has taken, is taking and proposes to take with respect thereto: (1)
any condition or event that constitutes an Event of Default or Default; (2) any
notice that any Person has given to either Borrower or any of its Subsidiaries
or any other action taken with respect to a claimed default or event or
condition of the type referred to in subsection 8.1(B); or (3) any Material
Adverse Effect.
(L) Litigation. Promptly upon any officer of Borrower obtaining
knowledge of (1) the institution of any material action, suit, proceeding,
governmental investigation or arbitration against or affecting any Loan Party
or any property of any Loan Party not previously disclosed by Borrower to Agent
or (2) any material development in any action, suit, proceeding, governmental
investigation or arbitration at any time pending against or affecting any Loan
Party or any property of any Loan Party which is reasonably likely to have a
Material Adverse Effect, Borrower will promptly give notice thereof to Agent
and each Lender and provide such other information as may be reasonably
available to them to enable Agent, Lenders and their counsel to evaluate such
matter.
(M) Employee Benefit Plans. With reasonable promptness, and in
any event within thirty (30) days, Borrower will give notice of and/or deliver
to Agent copies of: (1) the establishment of any new Employee Benefit Plan,
Pension Plan or Multi-employer Plan the commencement of contributions to any
Employee Benefit Plan, Pension Plan or Multi-employer Plan to which any Loan
Party or any of its ERISA Affiliates was not previously contributing or any
increase in the benefits of any existing Employee Benefit Plan, Pension Plan or
Multi-employer Plan; (2) each funding waiver request filed with respect to any
Employee Benefit Plan and all communications received or sent by any Loan Party
or any ERISA Affiliate with respect to such request; and (3) the failure of any
Loan Party or ERISA Affiliate to make a required installment or payment under
Section 302 of ERISA or Section 412 of the IRC by the due date.
(N) Termination Events. Promptly and in any event within ten
(10) days of becoming aware of the occurrence of or forthcoming occurrence of
any (1) Termination Event or (2) "prohibited transaction", as such term is
defined in Section 406 of ERISA or Section 4975 of the IRC, in connection with
any Pension Plan or any trust created thereunder, Borrower will deliver to
Agent a notice specifying the nature thereof, what action the applicable Loan
Party has taken, is taking or proposes to take with respect thereto and, when
known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto.
(O) ERISA Notices. With reasonable promptness but in any event
within ten (10) days for purposes of clauses (1), (2) and (3), Borrower will
deliver to Agent copies of: (1) any favorable or unfavorable determination
letter from the Internal Revenue Service regarding the qualification of an
Employee Benefit Plan under Section 401(a) of the IRC; (2) all notices received
by any Loan Party or any ERISA Affiliate of the PBGC's intent to terminate any
Pension Plan or to have a trustee appointed to
<PAGE> 57
administer any Pension Plan; (3) each Schedule B (Actuarial Information) to the
annual report (Form 5500 Series) filed by any Loan Party or any ERISA Affiliate
with the Internal Revenue Service with respect to each Pension Plan; and (4)
all notices received by any Loan Party or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA. Borrower will notify Agent in
writing within two (2) Business Days of any Loan Party obtaining knowledge or
reason to know that any Loan Party or any ERISA Affiliate has filed or intends
to file a notice of intent to terminate any Pension Plan under a distress
termination within the meaning of Section 4041(c) of ERISA.
(P) Insurance. Within the sixty (60) day period prior to the end
of each Fiscal Year of Borrower, Borrower will deliver a report in form and
substance reasonably satisfactory to Agent outlining all material insurance
coverage maintained as of the date of such report by Borrower and its
Subsidiaries and all material insurance coverage planned to be maintained by
such Persons in the subsequent Fiscal Year.
(Q) Supplemented Schedules; Notice of Corporate Changes.
Borrower shall supplement in writing and deliver to Agent revisions of the
Schedules annexed to this Agreement to the extent necessary to disclose new or
changed facts or circumstances after the Closing Date; provided that subsequent
disclosures shall not constitute a cure or waiver of any Default or Event of
Default resulting from the matters disclosed. Borrower shall provide written
notice to the Agent of (1) all jurisdictions in which a Loan Party becomes
qualified after the Closing Date to transact business, (2) any material change
after the Closing Date in the authorized and issued capital stock or other
equity interests of any Loan Party or any of their respective Subsidiaries or
any other material amendment to their charter, by-laws or other organization
documents and (3) any Subsidiary created or acquired by any Loan Party after
the Closing Date, such notice, in each case, to identify the applicable
jurisdictions, capital structures or Subsidiaries, as applicable.
(R) Other Information. With reasonable promptness, Borrower will
deliver such other information and data with respect to any Loan Party or any
Subsidiary of any Loan Party as from time to time may be reasonably requested
by Agent or any Lender.
SECTION 4.2 Access to Accountants.
Borrower authorizes Lenders to discuss the financial condition of
Holdings, Borrower and Borrower's Subsidiaries with Borrower's independent
public accountants upon reasonable notice to Borrower of its intention to do
so. Borrower shall be given the reasonable opportunity to participate in any
such discussion. Borrower shall deliver a letter to such accountants
authorizing them to comply with the provisions of subsection 5.1 and this
subsection 5.2.
SECTION 4.3 Corporate Existence, etc.
Except as otherwise permitted by Section 7.6, Borrower will, and will
cause each of its Subsidiaries to, at all times preserve and keep in full force
and effect its corporate existence and all rights and franchises material to
its business.
SECTION 4.4 Payment of Taxes and Claims; Tax Consolidation.
Borrower will, and will cause each of its Subsidiaries to, pay (a) all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or with respect to any of its
<PAGE> 58
franchises, business, income or property before any penalty accrues thereon and
(b) all claims (including claims for labor, services, materials and supplies)
for sums that have become due and payable and that by law have or may become a
Lien upon any of its properties or assets before any penalty or fine is
incurred with respect thereto; provided that no such tax, charge or claim need
be paid if Borrower or such Subsidiary is contesting same in good faith by
appropriate proceedings promptly instituted and diligently conducted and if
Borrower or such Subsidiary has established such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP.
Borrower will not and will not permit any of its Subsidiaries to file
or consent to the filing of any consolidated income tax return with any Person
(other than Borrower, Holdings or any of Borrower's Subsidiaries; provided that
in the event that Borrower files a return with Holdings, Borrower's
contribution with respect to taxes as a result of the filing of such
consolidated return shall not be greater, nor the receipt of tax benefits less,
than they would have been had Borrower not filed a consolidated return with
Holdings).
SECTION 4.5 Maintenance of Properties; Insurance.
Borrower will maintain or cause to be maintained in good repair,
working order and condition all material properties used in the business of
Borrower and its Subsidiaries and will make or cause to be made all appropriate
repairs, renewals and replacements thereof. Borrower will maintain or cause to
be maintained, with financially sound and reputable insurers, public liability
and property damage insurance with respect to its business and properties and
the business and properties of its Subsidiaries against loss or damage of the
kinds customarily carried or maintained by corporations of established
reputation engaged in similar businesses and in amounts acceptable to Agent and
will deliver evidence thereof to Agent. Borrower will maintain business
interruption insurance in an amount not less than $12,000,000. Borrower shall
cause Agent, for the benefit of Lenders, to be named as loss payee (in the case
of casualty and keyman life insurance) and additional insured (in all other
cases) on all insurance policies pursuant to appropriate endorsements in form
and substance reasonably satisfactory to Agent. Borrower shall apply any
proceeds received from policies of insurance maintained pursuant to this
subsection 5.5 in accordance with the provisions of subsection 2.4(C)(2).
SECTION 4.6 Inspection; Lender Meeting.
Borrower shall permit any authorized representatives designated by
Agent or by any Lender to visit and inspect any of the properties of Borrower
or any of its Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and business with its and their officers and
independent public accountants, at such reasonable times during normal business
hours and as often as may be reasonably requested; provided that Lender shall
coordinate such visits through Agent. Without in any way limiting the
foregoing, Borrower will participate and will cause its key management
personnel to participate in a meeting of Agent and Lenders at least once during
each fiscal year to be held at such time and at such place as may be agreed to
by Borrower and Agent.
SECTION 4.7 Environmental Compliance.
(A) Environmental Laws. Each Loan Party shall at all times
comply with all applicable Environmental Laws.
<PAGE> 59
(B) Remedial Action. Each Loan Party and each of their
respective Subsidiaries shall promptly take any and all necessary remedial
actions in response to the presence, storage, use, disposal, transportation,
release or discharge of any Hazardous Materials on, under or about any real
property owned, leased or operated by any Loan Party or any of their
Subsidiaries. In the event any Loan Party or any of their Subsidiaries
undertakes any remedial action with respect to any Hazardous Material on, under
or about any real property owned, leased or operated by any Loan Party or any
of their Subsidiaries, such Loan Party or Subsidiary shall conduct and complete
such remedial action in compliance with all applicable Environmental Laws, and
in accordance with the policies, orders and directives of all federal, state
and local governmental authorities except when such Loan Party's or
Subsidiary's liability for such presence, storage, use, disposal,
transportation, release or discharge of any Hazardous Material is being
contested in good faith by such Loan Party or Subsidiary and appropriate
reserves therefor have been established in accordance with GAAP.
(C) Further Assurance. If Agent or any Lender at any time has a
reasonable basis to believe that there may be a material violation of any
Environmental Law by, or any material liability arising thereunder of, any Loan
Party or any of their Subsidiaries or related to any real property owned,
leased or operated by any Loan Party or any of their Subsidiaries or real
property adjacent to such real property, then Borrower agrees, upon request
from Agent or such Lender, to provide Agent and such Lender with such reports,
certificates, engineering studies or other written material or data as Agent or
such Lender may require so as to satisfy Agent and such Lender that such Loan
Party or Subsidiary is in compliance with all applicable Environmental Laws.
SECTION 4.8 Environmental Disclosure.
(A) Borrower shall promptly advise Agent in writing and in
reasonable detail of: (1) any release, disposal or discharge by any Loan Party
or any of their Subsidiaries of any Hazardous Material required to be reported
to any federal, state or local governmental or regulatory agency under all
applicable Environmental Laws except such releases, disposals or discharges
pursuant to and in compliance with valid permits, authorizations or
registrations under said Environmental Laws; (2) any and all written
communications sent or received by any Loan Party or any of their Subsidiaries
with respect to any Environmental Claims or any release, disposal or discharge
of Hazardous Material required to be reported to any federal, state or local
governmental or regulatory agency; (3) any remedial action taken by any Loan
Party or any of their Subsidiaries or any other Person in response to any
Hazardous Material on, under or about any real property owned, leased or
operated by any Loan Party, the existence of which could result in an
Environmental Claim that could have a Material Adverse Effect; (4) the
discovery by any Loan Party or any of their Subsidiaries of any occurrence or
condition on any real property adjoining or in the vicinity of any real
property owned, leased or operated by any Loan Party that could cause such real
property or any part thereof to be classified as "border-zone property" or to
be otherwise subject to any restrictions on the ownership, occupancy,
transferability or use thereof under any Environmental Laws; and (5) any
request for information from any governmental agency that indicates such agency
is investigating whether any Loan Party or any of their Subsidiaries may be
potentially responsible for a release, disposal or discharge of Hazardous
Materials.
(B) Borrower shall promptly notify Agent of (1) any proposed
acquisition of stock, assets, or property by any Loan Party that could
reasonably be expected to expose such Loan Party or any of their Subsidiaries
to, or result in, Environmental Claims that could have a Material Adverse
Effect and (2) any proposed action to be taken by any Loan Party or any of
their Subsidiaries to commence any operations that could reasonably be expected
to subject such Loan Party to additional laws, rules or regulations, including
<PAGE> 60
laws, rules and regulations requiring additional or amended environmental
permits or licenses. Borrower shall, at its expense, provide copies of such
documents or information as Agent may reasonably request in relation to any
matters disclosed pursuant to this subsection 5.8.
SECTION 4.9 Compliance with Laws.
Borrower will (a) comply with and will cause each of its Subsidiaries
to comply with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority as now in effect and which may be imposed
in the future in all jurisdictions in which Borrower or such Subsidiary is now
doing business or may hereafter be doing business, other than those laws,
rules, regulations and orders the noncompliance with which would not reasonably
be expected to have, either individually or in the aggregate, a Material
Adverse Effect, and (b) maintain and will cause each of its Subsidiaries to
maintain, as the case may be, all licenses and permits now held or hereafter
acquired by Borrower, the loss, suspension, or revocation of which, or failure
to renew, could have a Material Adverse Effect.
SECTION 4.10 Covenants in Acquisition Documents.
At all times prior to the effective date of any Acquisition, Borrower
shall comply with its covenants under the Acquisition Documents relating to
such Acquisition if noncompliance could result in a material liability to
Borrower.
SECTION 4.11 Mortgages; Title Insurance; Surveys.
(A) Additional Mortgaged Property. Agent may from time to time
designate real property or leasehold interests of Borrower after the date
hereof as "Additional Mortgaged Property", in which case Borrower shall as
promptly as possible (and in any event within sixty (60) days after such
designation) deliver to Agent a fully executed Mortgage, in form and substance
satisfactory to Agent together with title insurance policies and surveys as
required by this subsection 5.11. Borrower agrees that, following the taking
of the actions with respect to any Additional Mortgaged Property required by
the immediately preceding sentence, Agent shall have a valid and enforceable
first priority mortgage on the respective Additional Mortgaged Property, free
and clear of all defects and encumbrances except for Permitted Encumbrances.
(B) Title Insurance. Within thirty (30) days following delivery
of any Mortgage with respect to Additional Mortgaged Property, Borrower shall
deliver or cause to be delivered to Agent ALTA lender's title insurance
policies issued by title insurers reasonably satisfactory to Agent (the
"Mortgage Policies") in form and substance and in amounts reasonably
satisfactory to Agent assuring Agent that the Mortgages executed by Borrower
are valid and enforceable first priority mortgage liens on the respective
Additional Mortgaged Property, free and clear of all defects and encumbrances
except Permitted Encumbrances. The Mortgage Policies shall be in form and
substance reasonably satisfactory to Agent and shall include an endorsement
insuring against the effect of future advances under this Agreement, for
mechanics' liens and for any other matter that Agent may reasonably request,
and shall provide for affirmative insurance and such reinsurance as Agent may
reasonably request. In the case of each leasehold constituting Additional
Mortgaged Property, Agent (for the benefit of Lenders) shall have received such
estoppel letters, consents and waivers from the landlords and non-disturbance
agreements from any holders of mortgages or deeds of trust on such real estate
as may have been requested by Agent, which letters shall be in form and
substance satisfactory to Agent.
<PAGE> 61
(C) Surveys. Within thirty (30) days following delivery of any
Mortgage with respect to Additional Mortgaged Property), Borrower shall deliver
or cause to be delivered to Agent current surveys, certified by a licensed
surveyor, for all Additional Mortgaged Property for which a Mortgage Policy is
issued. All such surveys shall be sufficient to allow the issuer of the
mortgage policy to issue an ALTA lender's policy.
SECTION 4.12 Further Assurances.
(A) Borrower shall and shall cause each Loan Party to, from time
to time, execute such guaranties, financing statements, documents, security
agreements and reports as Agent at any time may reasonably request to evidence,
perfect or otherwise implement the guaranties and security for repayment of the
Obligations provided for in the Loan Documents. Without limiting the
generality of the foregoing, Agent may at any time request that Borrower cause
its Subsidiaries to secure their obligations under the Subsidiary Guaranties in
a manner satisfactory to Agent, and Borrower shall cause its Subsidiaries to
comply therewith.
(B) At Agent's request, Borrower shall cause its Subsidiaries
promptly to guaranty the Obligations and to grant to Agent, for the benefit of
Lenders, a security interest in the real, personal and mixed property of such
Subsidiary to secure the Obligations. The documentation for such guaranty or
security shall be substantially similar to the Loan Documents with such
modifications as are reasonably requested by Agent.
SECTION 4.13 Enforcement of Remedies under Acquisition Documents.
If Borrower becomes aware of or otherwise has knowledge of any facts
that could give rise to any claim for indemnification from any party under any
Acquisition Document, Borrower will assert or cause the assertion of such claim
against such party before the date on which such claim may no longer be made
under such Acquisition Document, and in asserting any such claim shall comply
with all requirements for asserting such claims under the Acquisition
Documents; provided, however, that such claim need not be asserted if
Borrower's Board of Directors determines in good faith that the best interests
of Borrower would be served by not asserting such claim.
SECTION 5
FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the Revolving
Loan Commitments remain in effect and until payment in full of all Obligations
and termination of all Lender Letters of Credit, unless Requisite Lenders shall
otherwise give their prior written consent, Borrower shall comply with and
shall cause each other Loan Party to comply with all covenants in this Section
6 applicable to such Person.
SECTION 5.1 Capital Expenditure Limits.
The aggregate amount of all Capital Expenditures of Borrower and its
Subsidiaries will not exceed the following amounts during each of the following
Fiscal Years:
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Maximum Capital Expenditures
----------- ----------------------------
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year Ending September 30, 1996 $5,500,000
Fiscal Year Ending September 30, 1997 $4,000,000
and each Fiscal Year thereafter
</TABLE>
SECTION 1.1 Senior Interest Coverage .
Borrower shall not permit Senior Interest Coverage to be less than
4.00 as of the end of each month for the trailing twelve-month period then
ended, commencing with the trailing twelve-month period ended April 30, 1996.
SECTION 1.2 Fixed Charge Coverage .
Borrower shall not permit Fixed Charge Coverage calculated as of the
last day of each month during the periods set forth below to be less than 1.20
as of the end of each month for the trailing twelve-month period ended on such
day to be less than the amount set forth below for such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
April 1, 1996 through August 31, 1998 1.20
September 1, 1998 through July 31, 1999 1.40
Thereafter 1.60
</TABLE>
SECTION 1.1 EBIDAT .
Borrower shall not permit EBIDAT to be less than the following amount
as of the end of each month for the trailing twelve- month period then ended
(commencing with the trailing twelve-month period ended April 30, 1996): the
greater of (i) $9,000,000 or (ii) 25% of the total revenues of Holdings,
Borrower and Borrower's Subsidiaries on a consolidated basis for such period
determined in accordance with GAAP.
SECTION 1.2 Maximum MRR Attrition .
MRR Attrition shall not exceed ten percent (10%) as of the end of each
month (commencing April 30, 1996) for the trailing twelve-month period then
ended.
SECTION 2
BORROWER'S NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Revolving
Loan Commitments remain in effect and until payment in full of all Obligations
and termination of all Lender Letters of Credit, unless Requisite Lenders shall
otherwise give their prior written consent, Borrower shall comply with and
shall cause each other Loan Party to comply with all covenants in this Section
7 applicable to such Person.
SECTION 2.1 Indebtedness .
<PAGE> 63
Borrower will not, nor will Borrower permit Holdings or any of
Borrower's Subsidiaries directly or indirectly to, create, incur, assume,
guaranty, or otherwise become or remain directly or indirectly liable with
respect to any Indebtedness except:
(a) The Obligations;
(b) Intercompany Indebtedness among Borrower and its
Subsidiaries; provided that the obligations of each obligor of such
Indebtedness shall: (i) be unsecured and subordinated in right of payment to
the Obligations from and after such time as any portion of the Obligations
shall become due and payable (whether at stated maturity, by acceleration or
otherwise); (ii) be evidenced by promissory notes, which shall have been
pledged to Agent, for the benefit of Lenders, as security for the Obligations;
and (iii) have such other terms and provisions as Agent may reasonably require;
(c) Indebtedness arising as a result of Contingent
Obligations permitted under subsection 7.4;
(d) Indebtedness evidenced by the Subordinated Discount
Notes;
(e) Indebtedness not to exceed $250,000 in the aggregate
at any time outstanding secured by purchase money Liens;
(f) Deferred Payment Obligations, provided that (i) such
Deferred Payment Obligations shall be unsecured; (ii) no Deferred Payment
Obligations shall have a term greater than 24 months; and (iii) the aggregate
amount of Deferred Payment Obligations at any time shall not exceed $3,000,000;
and
(g) Indebtedness incurred with respect to Capital Leases
permitted hereunder.
SECTION 2.2 Liens and Related Matters.
(A) No Liens. Borrower will not, nor will Borrower permit any of
its Subsidiaries directly or indirectly to create, incur, assume or permit to
exist any Lien on or with respect to any property or asset (including any
document or instrument with respect to goods or accounts receivable) of
Borrower or any of its Subsidiaries, whether now owned or hereafter acquired,
or any income or profits therefrom, except Permitted Encumbrances.
(B) No Negative Pledges. Borrower will not, nor will Borrower
permit any of its Subsidiaries to, enter into or assume any agreement (other
than the Loan Documents and the Subordinated Discount Note Indenture)
prohibiting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired.
(C) No Restrictions on Subsidiary Distributions to Borrower .
Except as provided herein, Borrower will not, nor will Borrower permit any of
its Subsidiaries, directly or indirectly to create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of Borrower or any of its Subsidiaries to: (1) pay
dividends or make any other distribution on such Person's capital stock; (2)
subject to subordination provisions, pay any indebtedness owed to Holdings,
Borrower or any of its Subsidiaries; (3) make loans or advances to Holdings,
Borrower or any Subsidiary of Borrower; or (4) transfer any of its property or
assets to Holdings, Borrower or any of Borrower's Subsidiaries.
<PAGE> 64
SECTION 2.3 Investments; Joint Ventures.
Borrower will not, nor will Borrower permit any of its Subsidiaries
directly or indirectly to make or own any Investment in any Person including
any Joint Venture, except:
(a) Borrower and its Subsidiaries may make and own
Investments in Cash Equivalents; provided that such Cash Equivalents are not
subject to setoff rights in favor of the issuing bank arising from any banking
relationship of Borrower or any of its Subsidiaries;
(b) Borrower and its Subsidiaries may make intercompany
loans and investments to the extent permitted under subsection 7.1;
(c) Borrower and its Subsidiaries may make loans and
advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business not to exceed $250,000 in the
aggregate at any time outstanding; and
(d) Borrower may acquire and own a de minimis number of
shares of capital stock of other publicly traded alarm monitoring companies so
long as the aggregate amount of such Investments does not exceed $10,000; and
(e) As permitted under subsection 7.6.
SECTION 2.4 Contingent Obligations.
Borrower will not, nor will Borrower permit any of its Subsidiaries,
directly or indirectly to create or become or be liable with respect to any
Contingent Obligation except:
(a) Contingent Obligations resulting from endorsement of
negotiable instruments for collection in the ordinary course of business;
(b) Contingent Obligations under the Loan Guaranty;
(c) Contingent Obligations under Interest Rate
Agreements, approved by Agent in its sole discretion, with respect to the
Loans;
(d) Contingent Obligations existing on the Closing Date
and described in Schedule 7.4 annexed hereto;
(e) Contingent Obligations under indemnity agreements to
title insurers to cause such title insurers to issue to Agent mortgagee title
insurance policies, as provided in subsection 5.11;
(f) Contingent Obligations with respect to customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Dispositions;
(g) Contingent Obligations incurred in the ordinary
course of business with respect to surety and appeal bonds, performance and
return-of-money bonds and other similar obligations not exceeding at any time
outstanding $250,000 in aggregate liability;
<PAGE> 65
(h) Contingent Obligations under the with respect to the
Subordinated Indebtedness and Contingent Obligations with respect to Other
Indebtedness permitted by subsection 7.1;
(i) Contingent Obligations under Lender Letters of Credit; and
(j) In addition to the Contingent Obligations permitted
by clauses (a) through (h) above, Borrower and its Subsidiaries may become and
remain liable with respect to Contingent Obligations not to exceed in the
aggregate at any time outstanding $250,000.
SECTION 2.5 Restricted Junior Payments.
Borrower will not, nor will Borrower permit Holdings or any of
Borrower's Subsidiaries, to directly or indirectly declare, order, pay, make or
set apart any sum for any Restricted Junior Payment except that:
(a) Borrower may make payments of accrued interest with
respect to the Subordinated Discount Notes and any other Indebtedness permitted
by subsection 7.1 that constitutes Subordinated Indebtedness as required in
accordance with the terms thereof, but only, in each case, to the extent
required by, and subject to the subordination provisions contained in, the
indenture or other agreement pursuant to which such Indebtedness was issued or
otherwise as approved in writing by Requisite Lenders;
(b) [Intentionally Omitted.]
(c) Borrower may (subject to the restriction set forth in
subsection 5.4) make payments and distributions to Holdings to permit Holdings
to pay federal and state income taxes then due and owing, franchise taxes and
other non-material business expenses of Holdings incurred in the ordinary
course of business consistent with Holdings' practices as of the Closing Date;
(d) So long as no Default or Event of Default has occurred and is
continuing or would arise as an result of the following, Borrower may make
payments and distributions to Holdings to permit Holdings to repurchase or
redeem Holdings Capital Stock held by members of Borrower's or Holdings'
management in connection with termination of their employment pursuant to any
mandatory redemption or repurchase provision of any agreement between members
of management and Borrower or Holdings in effect on the Closing Date; provided
that the aggregate amounts paid in connection with such redemptions and
repurchases shall not exceed $250,000 during any Fiscal Year and $1,000,000
during the period from the Original Closing Date through the term of this
Agreement, plus all proceeds from life insurance policies available for
application by Borrower or Holdings at the time of such repurchase or
redemption, to the extent so applied; and
(e) Subsidiaries of Borrower may make Restricted Junior Payments to
Borrower.
SECTION 2.6 Restriction on Fundamental Changes; Subsequent Acquisitions.
(a) Borrower will not, nor will Borrower permit Holdings or any of
Borrower's Subsidiaries to: (1) amend, modify or waive any term or provisions
of its articles of incorporation or by-laws in any manner adverse to
Agent or the Lenders unless required by applicable law; (2) enter into any
transaction of merger or consolidation; (3) liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution); (4) convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or the
capital stock of or other equity interests in any of
<PAGE> 66
its Subsidiaries, whether now owned or hereafter acquired; or (5) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person, except: (i)
Borrower and its Subsidiaries may make Capital Expenditures permitted under
subsection 6.1 and Investments permitted under subsection 7.3; (ii) any
Subsidiary of Borrower may be merged with or into Borrower (provided that such
Borrower is the surviving entity) or any other Subsidiary of Borrower; and
(iii) as provided in clause (b) hereof with respect to any Subsequent
Acquisition made by Borrower.
(b) Borrower may make Subsequent Acquisitions; provided that each
Subsequent Acquisition shall be subject to the conditions precedent set forth
below:
(i) Such Subsequent Acquisition shall be structured as an
asset acquisition by Borrower or, in the case of an acquisition of a
Target, the merger of such Target with and into Borrower, provided
that Borrower is the surviving corporation in any such merger;
(ii) Holdings and Borrower shall not incur or assume any
Indebtedness or other liabilities in connection with such Subsequent
Acquisition except (A) Loan advances, (B) Deferred Payments to the
extent permitted under subsection 7.1(f), (C) customary buyer
indemnification obligations under the Subsequent Acquisition Documents,
and (D) nonmaterial operating liabilities of the Target arising in the
ordinary course of its business (excluding Indebtedness);
(iii) Unless otherwise consented to in advance in writing
by Requisite Lenders, the sum of all amounts payable in connection
with such Subsequent Acquisition and all other Subsequent Related
Transactions consummated in connection therewith (including all
transaction costs and all Indebtedness or liabilities incurred or
assumed in connection therewith) shall not exceed the lesser of (A)
$7,500,000 or (B) an amount equal to thirty-nine (39) times the
Qualified MRR of the Subscriber Accounts acquired in such Subsequent
Acquisition;
(iv) Unless otherwise consented to in advance in writing by
Requisite Lenders, Borrower shall be in compliance with the
Indebtedness Ratio Test as of the last day of the month immediately
preceding the closing date of such Subsequent Acquisition and shall be
in compliance with the Indebtedness Ratio Test on a pro forma basis
after giving effect to such Subsequent Acquisition and all other
Subsequent Related Transactions in connection therewith. For purposes
of determining whether Borrowers are in compliance with the
Indebtedness Ratio Test on a pro forma basis after giving effect to a
Subsequent Acquisition and all other Subsequent Related Transactions
in connection therewith, all calculations shall include the projected
EBIDAT and MRR with respect to such Subsequent Acquisition;
(v) Before and after giving effect to such Subsequent
Acquisition and all other Subsequent Related Transactions in connection
therewith, no Default or Event of Default shall have occurred and be
continuing;
(vi) Upon consummation of such Subsequent Acquisition,
Agent, on behalf of Lenders, shall have a perfected first priority
Lien upon all Subscriber Accounts and, unless otherwise consented to
in writing by Agent, all other assets acquired in such Subsequent
Acquisition, subject only to Permitted Encumbrances;
<PAGE> 67
(vii) Borrower shall not enter into any agreement obligating
Borrower to purchase Subscriber Accounts from any Person on a
continuous basis except pursuant to a Qualified Dealer Contract; and
(viii) Each of the applicable conditions precedent set forth
in subsection 3.3 shall have been satisfied on or prior to the date of
such Subsequent Acquisition.
SECTION 2.7 Disposal of Assets or Subsidiary Stock.
(A) Borrower will not, nor will Borrower permit Holdings or any of
Borrower's Subsidiaries to sell, lease, transfer or otherwise dispose of any of
its property, business or assets, or grant any Person an option to acquire any
such property, business or assets except for (a) bona fide sales of inventory
to customers for fair value in the ordinary course of business and dispositions
of obsolete equipment not used or useful in the business, (b) mergers and
transfers of assets among Borrower and its Subsidiaries permitted under clause
(ii) of the exceptions set forth in subsection 7.6(a); (c) sales of
out-of-market Subscriber Accounts for cash or for Subscriber Accounts within
Borrower's markets so long as such sales are consummated within 180 days
following Borrower's acquisition of such out-of-market Subscriber Accounts and
the cash proceeds from such sales are applied in accordance with subsection
2.4(C)(2); and (d) other Asset Dispositions if all of the following conditions
are met: (i) the market value of assets sold or otherwise disposed of in any
single transaction or series of related transactions does not exceed $500,000
and the aggregate market value of assets sold or otherwise disposed of in any
Fiscal Year does not exceed $1,000,000; (ii) the consideration received is at
least equal to the fair market value of such assets; (iii) at least 85% of the
consideration received is cash; (iv) the Net Proceeds of such Asset Disposition
are applied as required by subsection 2.4(C)(2); (v) after giving effect to the
sale or other disposition of the assets included within the Asset Disposition
and the repayment of Indebtedness with the proceeds thereof, Borrower is in
compliance on a pro forma basis with the covenants set forth in Section 6
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; and (vi) no Default or Event of Default shall result from such sale
or other disposition.
(B) Except as permitted elsewhere in this Agreement, Borrower will
not, nor will Borrower permit Holdings or any of Borrower's Subsidiaries
directly or indirectly to sell, assign, pledge or otherwise encumber or dispose
of any shares of capital stock or other equity securities in Borrower or any of
Borrower's Subsidiaries including warrants, rights or options to acquire shares
or other equity securities of any such Person. Borrower shall at all times be
a direct wholly-owned Subsidiary of Holdings.
SECTION 2.8 Restriction on Leases.
Borrower will not, nor will Borrower permit any of its Subsidiaries
to, become or remain liable in any way, whether directly or by assignment or as
a guarantor or other surety, for the obligations of the lessee under any lease
(other than intercompany leases among Borrower and its Subsidiaries), if the
aggregate amount of all rents paid by Borrower and its Subsidiaries under all
such leases would exceed $2,000,000 in any Fiscal Year.
SECTION 2.9 Sales and Lease-Backs.
Borrower will not, nor will Borrower permit any of its Subsidiaries,
directly or indirectly to become or remain liable as lessee or as guarantor or
other surety with respect to any lease of any property whether
<PAGE> 68
real or personal or mixed or whether now owned or hereafter acquired which
Borrower or such Subsidiary has sold or transferred or intends to sell or
transfer to any other Person.
SECTION 2.10 Transactions with Affiliates.
Borrower will not, nor will Borrower permit any of its Subsidiaries,
directly or indirectly to enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of Borrower or such Subsidiary or
with any director, officer or employee of any Loan Party, except (a) as set
forth on Schedule 7.10 or (b) transactions in the ordinary course of and
pursuant to the reasonable requirements of the business of Borrower or such
Subsidiary and upon fair and reasonable terms which are fully disclosed to
Agent and Lender and are no less favorable to Borrower or such Subsidiary than
would be obtained in a comparable arm's length transaction with a Person that
is not an Affiliate of Borrower or such Subsidiary. Notwithstanding the
foregoing, no payments may be made with respect to any items set forth on
Schedule 7.10 upon the occurrence and during the continuation of a Default or
Event of Default.
SECTION 2.11 Management Fees and Compensation.
(A) Borrower will not, nor will Borrower permit any other Loan Party
or any of their respective Subsidiaries, to pay any management, consulting or
similar fees to any Affiliate of Borrower or to any director, officer or
employee of any Loan Party, except for directors' fees paid to outside
directors of Holdings and Borrower in an aggregate amount not exceeding $50,000
during any Fiscal Year and except as set forth on Schedule 7.11.
(B) Borrower will not, nor will Borrower permit any of its
Subsidiaries to, pay compensation to any individual who is an employee,
officer, partner, stockholder or principal of any Principal or of any Related
Party, whether such compensation consists of salary, bonus, management,
consulting or other fees, capital distributions, or other benefits or
otherwise, and regardless of whether such compensation is paid by Borrower
and/or any Subsidiary or Affiliate of Borrower. The compensation currently
payable to each of Borrower's officers and management employees as of the
Closing Date is set forth and described on Schedule 7.11.
SECTION 2.12 Environmental Liabilities.
Borrower will not, nor will Borrower permit any Loan Party to: (a)
violate any applicable Environmental Law; or (b) dispose of any Hazardous
Materials into or onto or (except in accordance with applicable law) from, any
real property owned, leased or operated by any Loan Party; or (c) permit any
Lien imposed pursuant to any Environmental Law to be imposed or to remain on
any real property owned, leased or operated by any Loan Party.
SECTION 2.13 Conduct of Business.
From and after the Closing Date, Borrower will not, nor will Borrower
permit any of its Subsidiaries to, engage in any business other than businesses
of the type described on Schedule 4.1(D). From and after the Closing Date,
Holdings shall not engage in any type of business activity other than ownership
of Borrower Capital Stock and the performance of its obligations under the
Subordinated Discount Note Indenture, the Holdings Guaranty, the Holdings
Pledge Agreement and the other Loan Documents to which it is a party.
<PAGE> 69
SECTION 2.14 Changes Relating to Subordinated Indebtedness and Holdings
Preferred Stock.
Borrower will not, nor will Borrower permit Holdings or any of
Borrower's Subsidiaries to change or amend the terms of any Subordinated
Indebtedness, if the effect of such amendment is to: (a) increase the interest
rate on such Indebtedness; (b) change the dates upon which payments of
principal, interest or dividends are due on such Indebtedness; (c) change any
event of default or add any covenant with respect to such Indebtedness; (d)
change the redemption or prepayment provisions of such Indebtedness; (e) change
the subordination provisions thereof (or the subordination terms of any
guaranty thereof); or (f) change or amend any other term if such change or
amendment would materially increase the obligations of the obligor or confer
additional material rights on the holder of such Indebtedness in a manner
adverse to Holdings, Borrower, any of Borrower's Subsidiaries, Agent or any
Lender.
SECTION 2.15 Fiscal Year.
Borrower will not, nor will Borrower permit Holdings or any Subsidiary
of Borrower to change its Fiscal Year.
SECTION 2.16 Compliance with ERISA.
Borrower will not, nor will Borrower permit any Subsidiary of Borrower
to:
(a) permit the occurrence of any Termination Event which
would result in a liability to any Loan Party or ERISA Affiliate in excess of
$100,000;
(b) permit the present value of all benefit liabilities
under all Pension Plans to exceed the current value of the assets of such
Pension Plans allocable to such benefit liabilities by more than $100,000;
(c) permit any accumulated funding deficiency in excess
of $100,000 (as defined in Section 302 of ERISA and Section 412 of the IRC)
with respect to any Pension Plan, whether or not waived;
(d) fail to make any contribution or payment to any
Multiemployer Plan which any Loan Party or ERISA Affiliate may be required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto which results in or is likely to result in a liability in
excess of $100,000;
(e) engage, or permit any Loan Party or ERISA Affiliate
to engage, in any prohibited transaction under Section 406 of ERISA or Section
4975 of the IRC for which a civil penalty pursuant to Section 502(i) of ERISA
or a tax pursuant to Section 4975 of the IRC in excess of $100,000 is imposed;
(f) permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any Employee
Benefit Plan which establishment or amendment could result in liability to any
Loan Party or ERISA Affiliate or increase the obligation of any Loan Party or
ERISA Affiliate to a Multiemployer Plan which liability or increase,
individually or together with all similar liabilities and increases, is
material to any Loan Party or ERISA Affiliate; or
(g) fail, or permit any Loan Party or ERISA Affiliate to
fail, to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the IRC and
all other applicable laws and the regulations and interpretations thereof.
<PAGE> 70
SECTION 2.17 Press Release; Public Offering Materials.
Borrower will not, nor will Borrower permit any Loan Party to,
disclose the name of Agent or any Lender in any press release or in any
prospectus, proxy statement or other materials filed with any governmental
entity relating to a public offering of the capital stock of any Loan Party
without Agent's prior consent, which shall not be unreasonably withheld.
SECTION 2.18 Subsidiaries.
Borrower will not, nor will Borrower permit any of its Subsidiaries
to, establish, create or acquire any new Subsidiary, other than the creation of
an acquisition Subsidiary in connection with any Subsequent Acquisition so long
as such Subsidiary is merged with and into Borrower upon the closing of such
Subsequent Acquisition.
SECTION 2.19 Bank Accounts.
Borrower will not, nor will Borrower permit any of its Subsidiaries
to, establish any new bank accounts (except petty cash accounts with an
aggregate balance in all such accounts not exceeding $100,000 at any time)
without prior written notice to Agent and unless the bank enters into a Bank
Agency Agreement (except with respect to the above-described petty cash
accounts).
SECTION 3
DEFAULT, RIGHTS AND REMEDIES
SECTION 3.1 Event of Default.
"Event of Default" shall mean the occurrence or existence of any one
or more of the following:
(A) Payment. Failure to pay any principal of any Loan when due
or to reimburse Agent or any Lender for any payment made by Agent or such
Lender under or in respect of any Lender Letter of Credit when due, or failure
to pay, within five days after the due date, any interest on any Loan or any
other amount due under this Agreement; or
(B) Default in Other Agreements. (1) Failure of Holdings,
Borrower or any of Borrower's Subsidiaries to pay when due or within any
applicable grace period any principal or interest on Indebtedness (other than
the Loans) or any Contingent Obligations or (2) breach or default of Holdings,
Borrower or any of Borrower's Subsidiaries with respect to any Indebtedness
(other than the Loans) or any Contingent Obligations, if the effect of such
failure to pay, default or breach is to cause or to permit the holder or
holders then to cause, Indebtedness and/or Contingent Obligations having an
individual principal amount in excess of $500,000 or having an aggregate
principal amount in excess of $1,000,000 to become or be declared due prior to
their stated maturity, whether or not such failure to pay, default or breach is
waived by such holder or holders; or
(C) Breach of Certain Provisions. Failure of Borrower to perform
or comply with any term or condition contained in subsections 5.1, 5.5 or 5.6
or contained in Section 6 or Section 7; or
<PAGE> 71
(D) Breach of Warranty. Any representation, warranty,
certification or other statement made by any Loan Party in any Loan Document or
in any statement or certificate at any time given by such Person in writing
pursuant or in connection with any Loan Document is false in any material
respect on the date made; or
(E) Other Defaults Under Loan Documents. Borrower or any other
Loan Party defaults in the performance of or compliance with any term contained
in this Agreement or the other Loan Documents and such default is not remedied
or waived within thirty (30) days after receipt by Borrower of notice from
Agent or any Lender of such default (other than occurrences described in other
provisions of this subsection 8.1 for which a different grace or cure period is
specified or which constitute immediate Events of Default); or
(F) Involuntary Bankruptcy; Appointment of Receiver, etc.(1) A
court enters a decree or order for relief with respect to Holdings, Borrower or
any of Borrower's Subsidiaries in an involuntary case under the Bankruptcy Code
or any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, which decree or order is not stayed or other similar relief is not
granted under any applicable federal or state law; or (2) the continuance of
any of the following events for thirty (30) days unless dismissed, bonded or
discharged: (a) an involuntary case is commenced against Holdings, Borrower or
any of Borrower's Subsidiaries, under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect; or (b) a decree or order of a
court for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over Holdings, Borrower or any
of Borrower's Subsidiaries, or over all or a substantial part of its property,
is entered; or (c) an interim receiver, trustee or other custodian is appointed
without the consent of Holdings, Borrower or any of Borrower's Subsidiaries,
for all or a substantial part of the property of Holdings, such Borrower or any
such Subsidiary; or
(G) Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An
order for relief is entered with respect to Holdings, Borrower or any of
Borrower's Subsidiaries or Holdings, Borrower or any of Borrower's Subsidiaries
commences a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consents to the entry of an order for relief in an involuntary case or to the
conversion of an involuntary case to a voluntary case under any such law or
consents to the appointment of or taking possession by a receiver, trustee or
other custodian for all or a substantial part of its property; or (2) Holdings,
Borrower or any of Borrower's Subsidiaries makes any assignment for the benefit
of creditors; or (3) the Board of Directors of Holdings, Borrower or any of
Borrower's Subsidiaries adopts any resolution or otherwise authorizes action to
approve any of the actions referred to in this subsection 8.1(G); or
(H) Governmental Liens. Any liens, levies or assessments are
filed or recorded with respect to or otherwise imposed upon all or any part of
the Collateral or the assets of Holdings, Borrower or any of Borrower's
Subsidiaries by the United States or any department or instrumentality thereof
or by any state, county, municipality or other governmental agency (other than
Permitted Encumbrances) securing claims in excess of $100,000 individually or
in the aggregate and such liens, levies or assessments are not stayed, vacated,
paid or discharged within ten (10) days; or
(I) Judgment and Attachments. Any money judgment, writ or
warrant of attachment, or similar process (other than those described in
subsection 8.1(H)) involving (1) an amount in any individual case in excess of
$1,000,000 or (2) an amount in the aggregate at any time in excess of
$1,000,000 is
<PAGE> 72
entered or filed against Holdings, Borrower or any of Borrower's Subsidiaries
or any of their respective assets and remains undischarged, unvacated, unbonded
or unstayed for a period of thirty (30) days or in any event later than five
(5) days prior to the date of any proposed sale thereunder; or the aggregate
amount of Holdings, Borrower's and Borrower's Subsidiaries' liabilities with
respect to the proceedings, suits and other matters set forth on the Closing
Date on Schedule 4.7 exceeds $1,000,000; or
(J) Dissolution. Any order, judgment or decree is entered
against Holdings, Borrower or any of Borrower's Subsidiaries decreeing the
dissolution or split up of Holdings, Borrower or such Subsidiary and such order
remains undischarged or unstayed for a period in excess of twenty (20) days; or
(K) Solvency. Borrower ceases to be solvent (as represented by
Borrower in subsection 4.18) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(L) Injunction. Holdings, Borrower or any of Borrower's
Subsidiaries is enjoined, restrained or in any way prevented by the order of
any court or any administrative or regulatory agency from conducting all or any
material part of its business and such order continues for more than thirty
(30) days; or
(M) ERISA - Pension Plans. (1) Any Loan Party or any ERISA
Affiliate fails to make full payment when due of all amounts which, under the
provisions of any Pension Plan or Section 412 of the IRC, any Loan Party or any
ERISA Affiliate is required to pay as contributions thereto and such failure
results in or is likely to result in a Material Adverse Effect; or (2) an
accumulated funding deficiency in excess of $100,000 occurs or exists, whether
or not waived, with respect to any Pension Plan; or (3) a Termination Event
occurs which results in or is likely to result in a Material Adverse Effect; or
(N) ERISA - Multiemployer Plans. Any Loan Party or any ERISA
Affiliate as employers under one or more Multiemployer Plans makes a complete
or partial withdrawal from such Multiemployer Plans and the plan sponsor of
such Multiemployer Plans notifies such withdrawing employer that such employer
has incurred a withdrawal liability requiring payments in an amount exceeding
$100,000; or
(O) Invalidity of Loan Documents. Any of the Loan Documents for
any reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party denies that it has any further liability under any Loan
Documents to which it is party, or gives notice to such effect; or
(P) Damage, Strike, Casualty. Any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than five (5) consecutive days, the
cessation or substantial curtailment of monitoring activities at Borrower's
primary monitoring facility if any such event or circumstance could reasonably
be expected to have a Material Adverse Effect; or
(Q) Licenses and Permits. The loss, suspension or revocation of,
or failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of Borrower's Subsidiaries, if such loss, suspension,
revocation or failure to renew could have a Material Adverse Effect; or
(R) Failure of Security. Agent does not have or ceases to have
a valid and perfected first priority security interest in the Collateral
(subject to Permitted Encumbrances), in each case, for any reason other than
the failure of Agent or Lender to take any action within its control; or
<PAGE> 73
(S) Change in Control. (i) The acquisition by any Person or
group (as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) (other than the Principals and their Related Parties) of a
direct or indirect interest in more than 40% of the voting power of the voting
stock of Holdings by way of merger or consolidation or otherwise; or (ii)
[Intentionally Omitted] or (iii) the first day on which a majority of the
members of the Board of Directors of Borrower or Holdings are not Continuing
Directors; or (iv) the Principals or any of their Related Parties pledge,
hypothecate or encumber their shares of Holdings Capital Stock; or (v) the
occurrence of a "Change of Control" as defined in the Subordinated Discount
Note Indenture.
SECTION 3.2 Suspension of Commitments.
Upon the occurrence of any Default or Event of Default, Agent or
Lenders, without notice or demand, may immediately cease making additional
Loans and issuing Lender Letters of Credit and the Revolving Loan Commitments
shall be suspended; provided that, in the case of a Default, if the subject
condition or event is waived, cured or removed by Requisite Lenders within any
applicable grace or cure period, the Revolving Loan Commitments shall be
reinstated.
SECTION 3.3 Acceleration.
Upon the occurrence of any Event of Default described in the foregoing
subsections 8.1(F) or 8.1(G), the unpaid principal amount of and accrued
interest and fees on the Revolving Loan, payments under the Lender Letters of
Credit and all other Obligations shall automatically become immediately due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other requirements of any kind, all of which are
hereby expressly waived by Borrower, and the Revolving Loan Commitments shall
thereupon terminate. Upon the occurrence and during the continuance of any
other Event of Default, Agent may, and upon demand by Requisite Lenders Agent
shall, by written notice to Borrower (a) declare all or any portion of the
Loans and all or some of the other Obligations to be, and the same shall
forthwith become, immediately due and payable together with accrued interest
thereon, and the Revolving Loan Commitments shall thereupon terminate and (b)
demand that Borrower immediately deposit with Agent an amount equal to the
Lender Letter of Credit Liability to enable Agent to make payments under the
Lender Letters of Credit when required and such amount shall become immediately
due and payable.
SECTION 3.4 Performance by Agent.
If Borrower shall fail to perform any covenant, duty or agreement
contained in any of the Loan Documents, Agent may perform or attempt to perform
such covenant, duty or agreement on behalf of Borrower after the expiration of
any cure or grace periods set forth herein. In such event, Borrower shall, at
the request of Agent, promptly pay any amount reasonably expended by Agent in
such performance or attempted performance to Agent, together with interest
thereon at the rate of interest in effect upon the occurrence of an Event of
Default as specified in subsection 2.2(A) from the date of such expenditure
until paid. Notwithstanding the foregoing, it is expressly agreed that Agent
shall not have any liability or responsibility for the performance of any
obligation of Borrower under this Agreement or any other Loan Document.
<PAGE> 74
SECTION 4
ASSIGNMENT AND PARTICIPATION
SECTION 4.1 Assignments and Participations in Loans and Notes.
Each Lender may assign its rights and delegate its obligations under
this Agreement to another Person; provided that (a) such Lender shall first
obtain the written consent of Agent which consent shall not be unreasonably
withheld and, if granted, shall be delivered to Lender within five(5) Business
Days after receipt of such request, (b) upon obtaining Agent's 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 Lender whether or not it consents to the proposed assignment within five
(5) Business Days of receipt of notice from Agent, thereafter Borrower shall
have a period of ninety (90) days to locate an assignee acceptable to Borrower
and Lender and, failing that, at the conclusion of said ninety (90) day period
Lender shall be free to make the assignment to the originally selected
assignee, (c) the amount of Commitments and Loans of the assigning Lender being
assigned shall in no event be less than the lesser of (i) $5,000,000 or (ii)
the entire amount of Commitments and Loans of such assigning Lender, and (d) as
a condition to the effectiveness of such assignment, Borrower shall have
complied with its obligations under the last sentence of subsection 2.1(C). In
the case of an assignment authorized under this subsection 9.1, the assignee
shall have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were a Lender hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Commitment
or assigned portion thereof. Borrower hereby acknowledges and agrees that any
assignment will give rise to a direct obligation of Borrower to the assignee
and that the assignee shall be considered to be a "Lender".
Each Lender may sell participations in all or any part of any Loans
made by it to another Person. Such Lender shall provide prior written notice
to Agent of its intention to sell a participation, which notice shall contain
the identity of the prospective participant and the principal amount of the
proposed participation. Agent shall in turn notify Borrower and Borrower shall
notify Agent and Lender whether or not Borrower consents to the proposed
participation within five (5) Business Days of receipt of notice from Agent.
If Borrower does not grant its consent to the proposed participation, Borrower
shall have a period of ninety (90) days from the date of notice to Agent to
find a participant acceptable to Borrower and such Lender. If Borrower is
unable to locate an acceptable participant within such ninety (90) day period,
Lender shall have the right to sell the participation to the originally
proposed participant. Any such participation shall be in a minimum amount of
$5,000,000, and provided that all amounts payable by Borrower hereunder shall
be determined as if that Lender had not sold such participation and the holder
of any such participation shall not be entitled to require such Lender to take
or omit to take any action hereunder except action directly effecting (a) any
reduction in the principal amount, interest rate or fees payable with respect
to any Loan in which such holder participates; (b) any extension of the Expiry
Date or the maturity date of the Revolving Loan or the date fixed for any
payment of interest or fees payable with respect to the Revolving Loan in which
such holder participates; and (c) any release of substantially all of the
Collateral (other than in accordance with the terms of this Agreement or the
Security Documents). Borrower hereby acknowledges and agrees that any
participation will give rise to a direct obligation of Borrower to the
participant, and the participant shall for purposes of subsection 2.7, 2.8,
2.9, 2.10, 2.11, 9.4 and 10.2 be considered to be a "Lender".
Except as otherwise provided in this subsection 9.1 no Lender shall,
as between Borrower and that Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or
<PAGE> 75
negotiation of, or granting of participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender. Each Lender may furnish
any information concerning Borrower and its Subsidiaries in the possession of
that Lender from time to time to assignees and participants (including
prospective assignees and participants), subject to the provisions of
subsection 10.22.
Agent shall provide Borrower with written notice of the name and
address of any new Lender after the date hereof.
Notwithstanding anything contained in this Agreement to the contrary,
so long as the Requisite Lenders shall remain capable of making LIBOR Rate
Loans, no Person shall become a "Lender" hereunder unless such Person shall
also be capable of making LIBOR Rate Loans.
SECTION 4.2 Agent.
(A) Appointment. Each Lender hereby designates and appoints
Heller as its Agent under this Agreement and the Loan Documents, and each
Lender hereby irrevocably authorizes Agent to take such action or to refrain
from taking such action on its behalf under the provisions of this Agreement
and the Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto.
Agent is authorized and empowered to amend, modify, or waive any provisions of
this Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances
as provided in subsection 9.3. Agent agrees to act as such on the express
conditions contained in this subsection 9.2. The provisions of this subsection
9.2 are solely for the benefit of Agent and Lenders and neither Borrower nor
any Subsidiary of Borrower shall have any rights as a third party beneficiary
of any of the provisions hereof. In performing its functions and duties under
this Agreement, Agent shall act solely as agent of Lenders and does not assume
and shall not be deemed to have assumed any obligation toward or relationship
of agency or trust with or for Borrower or any Loan Party. Agent may perform
any of its duties hereunder, or under the Loan Documents, by or through its
agents or employees.
(B) Nature of Duties. Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement or in the
Loan Documents. The duties of Agent shall be mechanical and administrative in
nature. Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender. Nothing in this Agreement or any of the
Loan Documents, express or implied, is intended to or shall be construed to
impose upon Agent any obligations in respect of this Agreement or any of the
Loan Documents except as expressly set forth herein or therein. Each Lender
shall make its own independent investigation of the financial condition and
affairs of Borrower in connection with the extension of credit hereunder and
shall make its own appraisal of the credit worthiness of Borrower, and Agent
shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with respect
thereto (other than financial information received by it in accordance
herewith), whether coming into its possession before the Closing Date hereunder
or at any time or times thereafter. If Agent seeks the consent or approval of
any Lenders to the taking or refraining from taking any action hereunder, then
Agent shall send notice thereof to each Lender. Agent shall promptly notify
each Lender any time that the Requisite Lenders have instructed Agent to act or
refrain from acting pursuant hereto.
(C) Rights, Exculpation, Etc. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents,
or in connection herewith or therewith, except that Agent shall be obligated on
the terms
<PAGE> 76
set forth herein for performance of its express obligations hereunder, and
except that Agent shall be liable with respect to its own gross negligence or
willful misconduct. Agent shall not be liable for any apportionment or
distribution of payments made by it in good faith and if any such apportionment
or distribution is subsequently determined to have been made in error the sole
recourse of any Lender to whom payment was due but not made, shall be to
recover from other Lenders any payment in excess of the amount to which they
are determined to be entitled (and such other Lenders hereby agree to return to
such lender any such erroneous payments received by them). In performing its
functions and duties hereunder, Agent shall exercise the same care which it
would in dealing with loans for its own account, but Agent shall not be
responsible to any Lender for any recitals, statements, representations or
warranties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, or sufficiency of this Agreement or any of the
Loan Documents or the transactions contemplated thereby, or for the financial
condition of any Loan Party. Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any of the Loan Documents or the financial
condition of any Loan Party, or the existence or possible existence of any
Default or Event of Default. Agent may at any time request instructions from
Lenders with respect to any actions or approvals which by the terms of this
Agreement or of any of the Loan Documents Agent is permitted or required to
take or to grant, and if such instructions are promptly requested, Agent shall
be absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from Requisite
Lenders. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against Agent as a result of Agent acting or refraining from
acting under this Agreement, the Notes, or any of the other Loan Documents in
accordance with the instructions of Requisite Lenders.
(D) Reliance. Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message or other communication (including any writing, telex, telecopy or
telegram) believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the Loan Documents and its duties
hereunder or thereunder, upon advice of counsel selected by it. Agent shall be
entitled to rely upon the advice of legal counsel, independent accountants, and
other experts selected by Agent in its sole discretion.
(E) Indemnification. Lenders will reimburse and indemnify Agent
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against Agent in any way relating to or arising out of
this Agreement or any of the Loan Documents or any action taken or omitted by
Agent under this Agreement for any of the Loan Documents, in proportion to each
Lender's Pro Rata Share; provided, however, that no Lender shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements resulting
from Agent's gross negligence or willful misconduct. The obligations of
Lenders under this subsection 9.2(E) shall survive the payment in full of the
Obligations and the termination of this Agreement.
(F) Heller Individually. With respect to its Revolving Loan
Commitment, the Loans made by it, and the Notes issued to it, Heller shall have
and may exercise the same rights and powers hereunder and is subject to the
same obligations and liabilities as and to the extent set forth herein for any
other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms
shall, unless the context clearly otherwise indicates, include Heller in its
individual capacity as a Lender or one of the Requisite Lenders. Heller may
<PAGE> 77
lend money to, and generally engage in any kind of banking, trust or other
business with any Loan Party as if it were not acting as Agent pursuant hereto.
(G) Successor Agent.
(1) Resignation. Agent may resign from the performance
of all its functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to Borrower and the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) Appointment of Successor. Upon any such notice of
resignation pursuant to clause (G)(1) above, Requisite Lenders shall, upon
receipt of Borrower's prior consent which shall not unreasonably be withheld,
appoint a successor Agent. If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring Agent, upon
notice to Borrower, shall then appoint a successor Agent who shall serve as
Agent until such time, if any, as Requisite Lenders, upon receipt of Borrower's
prior written consent which shall not be unreasonably withheld, appoint a
successor Agent as provided above.
(3) Successor Agent. Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Loan
Documents. After any retiring Agent's resignation as Agent under the Loan
Documents, the provisions of this subsection 9.2 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Agent under the
Loan Documents.
(H) Collateral Matters.
(1) Release of Collateral. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by the Security Documents
(i) upon termination of the Revolving Loan Commitments and payment and
satisfaction of all Obligations; or (ii) constituting property being sold or
disposed of if Borrower certifies to Agent that the sale or disposition is made
in compliance with the provisions of this Agreement (and Agent may rely in good
faith conclusively on any such certificate, without further inquiry); or (iii)
constituting property leased to Borrower under a lease which has expired or
been terminated in a transaction permitted under this Agreement or is about to
expire and which has not been, and is not intended by Borrower to be, renewed
or extended. Upon request by Agent at any time, any Lender will confirm in
writing Agent's authority to release particular types or items of property
covered by the Security Documents pursuant to this subsection 9.2(H)(1) or
subsection 9.3(B).
(2) Confirmation of Authority; Execution of Releases.
Without in any manner limiting Agent's authority to act without any specific or
further authorization or consent by Requisite Lenders (as set forth in
subsection 9.2(H)(1)), each Lender agrees to confirm in writing, upon request
by either Borrower, the authority to release any property covered by the
Security Documents conferred upon Agent under clauses (i) through (iii) of
subsection 9.2(H)(1) and under subsection 9.3(B). So long as no Event of
Default is then continuing, upon receipt by Agent of confirmation from the
Requisite Lenders or from the requisite percentage of Lenders required by
subsection 9.3(B), as the case may be, of its authority to release any
particular item or types of property covered by the Security Documents, and
upon at least five (5) Business Days prior written request by Borrower, Agent
shall (and is hereby irrevocably authorized by
<PAGE> 78
Lenders to) execute such documents as may be necessary to evidence the release
of the Liens granted to Agent for the benefit of Lenders herein or pursuant
hereto upon such Collateral or Mortgaged Property; provided, however, that (i)
Agent shall not be required to execute any such document on terms which, in
Agent's opinion, would expose Agent to liability or create any obligation or
entail any consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge, affect or
impair the obligations or any Liens upon (or obligations of any Loan Party, in
respect of), all interests retained by any Loan Party, including (without
limitation) the proceeds of any sale, all of which shall continue to constitute
part of the property covered by the Security Documents.
(3) Absence of Duty. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property
covered by the Security Documents exists or is owned by Borrower or is cared
for, protected or insured or has been encumbered or that the Liens granted to
Agent herein or pursuant hereto have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any particular
priority, or to exercise at all or in any particular manner or under any duty
of care, disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this subsection 9.2(H)
or in any of the Loan Documents, it being understood and agreed that in respect
of the property covered by the Security Documents or any act, omission or event
related thereto, Agent may act in any manner it may deem appropriate, in its
discretion, given Agent's own interest in property covered by the Security
Documents as one of the Lenders and that Agent shall have no duty or liability
whatsoever to any of the other Lenders; provided that Agent shall exercise the
same care which it would in dealing with loans for its own account.
(I) Agency for Perfection. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in assets which, in accordance with Article 9 of the Uniform Commercial Code in
any applicable jurisdiction, can be perfected only by possession. Should any
Lender (other than Agent) obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent's request therefor, shall
deliver such Collateral to Agent or in accordance with Agent's instructions.
Each Lender agrees that it will not have any right individually to enforce or
seek to enforce any Security Document or to realize upon any collateral
security for the Loans, it being understood and agreed that such rights and
remedies may be exercised only by Agent.
SECTION 4.3 Amendments, Consents and Waivers for Certain Actions.
(A) Except as otherwise provided in this subsection 9.3, in
subsection 10.3 or in any Lender Addition Agreement and except as to matters
set forth in other subsections hereof as requiring only Agent's consent, the
consent of Requisite Lenders will be required to amend, modify, terminate, or
waive any provision of this Agreement, including, but not limited to, any
amendment, modification, termination, or waiver with regard to Sections 6 and
7.
(B) Agent may release or compromise any Collateral and the
proceeds thereof having a value not greater than ten percent (10%) of the total
book value of all Collateral, either in a single transaction or in a series of
related transactions, with the consent of Lenders owning a total of at least
eighty percent (80%) of the Commitments of all Lenders. In no event, however,
will Agent, acting under the authority granted to it in this subsection 9.3(B),
release or compromise Collateral or the proceeds thereof having a total book
value in excess of thirty percent (30%) of the book value of all Collateral, as
determined by Agent, during any one calendar year period.
<PAGE> 79
(C) Notwithstanding anything to the contrary contained herein,
Agent may, at its sole discretion, release or compromise Collateral and the
proceeds thereof to the extent permitted by subsection 9.2(H)(1).
(D) In the event Agent requests the consent of a Lender and does
not receive a written denial thereof within five (5) Business Days after such
Lender's receipt of such request, then such Lender will be deemed to have given
such consent.
(E) In the event Agent requests the consent of a Lender and such
consent is denied, then Heller or the Lender which assigned its interest in the
Loans to such Lender (the "Assigning Lender") may, at its option, require such
Lender to reassign its interest in the Loans to Heller or the Assigning Lender,
as applicable, for a price equal to the then outstanding principal amount
thereof plus accrued and unpaid interest and fees due such Lender, which
interest and fees will be paid when collected from Borrower. In the event that
Heller or the Assigning Lender elects to require any Lender to reassign its
interest to Heller or the Assigning Lender, Heller or the Assigning Lender, as
applicable, will so notify such Lender in writing within forty-five (45) days
following such Lender's denial, and such Lender will reassign its interest to
Heller or the Assigning Lender, as applicable, no later than five (5) days
following receipt of such notice.
(F) In the event Agent waives (1) any Default arising under
subsection 8.1(E) as a result of the breach of any of the provisions of Section
5 of this Agreement (other than any such breach which constitutes an Event of
Default) or (2) any Default constituting a condition to the funding of any
Revolving Loan, such waiver shall expire on the date upon which the Default
which was the subject of such waiver matures into an Event of Default pursuant
to the terms of this Agreement.
SECTION 4.4 Set Off and Sharing of Payments.
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of any Event of Default, each Lender and each holder of
any Note is hereby authorized by Borrower at any time or from time to time,
with reasonably prompt subsequent notice to Borrower or to any other Person
(any prior or contemporaneous notice being hereby expressly waived) to set off
and to appropriate and to apply any and all (A) balances held by such Lender or
such holder at any of its offices for the account of Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to Borrower or
its Subsidiaries), and (B) other property at any time held or owing by such
Lender or such holder to or for the credit or for the account of Borrower or
any of its Subsidiaries, against and on account of any of the Obligations which
are not paid when due; except that no Lender or any such holder shall exercise
any such right without the prior written consent of the Agent. Any Lender or
holder of any Note having a right to set off shall, to the extent the amount of
any such set off exceeds its Pro Rata Share of the Obligations, purchase for
cash (and the other Lenders or holders shall sell) participations in each such
other Lender's or holder's Pro Rata Share of the Obligations as would be
necessary to cause such Lender to share such excess with each other Lender or
holder in accordance with their respective Pro Rata Shares. Borrower agrees,
to the fullest extent permitted by law, that (a) any Lender or holder may
exercise its right to set off with respect to amounts in excess of its Pro Rata
Share of the Obligations and may sell participations in such excess to other
Lenders and holders, and (b) any Lender or holder so purchasing a participation
in the Loans made or other Obligations held by other Lenders or holders may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender or holder were a
direct holder of Loans and other Obligations in the amount of such
participation.
<PAGE> 80
SECTION 4.5 Disbursement of Funds.
Agent may, on behalf of Lenders, disburse funds to Borrower for Loans
requested. Each Lender shall reimburse Agent on demand for all funds disbursed
on its behalf by Agent, or if Agent so requests, each Lender will remit to
Agent its Pro Rata Share of any Loan before Agent disburses same to Borrower.
If any Lender fails to pay the amount of its Pro Rata Share forthwith upon
Agent's demand, Agent shall promptly notify Borrower, and Borrower shall
immediately repay such amount to Agent. Any repayment required pursuant to
this subsection 9.5 shall be without premium or penalty. Nothing in this
subsection 9.5 or elsewhere in this Agreement or the other Loan Documents,
including without limitation the provisions of subsection 9.6, shall be deemed
to require Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Agent or Borrower may have against any Lender as a result of
any default by such Lender hereunder.
SECTION 4.6 Disbursements of Advances, Payments and Information.
(A) Revolving Loan Advances and Payments; Fee Payments
(1) The Revolving Loan balance may fluctuate from day to
day through Agent's disbursement of funds to, and receipt of funds from,
Borrower. In order to minimize the frequency of transfers of funds between
Agent and each Lender, Revolving Loan advances and payments will be settled
according to the procedures described in subsection 9.6(A)(2) and 9.6(A)(3) of
this Agreement. Notwithstanding these procedures, each Lender's obligation to
fund its portion of any advances made by Agent to Borrower will commence on the
date such advances are made by Agent. Such payments will be made by such
Lender without set-off, counterclaim or reduction of any kind.
(2) On the second Business Day of each week, or more
frequently (including daily), if Agent so elects (each such day being a
"Settlement Date"), Agent will advise each Lender by telephone, telex, or
telecopy of the amount of each such Lender's Pro Rata Share of the Revolving
Loan balance as of the close of business of the second Business Day immediately
preceding the Settlement Date. In the event that payments are necessary to
adjust the amount of such Lender's Pro Rata Share of the Revolving Loan balance
to such Lender's Pro Rata Share of the Revolving Loan as of any Settlement
Date, the party from which such payment is due will pay the other, in same day
funds, by wire transfer to the other's account not later than 3:00 p.m. Chicago
time on the Business Day following the Settlement Date. Notwithstanding the
foregoing, if Agent so elects, Agent may require that each Lender make its Pro
Rata Share of any requested Loan available to Agent for disbursement prior to
the Funding Date applicable to such Loan. If Agent elects to require that such
funds be made available, Agent shall advise each Lender by telephone, telex or
telecopy of the amount of such Lender's Pro Rata Share of such requested Loan
no later than one (1) Business Day prior to the Funding Date applicable
thereto, and each such Lender shall pay Agent such Lender's Pro Rata Share of
such requested Loan, in same day funds, by wire transfer to Agent's account not
later than 10:00 a.m. Chicago time on such Funding Date.
(3) For purposes of this subsection 9.6(A)(3), the
following terms and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount
calculated as of the end of each calendar day by subtracting (i) the
cumulative principal amount paid by Agent to a Lender on a Loan from
the Closing Date through and including such calendar day, from (ii)
the cumulative
<PAGE> 81
principal amount on a Loan advanced by such Lender to Agent on that
Loan from the Closing Date through and including such calendar day.
(b) "Daily Interest Rate" means an amount
calculated by dividing the interest rate payable to a Lender on a Loan
(as set forth in subsection 2.2) as of each calendar day by three
hundred sixty (360).
(c) "Daily Interest Amount" means an amount
calculated by multiplying the Daily Loan Balance of a Loan by the
associated Daily Interest Rate on that Loan.
(d) "Interest Ratio" means a number calculated by
dividing the total amount of the interest on a Loan received by Agent
during the immediately preceding month by the total amount of interest
on that Loan due from Borrower during the immediately preceding month.
On the first Business Day of each month ("Interest Settlement Date"), Agent
will advise each Lender by telephone, telex, or telecopy of the amount of such
Lender's Pro Rata Share of interest and fees on the Loans as of the end of the
last day of the immediately preceding fiscal quarter. Provided that such
Lender has made all payments required to be made by it under this Agreement,
Agent will pay to such Lender, by wire transfer to such Lender's account (as
specified by such Lender on the signature page of this Agreement or the
applicable Lender Addition Agreement, as amended by such Lender from time to
time after the date hereof pursuant to the notice provisions contained herein
or in the applicable Lender Addition Agreement) not later than 3:00 p.m.
(Chicago time) on the next Business Day following the Interest Settlement Date,
such Lender's Pro Rata Share of interest and fees on the Loans. Such Lender's
Pro Rata Share of interest on each Loan will be calculated for that Loan by
adding together the Daily Interest Amounts for each calendar day of the prior
fiscal quarter for that Loan and multiplying the total thereof by the Interest
Ratio for that Loan. Such Lender's Pro Rata Share of the total Unused Line Fee
payable in respect thereto shall be equal to the product of (i) (A) the
Revolving Loan Commitment of the Lenders less the sum of the average daily
balance of Lender Letter of Credit Reserve during the preceding month,
multiplied by such Lender's Pro Rata Share of the Revolving Loan Commitment,
less (B) the average daily balance of such Lender's advances under the
Revolving Loan during the preceding month, multiplied by (ii) one-half of one
percent (0.50%) per annum.
(B) Availability of Lender's Pro Rata Share.
(1) Unless Agent has been notified by a Lender prior to a
Funding Date of such Lender's intention not to fund its Pro Rata Share of the
Loan amount requested by Borrower, Agent may assume that such Lender will make
such amount available to Agent on the Business Day following the next
Settlement Date. If such amount is not, in fact, made available to Agent by
such Lender when due, Agent will be entitled to recover such amount on demand
from such Lender without set-off, counterclaim or deduction of any kind.
(2) Nothing contained in this subsection 9.6(B) will be
deemed to relieve a Lender of its obligation to fulfill its Commitments or to
prejudice any rights Agent or Borrower may have against such Lender as a result
of any default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing,
each Lender shall be obligated to fund its Pro Rata Share of any Revolving Loan
made after any acceleration of the Obligations with respect to any draw on a
Lender Letter of Credit.
<PAGE> 82
(C) Return of Payments.
(1) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrower or paid to
any other person pursuant to any solvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement, Agent will not
be required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
(D) Dissemination of Information.
Agent will use its best efforts to provide Lenders with any
information received by Agent from Borrower which is required to be provided to
a Lender hereunder; provided, however, that Agent shall not be liable to
Lenders for any failure to do so, except to the extent that such failure is
attributable to Agent's gross negligence or willful misconduct.
SECTION 5
MISCELLANEOUS
SECTION 5.1 Expenses and Attorneys' Fees.
Whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to promptly pay all fees, costs and expenses
incurred by Agent or any Lender in connection with any matters contemplated by
or arising out of this Agreement or the other Loan Documents including the
following, and all such fees, costs and expenses shall be part of the
Obligations, payable on demand and secured by the Collateral: (a) reasonable
fees, costs and expenses (including attorneys' fees and fees of environmental
consultants, industry consultants, accountants and other professionals retained
by Agent or any Lender) incurred in connection with the examination, review,
due diligence investigation, documentation and closing of the financing
arrangements evidenced by the Loan Documents; (b) fees, costs and expenses
(including reasonable attorneys' fees and fees of environmental consultants,
industry consultants, accountants and other professionals retained by Agent or
any Lender) incurred in connection with the negotiation, preparation,
execution, syndication and administration of the Loan Documents, the Loans, the
Related Transactions Documents and any amendments, modifications and waivers
relating thereto; (c) fees, costs and expenses incurred in creating, perfecting
and maintaining perfection of Liens in favor of Agent, on behalf of Lenders,
pursuant to any Loan Document, including lien search fees, filing and recording
fees, taxes and expenses, title insurance policy fees, fees and expenses of
attorneys for providing such opinions as Agent may reasonably request and fees
and expenses of attorneys to Agent; (d) fees, costs and expenses (including
attorneys' fees and allocated costs of internal counsel) incurred in connection
with the review, documentation, negotiation, closing and administration of any
subordination or intercreditor agreements; (e)
<PAGE> 83
fees, costs and expenses incurred in connection with forwarding to Borrower the
proceeds of Loans including Agent's standard wire transfer fee; (f) fees,
costs, expenses and bank charges, including bank charges for returned checks,
incurred by Agent in establishing, maintaining and handling lock box accounts,
blocked accounts or other accounts for collection of the Collateral; (g) fees,
costs, expenses (including attorneys' fees and allocated costs of internal
counsel) and costs of settlement incurred in collecting upon or enforcing
rights against the Collateral; and (h) fees, costs and expenses (including
attorneys' fees, allocated costs of internal counsel and fees of other
professionals retained by Agent or any Lender) incurred in any action to
enforce this Agreement or the other Loan Documents or to collect any payments
due from Borrower or any other Loan Party under this Agreement, the Notes or
any other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement, whether
in the nature of a "workout" or in connection with any insolvency or bankruptcy
proceedings or otherwise.
Borrower hereby authorizes and directs Agent, at Agent's option, to
debit the Loan Account (by increasing the principal balance of the Revolving
Loan) in the amount of any of the above-referenced fees and expenses when due.
SECTION 5.2 Indemnity.
In addition to the payment of expenses pursuant to
subsection 10.1, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold Agent, each Lender and
any holder of any of the Notes, and the officers, directors, employees, agents,
affiliates and attorneys of Agent, each Lender and such holders (collectively
called the "Indemnities") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims, Tax
Liabilities, broker's or finders fees, costs, expenses and disbursements of any
kind or nature whatsoever (including the fees and disbursements of counsel for
such Indemnities in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) that may be imposed on, incurred by, or
asserted against that Indemnitee, in any manner relating to or arising out of
(a) the negotiation, execution, delivery, performance, administration, or
enforcement of any of the Related Transactions Documents, (b) any of the
transactions contemplated by the Related Transactions Documents, (c) any breach
by Borrower of any representation, warranty, covenant, or other agreement
contained in any of the Related Transactions Documents, (d) the presence,
release, threatened release, disposal, removal, or cleanup of any Hazardous
Material located on, about, within or affecting any of the properties or assets
of any Loan Party or any of their Subsidiaries or any violation of any
applicable Environmental Law for which any Loan Party is liable, (e) the
statements contained in the commitment letters, if any, delivered by any
Lender, (f) any Lender's agreement to make the Loans hereunder, (g) the use or
intended use of the proceeds of any of the Loans, (h) the use or proposed use
of any Lender Letter of Credit, or (i) any and all taxes, levies, deductions
and charges imposed on Agent or any Lender or any of Agent's or any Lender's
correspondents in respect of any Lender Letter of Credit (the foregoing
liabilities herein collectively referred to as the "Indemnified Liabilities");
provided that Borrower shall have no obligation to an Indemnitee hereunder with
respect to Indemnified Liabilities arising from the gross negligence or willful
misconduct of that Indemnitee as determined by a court of competent
jurisdiction. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnities or any of them.
<PAGE> 84
SECTION 5.3 Amendments and Waivers.
Except as otherwise provided herein, no amendment, modification,
termination or waiver of any provision of this Agreement, the Notes or any
other Loan Document, or consent to any departure by any Loan Party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Requisite Lenders or Agent, as applicable (or less if permitted by the
applicable Lender Addition Agreement) and the applicable Loan Party; provided
that, except to the extent permitted by the applicable Lender Addition
Agreement, no amendment, modification, termination or waiver shall, unless in
writing and signed by all Lenders, do any of the following: (a) increase the
Revolving Loan Commitment of any Lender; (b) reduce the principal of, rate of
interest on or fees payable with respect to any Loan; (c) extend the final
scheduled maturity date of the principal amount of the Loans; (d) change the
percentage of the Revolving Loan Commitments or of the aggregate unpaid
principal amount of the Loans, or the percentage of Lenders which shall be
required for Lenders or any of them to take any action hereunder; (e) release
Collateral (except if the sale or disposition of such Collateral is permitted
under any Loan Document); (f) amend or waive this subsection 10.3 or the
definitions of the terms used in this subsection 10.3 insofar as the
definitions affect the substance of this subsection 10.3; (g) amend any of the
ratios in subsections (i), (ii) or (iii) of the Indebtedness Ratio Test in
Section 1.1 hereof; and (h) consent to the assignment or other transfer by any
Loan Party of any of its rights and obligations under any Loan Document; and
provided further that no amendment, modification, termination or waiver
affecting the rights or duties of Agent under any Loan Document shall in any
event be effective, unless in writing and signed by Agent, in addition to
Lenders required hereinabove to take such action. Each amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given. No amendment,
modification, termination or waiver shall be required for Agent to take
additional Collateral pursuant to any Loan Document. No amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note. No
notice to or demand on Borrower in any case shall entitle Borrower to any other
or further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
subsection 10.3 shall be binding upon each holder of the Notes at the time
outstanding, each future holder of the Notes, and, if signed by a Loan Party,
on such Loan Party.
SECTION 5.4 Retention of Borrower's Documents.
Agent and any Lender may, in accordance with Agent's or such Lender's
customary practices, destroy or otherwise dispose of all documents, schedules,
invoices or other papers, delivered by any Loan Party to Agent or such Lender
unless Borrower requests in writing that same be returned. Upon Borrower's
request and at Borrower's expense, Agent or such Lender shall return such
papers when Agent's or such Lender's actual or anticipated need for same has
terminated.
SECTION 5.5 Notices.
Unless otherwise specifically provided herein, any notice or other
communication required or permitted to be given shall be in writing addressed
to the respective party as set forth below and may be personally served,
telecopied, telexed or sent by overnight courier service or United States mail
and shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy or telex, on the date of transmission
if transmitted on a Business Day before 4:00 p.m. (Chicago time) or, if not, on
the next succeeding Business Day; (c) if delivered by overnight courier, two
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
<PAGE> 85
Notices shall be addressed as follows:
If to Borrower: Protection One Alarm
Monitoring, Inc.
3900 S.W. Murray Boulevard
Beaverton, Oregon 97005
Attn: John W. Hesse,
Executive Vice
President
With a copy to: Protection One Alarm
Monitoring, Inc.
6011 Bristol Parkway
Culver City, Los Angeles,
California 90230
Attn: James M. Mackenzie, Jr.
President
If to Agent or to Heller: HELLER FINANCIAL, INC.
500 W. Monroe Street
Chicago, Illinois 60661
ATTN: Portfolio Manager
Portfolio Organization
Corporate
Finance Group
Telecopy: (312) 441-7367
With a copy to: HELLER FINANCIAL, INC.
500 W. Monroe Street
Chicago, Illinois 60661
ATTN: Legal Department
Portfolio Organization
Corporate Finance Group
Telecopy: (312) 441-7367
If to a Lender: To the
address set forth on the signature
page hereto or in the applicable
Lender Addition Agreement
SECTION 5.6
or to such other address as the party addressed shall have previously
designated by written notice to the serving party, given in accordance with
this subsection 10.5. A notice not given as provided above shall, if it is in
writing, be deemed given if and when actually received by the party to whom
given.
<PAGE> 86
SECTION 5.7 Survival of Warranties and Certain Agreements.
All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the making of the Loans
hereunder and the execution and delivery of the Notes. Notwithstanding
anything in this Agreement or implied by law to the contrary, the agreements of
Borrower set forth in subsections 2.7, 2.8, 2.9, 10.1, 10.2 and 10.16 and the
agreements of Lenders set forth in subsection 9.3 shall survive the payment of
the Loans and the termination of this Agreement. Subject to subsection 10.8,
all other representations, warranties and agreements of Borrower, Agent and
Lenders set forth in this Agreement shall terminate upon payment of the Loans
and the termination of this Agreement.
SECTION 5.8 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any Lender or any holder of any
Note in the exercise of any power, right or privilege hereunder or under the
Notes or any other Loan Document shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing under this Agreement, the Notes and the other
Loan Documents are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
SECTION 5.9 Marshaling; Payments Set Aside.
Neither Agent nor any Lender shall be under any obligation to marshal
any assets in favor of any Loan Party or any other party or against or in
payment of any or all of the Obligations. To the extent that any Loan Party
makes a payment or payments to Agent and/or any Lender, or Agent and/or any
Lender enforce their security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligations or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
SECTION 5.10 Independence of Covenants.
All covenants hereunder shall be given in any jurisdiction independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
SECTION 5.11 Severability.
The invalidity, illegality or unenforceability in any jurisdiction of
any provision in or obligation under this Agreement, the Notes or other Loan
Documents shall not affect or impair the validity, legality or enforceability
of the remaining provisions or obligations under this Agreement, the Notes or
other Loan Documents or of such provision or obligation in any other
jurisdiction.
SECTION 5.12 Lenders' Obligations Several; Independent Nature of Lenders'
Rights.
<PAGE> 87
The obligation of each Lender hereunder is several and not joint and
no Lender shall be responsible for the obligation or commitment of any other
Lender hereunder. In the event that any Lender at any time should fail to make
a Loan as herein provided, the Lenders, or any of them, at their sole option,
may make the Loan that was to have been made by the Lender so failing to make
such Loan. Nothing contained in any Loan Document and no action taken by Agent
or any Lender pursuant hereto or thereto shall be deemed to constitute Lenders
to be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and, subject to the terms of any Lender Addition
Agreement, each Lender shall be entitled to protect and enforce its rights
arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
SECTION 5.13 Headings.
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 5.14 APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 5.15 Successors and Assigns; Subsequent Holders of Notes.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns except that Borrower
may not assign its rights or obligations hereunder without the written consent
of all Lenders. Lenders' rights of assignment are subject to subsection 9.1.
SECTION 5.16 No Fiduciary Relationship.
No provision in this Agreement or in any of the other Loan Documents
and no course of dealing between the parties shall be deemed to create any
fiduciary duty by Agent or any Lender to Borrower or any other Loan Party.
SECTION 5.17 Limitation of Liability.
Neither Agent nor any Lender, nor any affiliate, officer, director,
employee, attorney, or agent of Agent or any Lender shall have any liability
with respect to, and Borrower hereby waives, releases, and agrees not to sue
any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or
any of the other Loan Documents. Borrower hereby waives, releases, and agrees
not to sue Agent or any Lender or any of Agent's or any Lender's affiliates,
officers, directors, employees, attorneys, or agents for punitive damages in
respect of any claim in connection with, arising out of, or in any way related
to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
<PAGE> 88
SECTION 5.18 No Duty.
All attorneys, accountants, appraisers, and other professional Persons
and consultants retained by Agent or any Lender shall have the right to act
exclusively in the interest of Agent or such Lender and shall have no duty of
disclosure, duty of loyalty, duty of care, or other duty or obligation of any
type or nature whatsoever to Borrower or any of Borrower's shareholders or any
other Person.
SECTION 5.19 Entire Agreement.
This Agreement, the Notes, and the other Loan Documents referred to
herein embody the final, entire agreement among the parties hereto and
supersede any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto. There are no
oral agreements among the parties hereto.
SECTION 5.20 Construction.
Agent, Borrower and each Lender acknowledge that each of them has had
the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its
legal counsel and that this Agreement and the other Loan Documents shall be
construed as if jointly drafted by Agent, Borrower and each Lender.
<PAGE> 89
SECTION 5.21 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF COOK STATE OF ILLINOIS AND IRREVOCABLY
AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN SUCH COURTS. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT, SUCH NOTE, SUCH OTHER LOAN DOCUMENT OR SUCH OBLIGATION.
BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 208 SOUTH LASALLE,
CHICAGO, ILLINOIS 60604, AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED
BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 10.5
EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL
SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT
APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY AGREES THAT
SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION.
SECTION 5.22 WAIVER OF JURY TRIAL.
BORROWER, AGENT AND EACH LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM
RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER
RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER, AGENT AND EACH LENDER ALSO
WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF LENDERS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS.
<PAGE> 90
BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
SECTION 5.23 Confidentiality.
Each Lender agrees to exercise its best efforts to keep any non-public
information delivered or made available to such Lender pursuant to the Loan
Documents, which Borrower has identified in writing to the Lender as
confidential information, confidential from any Person other than Persons
employed or retained by such Lender who are or are expected to become engaged
in evaluating, approving, structuring or administering the Loans; provided
that, nothing herein shall prevent any Lender from disclosing such information
to any bona fide assignee, transferee or participant that has agreed to comply
with this subsection 10.22 in connection with the contemplated assignment or
transfer of any Loans or participation therein or as required or requested by
any governmental agency or representative thereof or pursuant to legal process
or as required in connection with the exercise of any remedy under the Loan
Documents.
SECTION 5.24 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents, or supplements
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
PROTECTION ONE ALARM MONITORING, INC.
By: /s/ John W. Hesse
Title: Executive Vice President
Revolving Loan Commitment: HELLER
FINANCIAL, INC., AS AGENT AND
$75,000,000 LENDER
Pro Rata Share: 75.00% By: /s/ Timothy Canon
Title: Vice President
<PAGE> 91
Revolving Loan Commitment: BANQUE NATIONALE DE PARIS, NEW YORK
$15,000,000 BRANCH, AS A LENDER
Pro Rata Share: 15.00%
By: /s/ Christopher Kieley Stephen Kovacs
Title: Vice President Assistant Treasurer
Address: Banque Nationale de Paris,
New York Branch
499 Park Avenue
New York, NY 10022
Attn: Chris Kiely, V.P.
Telecopy: (212) 418-8269
Revolving Loan Commitment: MERITA BANK, LTD., AS A LENDER
$10,000,000
By: /s/ Charles Landsdown
Pro Rata Share: 10.00%
Title: Vice President
Address: Merita Bank Ltd.-
New York Branch
437 Madison Avenue
New York, NY 10022
Attn: Charles Lansdown
Telecopy: (212) 421-4420
<PAGE> 1
EXHIBIT 10.3
PROTECTION ONE, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of May 24,
1996, between James M. Mackenzie, Jr. (the "Employee") and Protection One, Inc.
(previously known as P1 Acquisition Corporation), a Delaware corporation
(including any and all subsidiaries, the "Company").
The Employee and the Company are parties to an Employment
Agreement dated as of September 16, 1991, as amended by Amendment No. 1 to
Employment Agreement dated as of June 29, 1994 (as so amended, the "Employment
Agreement").
The Employee and the Company desire to further amend and to
restate the Employment Agreement as provided herein.
Accordingly, the Company and the Employee agree that effective
as of the date hereof, the Employment Agreement shall be amended and restated
to read is full as follows:
1. The Company hereby employs and continues to engage
the Employee as President and Chief Executive Officer. The Employee's duties,
responsibilities and title shall be determined by the Company's Board of
Directors (the "Board") and may change from time to time, provided that the
Employee shall at all times be employed in an executive capacity with the
Employee's office in Southern California.
2. The term of this Agreement commenced on September
16, 1991 and shall be continually extended such that at all times the remaining
term hereof is three years; provided, however, that this Agreement shall be
subject to termination as provided in Section 13 hereof.
3. Subject to the supervision and direction of the Board
or its designees, the Employee agrees that he shall, at all times, faithfully,
industriously and to the best of his ability and experience, perform all the
duties that may be required of him pursuant to the terms hereof to the
satisfaction of the Company. The Employee shall devote his full time and
attention to the duties assigned to him and shall serve the Company diligently
and honestly in its business and use his best endeavors to promote the interest
of the Company.
4. As long as the Employee remains employed by the
Company, in consideration of the services to be performed by the Employee
during the term of this Agreement, the Company shall pay or cause to be paid
the Employee, and the Employee shall accept in full payment for such services,
a base salary (the "Base Salary") of $280,714 per year, payable monthly,
subject to increase in accordance with the Company's policy with respect to
executive salaries as in effect from time to time. Employee recognizes and
agrees that all compensation, benefits, and common stock performance warrants
hereunder shall be good consideration for this Employment Agreement, and any
and all agreements required to be executed hereunder.
5. During the term of this Agreement, the Employee shall
be entitled to participate in the Company's Common Stock Performance Warrant
Plan and all other benefit plans and programs available to the Company's key
employees in accordance with the terms and conditions thereof.
6. [Intentionally omitted]
<PAGE> 2
7. [Intentionally omitted]
8. The Company shall provide, at no cost to the Employee, insurance
and health care benefits from time to time (and subject to modification)
generally offered by the Company to its key employees.
9. In the event that the Employee is required to travel in
connection with his employment, the Company shall advance funds to the Employee
or reimburse him, for reasonable and documented travel, subsistence and other
out-of-pocket expenses, as well as non- travel business entertainment expenses
incurred by him, in accordance with the then prevailing policies of the Company.
10. The Employee shall receive a monthly automobile usage allowance
of $500 in lieu of any other allowances for automobile expenses other than
reimbursement for gas, tolls and parking away from the office when on Company
business.
11. The Employee shall be entitled to vacation in accordance with
vacation policies adopted from time to time by the Board for the Company's key
employees. The Employee's initial vacation entitlement is three (3) weeks per
year.
12. (a) If this Agreement is terminated, whether with or without
cause, except as otherwise provided in this Section 12 the Company shall have no
further obligation to pay or cause to be paid to the Employee any further
compensation or benefits; provided, however, that the Company shall pay or cause
to be paid to the Employee all accrued but unpaid Base Salary and all vacation
and other employee benefits and all unreimbursed expenses incurred prior to the
termination date and owing to the Employee pursuant to Sections 9, 10 and 11
hereof.
(a) In the event that during the term of this Agreement the
Employee dies, the Employee is terminated because of a Disability pursuant to
subsection 13(b) hereof, or the Company terminates the Employee's employment
without cause as provided in subsection 13(d) hereof, the Company shall pay the
Employee (or his estate or personal representative, as applicable), during each
of the three years following the date of the Employee's death or termination of
employment and in full satisfaction of the Company's obligations hereunder or
otherwise in connection with the Employee's employment with the Company (other
than the obligations set forth in subsection 12(a)), the following amounts:
(i) If the Employee dies, an amount (the
"Termination Amount") each year equal to (x) the Base Salary at
the time of death plus (y) the last annual bonus paid or
payable to the Employee by the Company, if any, which
Termination Amount shall be paid to the Employee in equal
monthly installments on the first day of each calendar month;
and
(ii) If the Employee's employment is terminated
by the Company as a result of a Disability or without cause, an
amount each year equal to the excess, if any, of the
Termination Amount over the total annual compensation for such
year, if any, earned by the Employee from any new place of
employment. If the Employee earns for any such year from any
such new employment more than the Termination Amount, the
Employee shall not be entitled to any payment from the Company
with respect to such period, but the Employee shall not be
obligated to pay the amount of the excess to the Company;
provided, however, that the Employee shall be obligated to
return to the Company any payment or payments previously made
to the Employee for such year in excess of the amounts due
under this paragraph (ii). The Employee acknowledges that the
amounts provided for in this paragraph (ii) shall be subject
to reduction as provided below and
<PAGE> 3
shall not be paid to the Employee if he is terminated for
cause or he voluntarily ceases to be an employee of the
Company. The payments provided for in this paragraph (ii)
shall be made to the Employee in equal monthly installments on
the 10th day of each calendar month, subject to the Company's
receipt from the Employee of such statement or statements as
the Company may reasonably request setting forth the
compensation, if any, earned by the Employee from any new
place of employment during the immediately preceding calendar
month.
Notwithstanding the provisions of paragraph (ii) immediately
above, in the event that the Employee breaches any of the covenants set forth
in Section 17 hereof, then the "Termination Amount" shall consist solely of the
Base Salary at the time of the Employee's termination of employment and shall
not include any bonus.
13. This Agreement and Employee's employment by the
Company shall terminate upon the happening of any of the following events:
(a) The death of the Employee.
(b) At the Company's option, the inability of the
Employee to render for a period of 180 consecutive days, full and
effective service hereunder because of incapacity, whether resulting
from illness, accident or otherwise (such inability a "Disability").
(c) Receipt by the Employee of notice from the
Company of termination for cause. The term "cause" as used herein
shall mean:
(i) prolonged or repeated absence from
duty without the consent of the Company (for reasons other
than the Employee's health);
(ii) habitual neglect of the Employee's
duties as an employee of the Company;
(iii) engaging in any activity which is in
conflict with or adverse to the business interests of the
Company;
(iv) violation in any material respect by
the Employee of any provision of this Agreement;
(v) willful or serious misconduct on the
part of the Employee relating to the performance of his duties
hereunder or otherwise injurious to the Company; or
(vi) a felony or conviction of a crime
involving moral turpitude of the Employee.
(d) Thirty (30) days after receipt by Employee of
written notice from the Company that this Agreement is terminated
without cause, or thirty (30) days after receipt of written notice to
the Company from Employee of termination as a result of the Company's
violation in any material respect of any provision of this Agreement;
provided, however, that any such notice given by Employee shall
specify the violation or violations
<PAGE> 4
claimed and that this Agreement shall not terminate as a result of any
such notice given by the Employee if the violation or violations set
forth in the notice are cured within 30 days after the notice is
given.
(e) Six (6) months after receipt by the Company
of written notice from Employee that this Agreement is terminated
without breach by the Company; provided, however, that this Agreement
may not be so terminated by Employee prior to May 24, 1999.
The Employee shall be entitled to written notice and a hearing
before the Board prior to termination pursuant to subsection 13(c) and, in
the case of paragraphs (iii) and (iv) of that subsection, a 30-day opportunity
to cure, during which time the Employee may be excluded from the Company's
premises.
In the event of the termination of this Agreement, whether for
cause or otherwise, all further obligations of the Company hereunder shall
terminate, except that the Employee shall continue to be eligible for payments
in accordance with the provisions of Section 12 above and 14 below, and the
Employee shall continue to observe the provisions set forth in Sections 14, 16
and 17 hereof, regardless of the termination of this Agreement for any reason
except termination pursuant to subsection 13(a).
14. The Employee agrees that in the event Employee ceases to be
an employee of the Company between the date hereof and September 16, 1996,
Employee shall have the obligation to transfer and deliver to the Company, in
consideration for the Company's loss of Employee's services, 54,186 shares of
Common Stock of the Company; provided, however, that in the event that, while
Employee is an employee of the Company, there is a merger, consolidation,
purchase of assets or other business combination by the Company with another
person in which the other person is the survivor or purchaser and cash or
non-cash consideration is distributed to the holders of the Company's Common
Stock, the Employee shall be released from this covenant in its entirety.
Upon such transfer and delivery of such shares, the Company
shall pay the Employee, in cash, the lesser of (i) Employee's cost for such
shares, and (ii) $.167 per share. In lieu of the transfer and delivery of such
shares, Employee may satisfy such obligation by assigning and transferring to
the Company "Share Contract rights." "Share Contract rights" shall mean any
contractual rights Employee then has to purchase from any person or entity, for
a price of not more than $.167 per share, a number of shares of Common Stock
that is not less than the number otherwise required to be transferred and
delivered to the Company pursuant to this Section. Share Contract rights shall
not be subject to any conditions other than those which, by their terms, could
be waived by the Company. All share and share price numbers set forth herein
shall be appropriately adjusted for any stock splits, reverse stock splits and
recapitalizations of the Company occurring after the date hereof.
15. The Company shall be entitled to all of the benefits
and profits arising from or incident to all work, service, and advice of the
Employee provided to the Company by the Employee.
16. (a) Trade Secrets of the Company. The Employee
during the term of employment under this Agreement will have access to and
become acquainted with various trade secrets, consisting of technical data,
plans and specifications, research and test results, feasibility studies,
business plans, financial records, customer lists, and other business
documents, which are owned by the Company, or its shareholders, and which are
regularly used in the operation of the business of the Company. The Employee
shall not disclose any of the aforesaid trade secrets, directly or indirectly,
or use them in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his
<PAGE> 5
employment. All files, records, documents, plans, and similar items relating
to the business of the Employee or otherwise coming into his possession, shall
remain the exclusive property of the Company and shall not be removed under any
circumstances from the premises where the work of the Company is being carried
on without the prior written consent of the Company.
(a) Confidential Data of Customers and the Company. The
Employee in the course of his duties will or may be handling technical,
statistical, and planning data on the future plans and requirements for
customers and/or potential customers of the Company, and similar material
pertaining to the Company's shareholders. All such data is confidential and
shall not be disclosed, directly or indirectly, or used by the Employee in any
way, either during the term of this Agreement or at any time thereafter, except
as required in the course of Employee's employment.
(b) Inventions by Employee. All concepts, designs, ideas,
inventions, knowhow, and industrial property rights (hereinafter called
"Inventions") created, devised or improved by the Employee during the term of
employment relating to the business of the Company shall be the sole and
exclusive property of the Company and shall be treated in a confidential manner
pursuant to subsection 16(a) above. The Employee shall fully disclose all such
Inventions to the Company. The handling of any Inventions made by the Employee
during the employment term shall be governed by the provisions set forth below:
(i) The Employee agrees that any Inventions made by the
Employee, solely or jointly with others, during the term of this
Agreement, that are made with the Company's equipment, supplies,
facilities, trade secrets, or time; or that relate, at the time of
conception or of reduction to practice, to the business of the Company
or to the Company or the Company's actual or demonstrably anticipated
research or development; or that result from any work performed by the
Employee for the Company, shall belong to the Company, and promises to
assign all such Inventions to the Company.
(ii) The Employee also agrees that the Company shall have the
right to keep any such Inventions as trade secrets, if the Company so
chooses.
(iii) The Employee agrees to assign to the Company
all rights in any other inventions.
(iv) In order to permit the Company to claim rights to which
it may be entitled, the Employee agrees to disclose to the Company in
confidence all Inventions that Employee makes during the course of his
employment and all patent applications filed by the Employee within a
year after termination of his employment.
(v) The Employee shall assist the Company in obtaining
patents on all Inventions, designs, improvements, and discoveries
deemed patentable by the Company in the United States and in all
foreign countries, and shall execute all documents and do all things
necessary to obtain letters patent, to vest the Company with full and
exclusive title thereto, and to protect the same against infringement
by others.
(vi) For the purposes of this Agreement, an Invention is
deemed to have been made during the period of the Employee's employment
if the Invention was conceived or first actually reduced to practice
during that period, and the Employee agrees that any patent application
filed within one year after termination of his employment
<PAGE> 6
hereunder shall be presumed to relate to an invention made during the
term of the Employee's employment unless the Employee can provide
conclusive written evidence to the contrary.
17. During the term of this Agreement, the Employee
agrees that he will not, directly or indirectly, be interested in any manner as
partner, officer, director, stockholder (other than a passive investor, which
shall be defined as ownership of less than 1% of the equity of a publicly
traded corporation or association), consultant, advisor, employee or in any
other capacity in or with respect to any other firm, corporation, partnership,
trust, association or organization which is engaged in any line of business in
any geographical area in which the Company is engaged or has under development.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (i) May 24, 1999 or (ii) 365 days after termination, directly or
indirectly, be interested in any manner as partner, officer, director,
stockholder (other than a passive investor, which shall be defined as ownership
of less than 1% of the equity of a publicly traded corporation or association),
consultant, advisor, employee or in any other capacity in or with respect to
any other firm, corporation, partnership, trust, association or organization
which is engaged in any line of business in which the Company is engaged or has
under development in any county of any state in which the Company is doing
business.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (a) May 24, 2000, and (b) 365 days after termination, directly or
indirectly, (i) entice, induce, solicit, or encourage any employee to leave the
employ of the Company to engage in any line of business in which the Company is
engaged or has under development as of the date of termination of Employee's
employment with the Company or (ii) hire any other employee of the Company to
engage in any line of business if such employee's base salary and any fixed or
guaranteed bonus per year will be more than $50,000.
18. In the event that any court or tribunal of proper
jurisdiction and venue shall find that the restrictions contained in Section 17
above are unreasonable, the parties agree that such court shall determine a
reasonable time and/or geographical area for such restrictions. To the extent
that any other obligations set forth in this Agreement shall be declared
invalid or unenforceable, said clause of obligation shall be deemed to be
severable, and the remaining obligations imposed by the provisions of this
Agreement shall be fully enforceable as if such invalid or unenforceable
provisions had not been included herein.
19. The Employee agrees that the remedy at law for any
breach or threatened breach of the restrictions contained in Section 17 above
will be inadequate, and that any breach or threatened breach would cause
immediate and permanent damages as would be impossible to ascertain.
Therefore, the Employee agrees that in the event of any breach or threatened
breach of any provisions of Section 17 above by him, in addition to any and all
legal, equitable and arbitral remedies available to the Company for such breach
or threatened breach, including a recovery of damages, the Company shall be
entitled to obtain in any court or tribunal having jurisdiction preliminary or
permanent injunctive relief without the necessity of proving actual damage by
reason of such breach, and to the extent permissible under the application
statutes and rules of procedure, a temporary restraining order may be granted
immediately upon commencement of such action.
<PAGE> 7
20. The Employee represents and warrants that (a) he is
not a party to or bound by any agreement or subject to any restriction or
limitation, whether written, oral or arising out of any prior or current
relationship, which would be violated or impaired by his entering into, and
performing for the Company his obligations under this Agreement and (b) he does
not possess confidential information arising out of any such relationship which
would be utilized in connection with his employment by the Company.
21. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the employment and
understandings between the parties with respect to the employment contemplated
herein and sets forth a complete agreement and understanding of the parties.
No change, termination or attempted waiver of any of the provisions of this
Agreement shall be of any force or effect unless the same is set forth in
writing, duly adopted by written resolution of the Board, and duly executed by
the party against which it is sought to be enforced.
22. The failure of either party to insist in one or more
instances upon the terms and conditions of this Agreement, or to exercise any
right hereunder, shall not be construed as a waiver of the future performance
of any such term or the future exercise of such right, and the obligation of
each party with respect to such future performance shall continue in full force
and effect.
23. It is the intention of the Company and the Employee
that this Agreement and the performance hereunder and all suits and special
proceedings that might be brought pursuant hereto be construed in accordance
with the laws of the State of California, and that in any action, special
proceeding, or other proceeding that may be brought arising out of, or in
connection with, or by reason of this Agreement, the laws of the State of
California shall be applicable and shall govern to the exclusion of the law of
any other forum, without regard to the jurisdiction in which any action or
special proceeding may be instituted.
24. Any controversy or claim arising out of or relating
to this Agreement or its interpretation or the breach thereof shall be
determined by arbitration before the American Arbitration Association, which
arbitration shall be held in Los Angeles, California in accordance with the
Commercial Arbitration Rules of said American Arbitration Association. The
award of the arbitrator shall be final and binding on the parties and may be
entered as a judgement or decree in any court having jurisdiction of such
proceedings. The costs and legal fees of all parties to any arbitration
proceeding shall be borne by the party against whom the award is made.
25. This Agreement is not assignable by the Employee, but
is assignable by the Company to any subsidiary, parent, affiliated or
associated company or any company which purchases the assets of the Company.
As used herein, the term "the Company" shall include any company to which this
Agreement shall have been assigned.
26. Any and all notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally or sent by certified mail or registered mail, postage
prepaid to each of the parties at the following addresses:
Employee: James M. Mackenzie, Jr.
3229 Leticia Drive
Hacienda Heights, CA 91745
<PAGE> 8
The Company: Protection One, Inc.
3900 S.W. Murray Boulevard
Beaverton, OR 97005
Attn: John W. Hesse
Tel.: 503-520-6010
Fax.: 503-520-6099
with a copy to: Patricof & Co. Ventures, Inc.
545 Madison Avenue
New York, NY 10022
Attn: Robert M. Chefitz
Tel.: 212-753-6300
Fax.: 212-319-6155
Mitchell, Silberberg & Knupp LLP
1377 West Olympic Boulevard
Los Angeles, CA 90064-1683
Attn: Lessing E. Gold, Esq.
Tel.: 310-312-3228
Fax.: 310-312-3798
Any party may change his address for the purposes of this paragraph by
giving written notice of such change to the other party in the manner herein
provided for giving notice.
____________________
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Employment Agreement as of the day and year first written above.
PROTECTION ONE, INC.
By: John E. Mack, III /s/ James M. Mackenzie, Jr.
----------------- ---------------------------
John E. Mack, III JAMES M. MACKENZIE, JR.
Vice President -
Business Development
<PAGE> 1
EXHIBIT 10.4
PROTECTION ONE, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of May 24,
1996, between John W. Hesse (the "Employee") and Protection One, Inc.
(previously known as P1 Acquisition Corporation), a Delaware corporation
(including any and all subsidiaries, the "Company").
The Employee and the Company are parties to an Employment
Agreement dated as of September 16, 1991, as amended by Amendment No. 1 to
Employment Agreement dated as of June 29, 1994 (as so amended, the "Employment
Agreement").
The Employee and the Company desire to further amend and to
restate the Employment Agreement as provided herein.
Accordingly, the Company and the Employee agree that effective
as of the date hereof, the Employment Agreement shall be amended and restated
to read is full as follows:
1. The Company hereby employs and continues to engage the
Employee as Executive Vice President, Chief Financial Officer and Secretary.
The Employee's duties, responsibilities and title shall be determined by the
Company's Board of Directors (the "Board") and may change from time to time.
2. The term of this Agreement commenced on September 16,
1991 and shall expire on September 30, 1998; provided, however, that this
Agreement shall be subject to termination as provided in Section 13 hereof.
3. Subject to the supervision and direction of the Board or
its designees, the Employee agrees that he shall, at all times, faithfully,
industriously and to the best of his ability and experience, perform all the
duties that may be required of him pursuant to the terms hereof to the
satisfaction of the Company. The Employee shall devote his full time and
attention to the duties assigned to him and shall serve the Company diligently
and honestly in its business and use his best endeavors to promote the interest
of the Company.
4. As long as the Employee remains employed by the Company,
in consideration of the services to be performed by the Employee during the term
of this Agreement, the Company shall pay or cause to be paid the Employee, and
the Employee shall accept in full payment for such services, a base salary (the
"Base Salary") of $244,728 per year, payable monthly, subject to increase in
accordance with the Company's policy with respect to executive salaries as in
effect from time to time. Employee recognizes and agrees that all compensation,
benefits, and common stock performance warrants hereunder shall be good
consideration for this Employment Agreement, and any and all agreements required
to be executed hereunder.
5. During the term of this Agreement, the Employee shall be
entitled to participate in the Company's Common Stock Performance Warrant Plan
and all other benefit plans and programs available to the Company's key
employees in accordance with the terms and conditions thereof.
6. [Intentionally omitted]
7. [Intentionally omitted]
<PAGE> 2
8. The Company shall provide, at no cost to the
Employee, insurance and health care benefits from time to time (and subject to
modification) generally offered by the Company to its key employees.
9. In the event that the Employee is required to travel
in connection with his employment, the Company shall advance funds to the
Employee or reimburse him, for reasonable and documented travel, subsistence and
other out- of-pocket expenses, as well as non-travel business entertainment
expenses incurred by him, in accordance with the then prevailing policies of the
Company.
10. The Employee shall receive a monthly automobile
usage allowance of $500 in lieu of any other allowances for automobile expenses
other than reimbursement for gas, tolls and parking away from the office when on
Company business.
11. The Employee shall be entitled to vacation in
accordance with vacation policies adopted from time to time by the Board for the
Company's key employees. The Employee's initial vacation entitlement is three
(3) weeks per year.
12. (a) If this Agreement is terminated, whether
with or without cause, except as otherwise provided in this Section 12 the
Company shall have no further obligation to pay or cause to be paid to the
Employee any further compensation or benefits; provided, however, that the
Company shall pay or cause to be paid to the Employee all accrued but unpaid
Base Salary and all vacation and other employee benefits and all unreimbursed
expenses incurred prior to the termination date and owing to the Employee
pursuant to Sections 9, 10 and 11 hereof.
(a) In the event that during the term of this
Agreement the Employee dies, the Employee is terminated because of a Disability
pursuant to subsection 13(b) hereof, or the Company terminates the Employee's
employment without cause as provided in subsection 13(d) hereof, the Company
shall pay the Employee (or his estate or personal representative, as
applicable), during each of the three years following the date of the Employee's
death or termination of employment and in full satisfaction of the Company's
obligations hereunder or otherwise in connection with the Employee's employment
with the Company (other than the obligations set forth in subsection 12(a)), the
following amounts:
(i) If the Employee dies, an amount (the
"Termination Amount") each year equal to (x) the Base Salary at the
time of death plus (y) the last annual bonus paid or payable to the
Employee by the Company, if any, which Termination Amount shall be paid
to the Employee in equal monthly installments on the first day of each
calendar month; and
(ii) If the Employee's employment is terminated
by the Company as a result of a Disability or without cause, an amount
each year equal to the excess, if any, of the Termination Amount over
the total annual compensation for such year, if any, earned by the
Employee from any new place of employment. If the Employee earns for
any such year from any such new employment more than the Termination
Amount, the Employee shall not be entitled to any payment from the
Company with respect to such period, but the Employee shall not be
obligated to pay the amount of the excess to the Company; provided,
however, that the Employee shall be obligated to return to the Company
any payment or payments previously made to the Employee for such year
in excess of the amounts due under this paragraph (ii). The Employee
acknowledges that the amounts provided for in this paragraph (ii) shall
be subject to reduction as provided below and shall not be paid to the
Employee if he is terminated for cause or he voluntarily ceases to be
an employee of the Company. The payments provided for in this
paragraph (ii) shall be made to the
<PAGE> 3
Employee in equal monthly installments on the 10th day of each calendar
month, subject to the Company's receipt from the Employee of such
statement or statements as the Company may reasonably request setting
forth the compensation, if any, earned by the Employee from any new
place of employment during the immediately preceding calendar month.
Notwithstanding the provisions of paragraph (ii) immediately above, in
the event that the Employee breaches any of the covenants set forth in Section
17 hereof, then the "Termination Amount" shall consist solely of the Base Salary
at the time of the Employee's termination of employment and shall not include
any bonus.
13. This Agreement and Employee's employment by the
Company shall terminate upon the happening of any of the following events:
(a) The death of the Employee.
(b) At the Company's option, the inability of the
Employee to render for a period of 180 consecutive days, full and
effective service hereunder because of incapacity, whether resulting
from illness, accident or otherwise (such inability a "Disability").
(c) Receipt by the Employee of notice from the
Company of termination for cause. The term "cause" as used herein
shall mean:
(i) prolonged or repeated absence from duty
without the consent of the Company (for reasons other than
the Employee's health);
(ii) habitual neglect of the Employee's duties as
an employee of the Company;
(iii) engaging in any activity which is in conflict
with or adverse to the business interests of the Company;
(iv) violation in any material respect by the
Employee of any provision of this Agreement;
(v) willful or serious misconduct on the part of
the Employee relating to the performance of his duties
hereunder or otherwise injurious to the Company; or
(vi) a felony or conviction of a crime involving
moral turpitude of the Employee.
(d) Thirty (30) days after receipt by Employee of written
notice from the Company that this Agreement is terminated without cause,
or thirty (30) days after receipt of written notice to the Company from
Employee of termination as a result of the Company's violation in any
material respect of any provision of this Agreement; provided, however,
that any such notice given by Employee shall specify the violation or
violations claimed and that this Agreement shall not terminate as a
result of any such notice given by
<PAGE> 4
the Employee if the violation or violations set forth in the notice are
cured within 30 days after the notice is given.
(e) Six (6) months after receipt by the Company of written
notice from Employee that this Agreement is terminated without breach
by the Company; provided, however, that this Agreement may not be so
terminated by Employee prior to May 24, 1999.
The Employee shall be entitled to written notice and a hearing before
the Board prior to termination pursuant to subsection 13(c) and, in the case
of paragraphs (iii) and (iv) of that subsection, a 30-day opportunity to cure,
during which time the Employee may be excluded from the Company's premises.
In the event of the termination of this Agreement, whether for cause or
otherwise, all further obligations of the Company hereunder shall terminate,
except that the Employee shall continue to be eligible for payments in
accordance with the provisions of Section 12 above and 14 below, and the
Employee shall continue to observe the provisions set forth in Sections 14, 16
and 17 hereof, regardless of the termination of this Agreement for any reason
except termination pursuant to subsection 13(a).
14. The Employee agrees that in the event Employee ceases to be
an employee of the Company between the date hereof and September 16, 1996,
Employee shall have the obligation to transfer and deliver to the Company, in
consideration for the Company's loss of Employee's services, 39,510 shares of
Common Stock of the Company; provided, however, that in the event that, while
Employee is an employee of the Company, there is a merger, consolidation,
purchase of assets or other business combination by the Company with another
person in which the other person is the survivor or purchaser and cash or
non-cash consideration is distributed to the holders of the Company's Common
Stock, the Employee shall be released from this covenant in its entirety.
Upon such transfer and delivery of such shares, the Company shall pay
the Employee, in cash, the lesser of (i) Employee's cost for such shares, and
(ii) $.167 per share. In lieu of the transfer and delivery of such shares,
Employee may satisfy such obligation by assigning and transferring to the
Company "Share Contract rights." "Share Contract rights" shall mean any
contractual rights Employee then has to purchase from any person or entity, for
a price of not more than $.167 per share, a number of shares of Common Stock
that is not less than the number otherwise required to be transferred and
delivered to the Company pursuant to this Section. Share Contract rights shall
not be subject to any conditions other than those which, by their terms, could
be waived by the Company. All share and share price numbers set forth herein
shall be appropriately adjusted for any stock splits, reverse stock splits and
recapitalizations of the Company occurring after the date hereof.
15. The Company shall be entitled to all of the benefits
and profits arising from or incident to all work, service, and advice of the
Employee provided to the Company by the Employee.
16. (a) Trade Secrets of the Company. The Employee during the
term of employment under this Agreement will have access to and become
acquainted with various trade secrets, consisting of technical data, plans and
specifications, research and test results, feasibility studies, business plans,
financial records, customer lists, and other business documents, which are owned
by the Company, or its shareholders, and which are regularly used in the
operation of the business of the Company. The Employee shall not disclose any
of the aforesaid trade secrets, directly or indirectly, or use them in any way,
either during the term of this Agreement or at any time thereafter, except as
required in the course of his employment. All files, records, documents, plans,
and similar items relating to the business of the
<PAGE> 5
Employee or otherwise coming into his possession, shall remain the exclusive
property of the Company and shall not be removed under any circumstances from
the premises where the work of the Company is being carried on without the
prior written consent of the Company.
(a) Confidential Data of Customers and the Company. The
Employee in the course of his duties will or may be handling technical,
statistical, and planning data on the future plans and requirements for
customers and/or potential customers of the Company, and similar material
pertaining to the Company's shareholders. All such data is confidential and
shall not be disclosed, directly or indirectly, or used by the Employee in any
way, either during the term of this Agreement or at any time thereafter, except
as required in the course of Employee's employment.
(b) Inventions by Employee. All concepts, designs, ideas,
inventions, knowhow, and industrial property rights (hereinafter called
"Inventions") created, devised or improved by the Employee during the term of
employment relating to the business of the Company shall be the sole and
exclusive property of the Company and shall be treated in a confidential manner
pursuant to subsection 16(a) above. The Employee shall fully disclose all such
Inventions to the Company. The handling of any Inventions made by the Employee
during the employment term shall be governed by the provisions set forth below:
(i) The Employee agrees that any Inventions made
by the Employee, solely or jointly with others, during the term of this
Agreement, that are made with the Company's equipment, supplies,
facilities, trade secrets, or time; or that relate, at the time of
conception or of reduction to practice, to the business of the Company
or to the Company or the Company's actual or demonstrably anticipated
research or development; or that result from any work performed by the
Employee for the Company, shall belong to the Company, and promises to
assign all such Inventions to the Company.
(ii) The Employee also agrees that the Company
shall have the right to keep any such Inventions as trade secrets, if
the Company so chooses.
(iii) The Employee agrees to assign to the Company
all rights in any other inventions.
(iv) In order to permit the Company to claim rights
to which it may be entitled, the Employee agrees to disclose to the
Company in confidence all Inventions that Employee makes during the
course of his employment and all patent applications filed by the
Employee within a year after termination of his employment.
(v) The Employee shall assist the Company in
obtaining patents on all Inventions, designs, improvements, and
discoveries deemed patentable by the Company in the United States and
in all foreign countries, and shall execute all documents and do all
things necessary to obtain letters patent, to vest the Company with full
and exclusive title thereto, and to protect the same against
infringement by others.
(vi) For the purposes of this Agreement, an
Invention is deemed to have been made during the period of the
Employee's employment if the Invention was conceived or first actually
reduced to practice during that period, and the Employee agrees that any
patent application filed within one year after termination of his
employment hereunder shall be presumed to relate to an invention made
during the term of the
<PAGE> 6
Employee's employment unless the Employee can provide conclusive written
evidence to the contrary.
17. During the term of this Agreement, the Employee agrees
that he will not, directly or indirectly, be interested in any manner as
partner, officer, director, stockholder (other than a passive investor, which
shall be defined as ownership of less than 1% of the equity of a publicly
traded corporation or association), consultant, advisor, employee or in any
other capacity in or with respect to any other firm, corporation, partnership,
trust, association or organization which is engaged in any line of business
in any geographical area in which the Company is engaged or has under
development.
After the date of the termination of Employee's employment, whether
pursuant to Section 13 hereof or otherwise, Employee agrees that he will not,
during the period commencing on the date of termination and ending on the later
of (i) September 30, 1998 or (ii) 365 days after termination, directly or
indirectly, be interested in any manner as partner, officer, director,
stockholder (other than a passive investor, which shall be defined as ownership
of less than 1% of the equity of a publicly traded corporation or association),
consultant, advisor, employee or in any other capacity in or with respect to any
other firm, corporation, partnership, trust, association or organization which
is engaged in any line of business in which the Company is engaged or has under
development in any county of any state in which the Company is doing business.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (a) September 30, 1998, and (b) 365 days after termination,
directly or indirectly, (i) entice, induce, solicit, or encourage any employee
to leave the employ of the Company to engage in any line of business in which
the Company is engaged or has under development as of the date of termination
of Employee's employment with the Company or (ii) hire any other employee of
the Company to engage in any line of business if such employee's base salary
and any fixed or guaranteed bonus per year will be more than $50,000.
18. In the event that any court or tribunal of proper jurisdiction
and venue shall find that the restrictions contained in Section 17 above are
unreasonable, the parties agree that such court shall determine a reasonable
time and/or geographical area for such restrictions. To the extent that any
other obligations set forth in this Agreement shall be declared invalid or
unenforceable, said clause of obligation shall be deemed to be severable, and
the remaining obligations imposed by the provisions of this Agreement shall be
fully enforceable as if such invalid or unenforceable provisions had not been
included herein.
19. The Employee agrees that the remedy at law for any breach or
threatened breach of the restrictions contained in Section 17 above will be
inadequate, and that any breach or threatened breach would cause immediate and
permanent damages as would be impossible to ascertain. Therefore, the Employee
agrees that in the event of any breach or threatened breach of any provisions of
Section 17 above by him, in addition to any and all legal, equitable and
arbitral remedies available to the Company for such breach or threatened breach,
including a recovery of damages, the Company shall be entitled to obtain in any
court or tribunal having jurisdiction preliminary or permanent injunctive relief
without the necessity of proving actual damage by reason of such breach, and to
the extent permissible under the application statutes and rules of procedure, a
temporary restraining order may be granted immediately upon commencement of such
action.
20. The Employee represents and warrants that (a) he is
not a party to or bound by any agreement or subject to any restriction or
limitation, whether written, oral or arising out of any prior or
<PAGE> 7
current relationship, which would be violated or impaired by his entering into,
and performing for the Company his obligations under this Agreement and (b) he
does not possess confidential information arising out of any such relationship
which would be utilized in connection with his employment by the Company.
21. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the employment and
understandings between the parties with respect to the employment contemplated
herein and sets forth a complete agreement and understanding of the parties.
No change, termination or attempted waiver of any of the provisions of this
Agreement shall be of any force or effect unless the same is set forth in
writing, duly adopted by written resolution of the Board, and duly executed
by the party against which it is sought to be enforced.
22. The failure of either party to insist in one or
more instances upon the terms and conditions of this Agreement, or to exercise
any right hereunder, shall not be construed as a waiver of the future
performance of any such term or the future exercise of such right, and the
obligation of each party with respect to such future performance shall continue
in full force and effect.
23. It is the intention of the Company and the Employee
that this Agreement and the performance hereunder and all suits and special
proceedings that might be brought pursuant hereto be construed in accordance
with the laws of the State of California, and that in any action, special
proceeding, or other proceeding that may be brought arising out of, or in
connection with, or by reason of this Agreement, the laws of the State of
California shall be applicable and shall govern to the exclusion of the law of
any other forum, without regard to the jurisdiction in which any action or
special proceeding may be instituted.
24. Any controversy or claim arising out of or relating
to this Agreement or its interpretation or the breach thereof shall be
determined by arbitration before the American Arbitration Association, which
arbitration shall be held in Los Angeles, California in accordance with the
Commercial Arbitration Rules of said American Arbitration Association. The
award of the arbitrator shall be final and binding on the parties and may be
entered as a judgement or decree in any court having jurisdiction of such
proceedings. The costs and legal fees of all parties to any arbitration
proceeding shall be borne by the party against whom the award is made.
25. This Agreement is not assignable by the Employee,
but is assignable by the Company to any subsidiary, parent, affiliated or
associated company or any company which purchases the assets of the Company.
As used herein, the term "the Company" shall include any company to which this
Agreement shall have been assigned.
26. Any and all notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally or sent by certified mail or registered mail, postage
prepaid to each of the parties at the following addresses:
Employee: John W. Hesse
22555 Ponderay Drive
West Linn, OR 97068
Tel.: 503-557-1242
Fax.: 503-557-1637
<PAGE> 8
The Company: Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Attn: James M. Mackenzie, Jr.
Tel.: 310-649-0314
Fax.: 310-649-3855
with a copy to: Patricof & Co. Ventures, Inc.
545 Madison Avenue
New York, NY 10022
Attn: Robert M. Chefitz
Tel.: 212-753-6300
Fax.: 212-319-6155
Mitchell, Silberberg & Knupp LLP
1377 West Olympic Boulevard
Los Angeles, CA 90064-1683
Attn: Lessing E. Gold, Esq.
Tel.: 310-312-3228
Fax.: 310-312-3798
Any party may change his address for the purposes of this
paragraph by giving written notice of such change to the other party in the
manner herein provided for giving notice.
____________________
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Employment Agreement as of the day and year first written
above.
PROTECTION ONE, INC.
By: /s/ James M. Mackenzie, Jr. John W. Hesse
---------------------------- ----------------------
James M. Mackenzie, Jr. JOHN W. HESSE
President
<PAGE> 1
EXHIBIT 10.5
PROTECTION ONE, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of May 24,
1996, between John E. Mack, III (the "Employee") and Protection One, Inc.
(previously known as P1 Acquisition Corporation), a Delaware corporation
(including any and all subsidiaries, the "Company").
The Employee and the Company are parties to an Employment
Agreement dated as of September 16, 1991, as amended by Amendment No. 1 to
Employment Agreement dated as of June 29, 1994 (as so amended, the "Employment
Agreement").
The Employee and the Company desire to further amend and to
restate the Employment Agreement as provided herein.
Accordingly, the Company and the Employee agree that effective
as of the date hereof, the Employment Agreement shall be amended and restated
to read is full as follows:
1. The Company hereby employs and continues to engage
the Employee as Vice President-Business Development and Assistant Secretary.
The Employee's duties, responsibilities and title shall be determined by the
Company's Board of Directors (the "Board") and may change from time to time.
2. The term of this Agreement commenced on September
16, 1991 and shall be continually extended such that at all times the remaining
term hereof is three years; provided, however, that this Agreement shall be
subject to termination as provided in Section 13 hereof.
3. Subject to the supervision and direction of the Board
or its designees, the Employee agrees that he shall, at all times, faithfully,
industriously and to the best of his ability and experience, perform all the
duties that may be required of him pursuant to the terms hereof to the
satisfaction of the Company. The Employee shall devote his full time and
attention to the duties assigned to him and shall serve the Company diligently
and honestly in its business and use his best endeavors to promote the interest
of the Company.
4. As long as the Employee remains employed by the
Company, in consideration of the services to be performed by the Employee
during the term of this Agreement, the Company shall pay or cause to be paid
the Employee, and the Employee shall accept in full payment for such services,
a base salary (the "Base Salary") of $180,128 per year, payable monthly,
subject to increase in accordance with the Company's policy with respect to
executive salaries as in effect from time to time. Employee recognizes and
agrees that all compensation, benefits, and common stock performance warrants
hereunder shall be good consideration for this Employment Agreement, and any
and all agreements required to be executed hereunder.
5. During the term of this Agreement, the Employee shall
be entitled to participate in the Company's Common Stock Performance Warrant
Plan and all other benefit plans and programs available to the Company's key
employees in accordance with the terms and conditions thereof.
6. [Intentionally omitted]
7. [Intentionally omitted]
<PAGE> 2
8. The Company shall provide, at no cost to the
Employee, insurance and health care benefits from time to time (and subject to
modification) generally offered by the Company to its key employees.
9. In the event that the Employee is required to travel
in connection with his employment, the Company shall advance funds to the
Employee or reimburse him, for reasonable and documented travel, subsistence
and other out-of-pocket expenses, as well as non- travel business entertainment
expenses incurred by him, in accordance with the then prevailing policies of
the Company.
10. The Employee shall receive a monthly automobile usage
allowance of $500 in lieu of any other allowances for automobile expenses other
than reimbursement for gas, tolls and parking away from the office when on
Company business.
11. The Employee shall be entitled to vacation in
accordance with vacation policies adopted from time to time by the Board for
the Company's key employees. The Employee's initial vacation entitlement is
three (3) weeks per year.
12. (a) If this Agreement is terminated, whether with
or without cause, except as otherwise provided in this Section 12 the Company
shall have no further obligation to pay or cause to be paid to the Employee any
further compensation or benefits; provided, however, that the Company shall pay
or cause to be paid to the Employee all accrued but unpaid Base Salary and all
vacation and other employee benefits and all unreimbursed expenses incurred
prior to the termination date and owing to the Employee pursuant to Sections 9,
10 and 11 hereof.
(a) In the event that during the term of this
Agreement the Employee dies, the Employee is terminated because of a Disability
pursuant to subsection 13(b) hereof, or the Company terminates the Employee's
employment without cause as provided in subsection 13(d) hereof, the Company
shall pay the Employee (or his estate or personal representative, as
applicable), during each of the three years following the date of the
Employee's death or termination of employment and in full satisfaction of the
Company's obligations hereunder or otherwise in connection with the Employee's
employment with the Company (other than the obligations set forth in subsection
12(a)), the following amounts:
(i) If the Employee dies, an amount (the
"Termination Amount") each year equal to (x) the Base Salary at the
time of death plus (y) the last annual bonus paid or payable to the
Employee by the Company, if any, which Termination Amount shall be
paid to the Employee in equal monthly installments on the first day of
each calendar month; and
(ii) If the Employee's employment is terminated by
the Company as a result of a Disability or without cause, an amount
each year equal to the excess, if any, of the Termination Amount over
the total annual compensation for such year, if any, earned by the
Employee from any new place of employment. If the Employee earns for
any such year from any such new employment more than the Termination
Amount, the Employee shall not be entitled to any payment from the
Company with respect to such period, but the Employee shall not be
obligated to pay the amount of the excess to the Company; provided,
however, that the Employee shall be obligated to return to the Company
any payment or payments previously made to the Employee for such year
in excess of the amounts due under this paragraph (ii). The Employee
acknowledges that the amounts provided for in this paragraph (ii)
shall be subject to reduction as provided below and shall not be paid
to the Employee if he is terminated for cause or he voluntarily ceases
to be an employee of the Company. The payments provided for in this
paragraph (ii) shall be made to the
<PAGE> 3
Employee in equal monthly installments on the 10th day of each
calendar month, subject to the Company's receipt from the Employee of
such statement or statements as the Company may reasonably request
setting forth the compensation, if any, earned by the Employee from
any new place of employment during the immediately preceding calendar
month.
Notwithstanding the provisions of paragraph (ii) immediately
above, in the event that the Employee breaches any of the covenants set forth
in Section 17 hereof, then the "Termination Amount" shall consist solely of the
Base Salary at the time of the Employee's termination of employment and shall
not include any bonus.
13. This Agreement and Employee's employment by the
Company shall terminate upon the happening of any of the following events:
(a) The death of the Employee.
(b) At the Company's option, the inability of the
Employee to render for a period of 180 consecutive days, full and
effective service hereunder because of incapacity, whether resulting
from illness, accident or otherwise (such inability a "Disability").
(c) Receipt by the Employee of notice from the
Company of termination for cause. The term "cause" as used herein
shall mean:
(i) prolonged or repeated absence from
duty without the consent of the Company (for reasons other
than the Employee's health);
(ii) habitual neglect of the Employee's
duties as an employee of the Company;
(iii) engaging in any activity which is in
conflict with or adverse to the business interests of the
Company;
(vi) violation in any material respect by
the Employee of any provision of this Agreement;
(v) willful or serious misconduct on the
part of the Employee relating to the performance of his duties
hereunder or otherwise injurious to the Company; or
(vi) a felony or conviction of a crime
involving moral turpitude of the Employee.
(d) Thirty (30) days after receipt by Employee of
written notice from the Company that this Agreement is terminated
without cause, or thirty (30) days after receipt of written notice to
the Company from Employee of termination as a result of the Company's
violation in any material respect of any provision of this Agreement;
provided, however, that any such notice given by Employee shall specify
the violation or violations claimed and that this Agreement shall not
terminate as a result of any such notice given by
<PAGE> 4
the Employee if the violation or violations set forth in the notice
are cured within 30 days after the notice is given.
(e) Six (6) months after receipt by the Company
of written notice from Employee that this Agreement is terminated
without breach by the Company; provided, however, that this Agreement
may not be so terminated by Employee prior to May 24, 1999.
The Employee shall be entitled to written notice and a hearing
before the Board prior to termination pursuant to subsection 13(c) and, in
the case of paragraphs (iii) and (iv) of that subsection, a 30-day opportunity
to cure, during which time the Employee may be excluded from the Company's
premises.
In the event of the termination of this Agreement, whether for
cause or otherwise, all further obligations of the Company hereunder shall
terminate, except that the Employee shall continue to be eligible for payments
in accordance with the provisions of Section 12 above and 14 below, and the
Employee shall continue to observe the provisions set forth in Sections 14, 16
and 17 hereof, regardless of the termination of this Agreement for any reason
except termination pursuant to subsection 13(a).
14. The Employee agrees that in the event Employee ceases to
be an employee of the Company between the date hereof and September 16, 1996,
Employee shall have the obligation to transfer and deliver to the Company, in
consideration for the Company's loss of Employee's services, 28,222 shares of
Common Stock of the Company; provided, however, that in the event that, while
Employee is an employee of the Company, there is a merger, consolidation,
purchase of assets or other business combination by the Company with another
person in which the other person is the survivor or purchaser and cash or
non-cash consideration is distributed to the holders of the Company's Common
Stock, the Employee shall be released from this covenant in its entirety.
Upon such transfer and delivery of such shares, the Company
shall pay the Employee, in cash, the lesser of (i) Employee's cost for such
shares, and (ii) $.167 per share. In lieu of the transfer and delivery of such
shares, Employee may satisfy such obligation by assigning and transferring to
the Company "Share Contract rights." "Share Contract rights" shall mean any
contractual rights Employee then has to purchase from any person or entity, for
a price of not more than $.167 per share, a number of shares of Common Stock
that is not less than the number otherwise required to be transferred and
delivered to the Company pursuant to this Section. Share Contract rights shall
not be subject to any conditions other than those which, by their terms, could
be waived by the Company. All share and share price numbers set forth herein
shall be appropriately adjusted for any stock splits, reverse stock splits and
recapitalizations of the Company occurring after the date hereof.
15. The Company shall be entitled to all of the benefits
and profits arising from or incident to all work, service, and advice of the
Employee provided to the Company by the Employee.
16. (a) Trade Secrets of the Company. The Employee
during the term of employment under this Agreement will have access to and
become acquainted with various trade secrets, consisting of technical data,
plans and specifications, research and test results, feasibility studies,
business plans, financial records, customer lists, and other business
documents, which are owned by the Company, or its shareholders, and which are
regularly used in the operation of the business of the Company. The Employee
shall not disclose any of the aforesaid trade secrets, directly or indirectly,
or use them in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment. All files,
records, documents, plans, and similar items relating to the business of the
<PAGE> 5
Employee or otherwise coming into his possession, shall remain the exclusive
property of the Company and shall not be removed under any circumstances from
the premises where the work of the Company is being carried on without the
prior written consent of the Company.
(a) Confidential Data of Customers and the
Company. The Employee in the course of his duties will or may be handling
technical, statistical, and planning data on the future plans and requirements
for customers and/or potential customers of the Company, and similar material
pertaining to the Company's shareholders. All such data is confidential and
shall not be disclosed, directly or indirectly, or used by the Employee in any
way, either during the term of this Agreement or at any time thereafter, except
as required in the course of Employee's employment.
(b) Inventions by Employee. All concepts,
designs, ideas, inventions, knowhow, and industrial property rights
(hereinafter called "Inventions") created, devised or improved by the Employee
during the term of employment relating to the business of the Company shall be
the sole and exclusive property of the Company and shall be treated in a
confidential manner pursuant to subsection 16(a) above. The Employee shall
fully disclose all such Inventions to the Company. The handling of any
Inventions made by the Employee during the employment term shall be governed by
the provisions set forth below:
(i) The Employee agrees that any Inventions made
by the Employee, solely or jointly with others, during the term of
this Agreement, that are made with the Company's equipment, supplies,
facilities, trade secrets, or time; or that relate, at the time of
conception or of reduction to practice, to the business of the Company
or to the Company or the Company's actual or demonstrably anticipated
research or development; or that result from any work performed by the
Employee for the Company, shall belong to the Company, and promises to
assign all such Inventions to the Company.
(ii) The Employee also agrees that the Company
shall have the right to keep any such Inventions as trade secrets, if
the Company so chooses.
(iii) The Employee agrees to assign to the Company
all rights in any other inventions.
(iv) In order to permit the Company to claim
rights to which it may be entitled, the Employee agrees to disclose to
the Company in confidence all Inventions that Employee makes during
the course of his employment and all patent applications filed by the
Employee within a year after termination of his employment.
(v) The Employee shall assist the Company in
obtaining patents on all Inventions, designs, improvements, and
discoveries deemed patentable by the Company in the United States and
in all foreign countries, and shall execute all documents and do all
things necessary to obtain letters patent, to vest the Company with
full and exclusive title thereto, and to protect the same against
infringement by others.
(vi) For the purposes of this Agreement, an
Invention is deemed to have been made during the period of the
Employee's employment if the Invention was conceived or first actually
reduced to practice during that period, and the Employee agrees that
any patent application filed within one year after termination of his
employment hereunder shall be presumed to relate to an invention made
during the term of the
<PAGE> 6
Employee's employment unless the Employee can provide conclusive written
evidence to the contrary.
17. During the term of this Agreement, the Employee
agrees that he will not, directly or indirectly, be interested in any manner as
partner, officer, director, stockholder (other than a passive investor, which
shall be defined as ownership of less than 1% of the equity of a publicly
traded corporation or association), consultant, advisor, employee or in any
other capacity in or with respect to any other firm, corporation, partnership,
trust, association or organization which is engaged in any line of business in
any geographical area in which the Company is engaged or has under development.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (i) May 24, 1999 or (ii) 365 days after termination, directly or
indirectly, be interested in any manner as partner, officer, director,
stockholder (other than a passive investor, which shall be defined as ownership
of less than 1% of the equity of a publicly traded corporation or association),
consultant, advisor, employee or in any other capacity in or with respect to
any other firm, corporation, partnership, trust, association or organization
which is engaged in any line of business in which the Company is engaged or has
under development in any county of any state in which the Company is doing
business.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (a) May 24, 2000, and (b) 365 days after termination, directly or
indirectly, (i) entice, induce, solicit, or encourage any employee to leave the
employ of the Company to engage in any line of business in which the Company is
engaged or has under development as of the date of termination of Employee's
employment with the Company or (ii) hire any other employee of the Company to
engage in any line of business if such employee's base salary and any fixed or
guaranteed bonus per year will be more than $50,000.
18. In the event that any court or tribunal of proper
jurisdiction and venue shall find that the restrictions contained in Section 17
above are unreasonable, the parties agree that such court shall determine a
reasonable time and/or geographical area for such restrictions. To the extent
that any other obligations set forth in this Agreement shall be declared
invalid or unenforceable, said clause of obligation shall be deemed to be
severable, and the remaining obligations imposed by the provisions of this
Agreement shall be fully enforceable as if such invalid or unenforceable
provisions had not been included herein.
19. The Employee agrees that the remedy at law for any
breach or threatened breach of the restrictions contained in Section 17 above
will be inadequate, and that any breach or threatened breach would cause
immediate and permanent damages as would be impossible to ascertain.
Therefore, the Employee agrees that in the event of any breach or threatened
breach of any provisions of Section 17 above by him, in addition to any and all
legal, equitable and arbitral remedies available to the Company for such breach
or threatened breach, including a recovery of damages, the Company shall be
entitled to obtain in any court or tribunal having jurisdiction preliminary or
permanent injunctive relief without the necessity of proving actual damage by
reason of such breach, and to the extent permissible under the application
statutes and rules of procedure, a temporary restraining order may be granted
immediately upon commencement of such action.
20. The Employee represents and warrants that (a) he is
not a party to or bound by any agreement or subject to any restriction or
limitation, whether written, oral or arising out of any prior or
<PAGE> 7
current relationship, which would be violated or impaired by his entering into,
and performing for the Company his obligations under this Agreement and (b) he
does not possess confidential information arising out of any such relationship
which would be utilized in connection with his employment by the Company.
21. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the employment and
understandings between the parties with respect to the employment contemplated
herein and sets forth a complete agreement and understanding of the parties.
No change, termination or attempted waiver of any of the provisions of this
Agreement shall be of any force or effect unless the same is set forth in
writing, duly adopted by written resolution of the Board, and duly executed by
the party against which it is sought to be enforced.
22. The failure of either party to insist in one or more
instances upon the terms and conditions of this Agreement, or to exercise any
right hereunder, shall not be construed as a waiver of the future performance
of any such term or the future exercise of such right, and the obligation of
each party with respect to such future performance shall continue in full force
and effect.
23. It is the intention of the Company and the Employee
that this Agreement and the performance hereunder and all suits and special
proceedings that might be brought pursuant hereto be construed in accordance
with the laws of the State of California, and that in any action, special
proceeding, or other proceeding that may be brought arising out of, or in
connection with, or by reason of this Agreement, the laws of the State of
California shall be applicable and shall govern to the exclusion of the law of
any other forum, without regard to the jurisdiction in which any action or
special proceeding may be instituted.
24. Any controversy or claim arising out of or relating
to this Agreement or its interpretation or the breach thereof shall be
determined by arbitration before the American Arbitration Association, which
arbitration shall be held in Los Angeles, California in accordance with the
Commercial Arbitration Rules of said American Arbitration Association. The
award of the arbitrator shall be final and binding on the parties and may be
entered as a judgement or decree in any court having jurisdiction of such
proceedings. The costs and legal fees of all parties to any arbitration
proceeding shall be borne by the party against whom the award is made.
25. This Agreement is not assignable by the Employee, but
is assignable by the Company to any subsidiary, parent, affiliated or
associated company or any company which purchases the assets of the Company.
As used herein, the term "the Company" shall include any company to which this
Agreement shall have been assigned.
26. Any and all notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed given when
delivered personally or sent by certified mail or registered mail, postage
prepaid to each of the parties at the following addresses:
Employee: John E. Mack, III
427 El Medio Drive
Pacific Palisades, CA 90272
Tel.: 310-454-0161
<PAGE> 8
The Company: Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Attn: James M. Mackenzie, Jr.
Tel.: 310-649-0314
Fax.: 310-649-3855
with a copy to: Patricof & Co. Ventures, Inc.
545 Madison Avenue
New York, NY 10022
Attn: Robert M. Chefitz
Tel.: 212-753-6300
Fax.: 212-319-6155
Mitchell, Silberberg & Knupp LLP
1377 West Olympic Boulevard
Los Angeles, CA 90064-1683
Attn: Lessing E. Gold, Esq.
Tel.: 310-312-3228
Fax.: 310-312-3798
Any party may change his address for the purposes of this
paragraph by giving written notice of such change to the other party in the
manner herein provided for giving notice.
____________________
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Employment Agreement as of the day and year first written
above.
PROTECTION ONE, INC.
By: /s/ James M. Mackenzie, Jr. /s/ John E. Mack, III
------------------------------ ---------------------------------
James M. Mackenzie, Jr. JOHN E. MACK, III
President
<PAGE> 1
EXHIBIT 10.6
PROTECTION ONE, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of May 24,
1996, between Thomas K. Rankin (the "Employee") and Protection One, Inc.
(previously known as P1 Acquisition Corporation), a Delaware corporation
(including any and all subsidiaries, the "Company").
The Employee and the Company are parties to an Employment
Agreement dated as of September 16, 1991, as amended by Amendment No. 1 to
Employment Agreement dated as of June 29, 1994 (as so amended, the "Employment
Agreement").
The Employee and the Company desire to further amend and to
restate the Employment Agreement as provided herein.
Accordingly, the Company and the Employee agree that effective
as of the date hereof, the Employment Agreement shall be amended and restated
to read is full as follows:
1. The Company hereby employs and continues to
engage the Employee as Vice President - Branch Management and Assistant
Secretary. The Employee's duties, responsibilities and title shall be
determined by the Company's Board of Directors (the "Board") and may change
from time to time.
2. The term of this Agreement commenced on
September 16, 1991 and shall be continually extended such that at all times the
remaining term hereof is three years; provided, however, that this Agreement
shall be subject to termination as provided in Section 13 hereof.
3. Subject to the supervision and direction of
the Board or its designees, the Employee agrees that he shall, at all times,
faithfully, industriously and to the best of his ability and experience, perform
all the duties that may be required of him pursuant to the terms hereof to the
satisfaction of the Company. The Employee shall devote his full time and
attention to the duties assigned to him and shall serve the Company
diligently and honestly in its business and use his best endeavors to promote
the interest of the Company.
4. As long as the Employee remains employed by
the Company, in consideration of the services to be performed by the Employee
during the term of this Agreement, the Company shall pay or cause to be paid
the Employee, and the Employee shall accept in full payment for such services,
a base salary (the "Base Salary") of $180,128 per year, payable monthly,
subject to increase in accordance with the Company's policy with respect to
executive salaries as in effect from time to time. Employee recognizes and
agrees that all compensation, benefits, and common stock performance warrants
hereunder shall be good consideration for this Employment Agreement, and any
and all agreements required to be executed hereunder.
5. During the term of this Agreement, the
Employee shall be entitled to participate in the Company's Common Stock
Performance Warrant Plan and all other benefit plans and programs available
to the Company's key employees in accordance with the terms and conditions
thereof.
6. [Intentionally omitted]
7. [Intentionally omitted]
<PAGE> 2
8. The Company shall provide, at no cost to
the Employee, insurance and health care benefits from time to time (and subject
to modification) generally offered by the Company to its key employees.
9. In the event that the Employee is
required to travel in connection with his employment, the Company shall advance
funds to the Employee or reimburse him, for reasonable and documented travel,
subsistence and other out- of-pocket expenses, as well as non-travel business
entertainment expenses incurred by him, in accordance with the then prevailing
policies of the Company.
10. The Employee shall receive a monthly
automobile usage allowance of $500 in lieu of any other allowances for
automobile expenses other than reimbursement for gas, tolls and parking away
from the office when on Company business.
11. The Employee shall be entitled to vacation
in accordance with vacation policies adopted from time to time by the Board for
the Company's key employees. The Employee's initial vacation entitlement is
three (3) weeks per year.
12. (a) If this Agreement is terminated,
whether with or without cause, except as otherwise provided in this Section 12
the Company shall have no further obligation to pay or cause to be paid to the
Employee any further compensation or benefits; provided, however, that the
Company shall pay or cause to be paid to the Employee all accrued but unpaid
Base Salary and all vacation and other employee benefits and all unreimbursed
expenses incurred prior to the termination date and owing to the Employee
pursuant to Sections 9, 10 and 11 hereof.
(a) In the event that
during the term of this Agreement the Employee dies, the Employee is terminated
because of a Disability pursuant to subsection 13(b) hereof, or the Company
terminates the Employee's employment without cause as provided in subsection
13(d) hereof, the Company shall pay the Employee (or his estate or personal
representative, as applicable), during each of the three years following the
date of the Employee's death or termination of employment and in full
satisfaction of the Company's obligations hereunder or otherwise in connection
with the Employee's employment with the Company (other than the obligations set
forth in subsection 12(a)), the following amounts:
(i) If the Employee dies,
an amount (the "Termination Amount") each year equal to (x) the
Base Salary at the time of death plus (y) the last annual bonus
paid or payable to the Employee by the Company, if any, which
Termination Amount shall be paid to the Employee in equal
monthly installments on the first day of each calendar month;
and
(ii) If the Employee's
employment is terminated by the Company as a result of a
Disability or without cause, an amount each year equal to the
excess, if any, of the Termination Amount over the total annual
compensation for such year, if any, earned by the Employee
from any new place of employment. If the Employee earns for any
such year from any such new employment more than the Termination
Amount, the Employee shall not be entitled to any payment from
the Company with respect to such period, but the Employee shall
not be obligated to pay the amount of the excess to the Company;
provided, however, that the Employee shall be obligated to
return to the Company any payment or payments previously made
to the Employee for such year in excess of the amounts due under
this paragraph (ii). The Employee acknowledges that the amounts
provided for in this paragraph (ii) shall be subject to
reduction as provided below and shall not be paid to the
Employee if he is terminated for cause or he voluntarily ceases
to be an employee of the Company. The payments provided for in
this paragraph (ii) shall be made to the
<PAGE> 3
Employee in equal monthly installments on the 10th day of each calendar
month, subject to the Company's receipt from the Employee of such
statement or statements as the Company may reasonably request setting
forth the compensation, if any, earned by the Employee from any new
place of employment during the immediately preceding calendar month.
Notwithstanding the provisions of paragraph (ii) immediately
above, in the event that the Employee breaches any of the covenants set forth in
Section 17 hereof, then the "Termination Amount" shall consist solely of the
Base Salary at the time of the Employee's termination of employment and shall
not include any bonus.
13. This Agreement and Employee's employment by
the Company shall terminate upon the happening of any of the following events:
(a) The death of the Employee.
(b) At the Company's option, the inability
of the Employee to render for a period of 180 consecutive days, full
and effective service hereunder because of incapacity, whether
resulting from illness, accident or otherwise (such inability a
"Disability").
(c) Receipt by the Employee of notice from
the Company of termination for cause. The term "cause" as used herein
shall mean:
(i) prolonged or repeated
absence from duty without the consent of the Company
(for reasons other than the Employee's health);
(ii) habitual neglect of the
Employee's duties as an employee of the Company;
(iii) engaging in any
activity which is in conflict with or adverse to the
business interests of the Company;
(iv) violation in any
material respect by the Employee of any provision of
this Agreement;
(v) willful or serious
misconduct on the part of the Employee relating to the
performance of his duties hereunder or otherwise
injurious to the Company; or
(vi) a felony or conviction
of a crime involving moral turpitude of the Employee.
(d) Thirty (30) days after receipt by
Employee of written notice from the Company that this Agreement is
terminated without cause, or thirty (30) days after receipt of written
notice to the Company from Employee of termination as a result of the
Company's violation in any material respect of any provision of this
Agreement; provided, however, that any such notice given by Employee
shall specify the violation or violations claimed and that this
Agreement shall not terminate as a result of any such notice given by
<PAGE> 4
the Employee if the violation or violations set forth in the notice are
cured within 30 days after the notice is given.
(e) Six (6) months after receipt by the
Company of written notice from Employee that this Agreement is
terminated without breach by the Company; provided, however, that this
Agreement may not be so terminated by Employee prior to May 24, 1999.
The Employee shall be entitled to written notice and a hearing
before the Board prior to termination pursuant to subsection 13(c) and, in
the case of paragraphs (iii) and (iv) of that subsection, a 30-day opportunity
to cure, during which time the Employee may be excluded from the Company's
premises.
In the event of the termination of this Agreement, whether for
cause or otherwise, all further obligations of the Company hereunder shall
terminate, except that the Employee shall continue to be eligible for payments
in accordance with the provisions of Section 12 above and 14 below, and the
Employee shall continue to observe the provisions set forth in Sections 14, 16
and 17 hereof, regardless of the termination of this Agreement for any reason
except termination pursuant to subsection 13(a).
14. The Employee agrees that in the event Employee
ceases to be an employee of the Company between the date hereof and
September 16, 1996, Employee shall have the obligation to transfer
and deliver to the Company, in consideration for the Company's loss of
Employee's services, 28,222 shares of Common Stock of the Company; provided,
however, that in the event that, while Employee is an employee of the Company,
there is a merger, consolidation, purchase of assets or other business
combination by the Company with another person in which the other person is the
survivor or purchaser and cash or non-cash consideration is distributed to the
holders of the Company's Common Stock, the Employee shall be released from this
covenant in its entirety.
Upon such transfer and delivery of such shares, the Company
shall pay the Employee, in cash, the lesser of (i) Employee's cost for such
shares, and (ii) $.167 per share. In lieu of the transfer and delivery of such
shares, Employee may satisfy such obligation by assigning and transferring to
the Company "Share Contract rights." "Share Contract rights" shall mean any
contractual rights Employee then has to purchase from any person or entity, for
a price of not more than $.167 per share, a number of shares of Common Stock
that is not less than the number otherwise required to be transferred and
delivered to the Company pursuant to this Section. Share Contract rights shall
not be subject to any conditions other than those which, by their terms, could
be waived by the Company. All share and share price numbers set forth herein
shall be appropriately adjusted for any stock splits, reverse stock splits and
recapitalizations of the Company occurring after the date hereof.
15. The Company shall be entitled to all of the benefits
and profits arising from or incident to all work, service, and advice of the
Employee provided to the Company by the Employee.
16. (a) Trade Secrets of the Company. The Employee
during the term of employment under this Agreement will have access to and
become acquainted with various trade secrets, consisting of technical data,
plans and specifications, research and test results, feasibility studies,
business plans, financial records, customer lists, and other business documents,
which are owned by the Company, or its shareholders, and which are regularly
used in the operation of the business of the Company. The Employee shall not
disclose any of the aforesaid trade secrets, directly or indirectly, or use them
in any way, either during the term of this Agreement or at any time thereafter,
except as required in the course of his employment. All files, records,
documents, plans, and similar items relating to the business of the
<PAGE> 5
Employee or otherwise coming into his possession, shall remain the exclusive
property of the Company and shall not be removed under any circumstances from
the premises where the work of the Company is being carried on without the
prior written consent of the Company.
(a) Confidential Data of
Customers and the Company. The Employee in the course of his duties will or
may be handling technical, statistical, and planning data on the future plans
and requirements for customers and/or potential customers of the Company, and
similar material pertaining to the Company's shareholders. All such data is
confidential and shall not be disclosed, directly or indirectly, or used by the
Employee in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of Employee's employment.
(b) Inventions by
Employee. All concepts, designs, ideas, inventions, knowhow, and industrial
property rights (hereinafter called "Inventions") created, devised or improved
by the Employee during the term of employment relating to the business of the
Company shall be the sole and exclusive property of the Company and shall be
treated in a confidential manner pursuant to subsection 16(a) above. The
Employee shall fully disclose all such Inventions to the Company. The handling
of any Inventions made by the Employee during the employment term shall be
governed by the provisions set forth below:
(i) The Employee agrees
that any Inventions made by the Employee, solely or jointly with
others, during the term of this Agreement, that are made with the
Company's equipment, supplies, facilities, trade secrets, or time;
or that relate, at the time of conception or of reduction to
practice, to the business of the Company or to the Company or the
Company's actual or demonstrably anticipated research or
development; or that result from any work performed by the
Employee for the Company, shall belong to the Company, and promises
to assign all such Inventions to the Company.
(ii) The Employee also agrees
that the Company shall have the right to keep any such Inventions as
trade secrets, if the Company so chooses.
(iii) The Employee agrees to
assign to the Company all rights in any other inventions.
(iv) In order to permit the
Company to claim rights to which it may be entitled, the Employee
agrees to disclose to the Company in confidence all Inventions that
Employee makes during the course of his employment and all patent
applications filed by the Employee within a year after termination of
his employment.
(v) The Employee shall assist
the Company in obtaining patents on all Inventions, designs,
improvements, and discoveries deemed patentable by the Company in the
United States and in all foreign countries, and shall execute all
documents and do all things necessary to obtain letters patent, to
vest the Company with full and exclusive title thereto, and to protect
the same against infringement by others.
(vi) For the purposes of this
Agreement, an Invention is deemed to have been made during the period
of the Employee's employment if the Invention was conceived or first
actually reduced to practice during that period, and the Employee
agrees that any patent application filed within one year after
termination of his employment hereunder shall be presumed to relate to
an invention made during the term of the
<PAGE> 6
Employee's employment unless the Employee can provide conclusive
written evidence to the contrary.
17. During the term of this Agreement, the Employee
agrees that he will not, directly or indirectly, be interested in any manner as
partner, officer, director, stockholder (other than a passive investor, which
shall be defined as ownership of less than 1% of the equity of a publicly traded
corporation or association), consultant, advisor, employee or in any other
capacity in or with respect to any other firm, corporation, partnership, trust,
association or organization which is engaged in any line of business in any
geographical area in which the Company is engaged or has under development.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (i) May 24, 1999 or (ii) 365 days after termination, directly or
indirectly, be interested in any manner as partner, officer, director,
stockholder (other than a passive investor, which shall be defined as ownership
of less than 1% of the equity of a publicly traded corporation or association),
consultant, advisor, employee or in any other capacity in or with respect to
any other firm, corporation, partnership, trust, association or organization
which is engaged in any line of business in which the Company is engaged or has
under development in any county of any state in which the Company is doing
business.
After the date of the termination of Employee's employment,
whether pursuant to Section 13 hereof or otherwise, Employee agrees that he
will not, during the period commencing on the date of termination and ending on
the later of (a) May 24, 2000, and (b) 365 days after termination, directly or
indirectly, (i) entice, induce, solicit, or encourage any employee to leave the
employ of the Company to engage in any line of business in which the Company is
engaged or has under development as of the date of termination of Employee's
employment with the Company or (ii) hire any other employee of the Company to
engage in any line of business if such employee's base salary and any fixed or
guaranteed bonus per year will be more than $50,000.
18. In the event that any court or tribunal of proper
jurisdiction and venue shall find that the restrictions contained in Section 17
above are unreasonable, the parties agree that such court shall determine a
reasonable time and/or geographical area for such restrictions. To the extent
that any other obligations set forth in this Agreement shall be declared invalid
or unenforceable, said clause of obligation shall be deemed to be severable, and
the remaining obligations imposed by the provisions of this Agreement shall be
fully enforceable as if such invalid or unenforceable provisions had not been
included herein.
19. The Employee agrees that the remedy at law for any
breach or threatened breach of the restrictions contained in Section 17 above
will be inadequate, and that any breach or threatened breach would cause
immediate and permanent damages as would be impossible to ascertain. Therefore,
the Employee agrees that in the event of any breach or threatened breach of any
provisions of Section 17 above by him, in addition to any and all legal,
equitable and arbitral remedies available to the Company for such breach or
threatened breach, including a recovery of damages, the Company shall be
entitled to obtain in any court or tribunal having jurisdiction preliminary or
permanent injunctive relief without the necessity of proving actual damage by
reason of such breach, and to the extent permissible under the application
statutes and rules of procedure, a temporary restraining order may be granted
immediately upon commencement of such action.
20. The Employee represents and warrants that (a) he is
not a party to or bound by any agreement or subject to any restriction or
limitation, whether written, oral or arising out of any prior or
<PAGE> 7
current relationship, which would be violated or impaired by his entering into,
and performing for the Company his obligations under this Agreement and (b) he
does not possess confidential information arising out of any such relationship
which would be utilized in connection with his employment by the Company.
21. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the employment
and understandings between the parties with respect to the employment
contemplated herein and sets forth a complete agreement and understanding of
the parties. No change, termination or attempted waiver of any of the
provisions of this Agreement shall be of any force or effect unless the same
is set forth in writing, duly adopted by written resolution of the Board, and
duly executed by the party against which it is sought to be enforced.
22. The failure of either party to insist in one
or more instances upon the terms and conditions of this Agreement, or to
exercise any right hereunder, shall not be construed as a waiver of the
future performance of any such term or the future exercise of such right, and
the obligation of each party with respect to such future performance shall
continue in full force and effect.
23. It is the intention of the Company and the
Employee that this Agreement and the performance hereunder and all suits and
special proceedings that might be brought pursuant hereto be construed in
accordance with the laws of the State of California, and that in any action,
special proceeding, or other proceeding that may be brought arising out of, or
in connection with, or by reason of this Agreement, the laws of the State of
California shall be applicable and shall govern to the exclusion of the law of
any other forum, without regard to the jurisdiction in which any action or
special proceeding may be instituted.
24. Any controversy or claim arising out of or
relating to this Agreement or its interpretation or the breach thereof shall
be determined by arbitration before the American Arbitration Association, which
arbitration shall be held in Los Angeles, California in accordance with the
Commercial Arbitration Rules of said American Arbitration Association. The
award of the arbitrator shall be final and binding on the parties and may be
entered as a judgement or decree in any court having jurisdiction of such
proceedings. The costs and legal fees of all parties to any arbitration
proceeding shall be borne by the party against whom the award is made.
25. This Agreement is not assignable by the
Employee, but is assignable by the Company to any subsidiary, parent, affiliated
or associated company or any company which purchases the assets of the Company.
As used herein, the term "the Company" shall include any company to which this
Agreement shall have been assigned.
26. Any and all notices, requests, demands
other communications hereunder shall be in writing and shall be deemed given
when delivered personally or sent by certified mail or registered mail, postage
prepaid to each of the parties at the following addresses:
Employee: Thomas K. Rankin
4241 Dixie Canyon Avenue
Sherman Oaks, CA 91423
<PAGE> 8
The Company: Protection One, Inc.
6011 Bristol Parkway
Culver City, CA 90230
Attn: James M. Mackenzie, Jr.
Tel.: 310-649-0314
Fax.: 310-649-3855
with a copy to: Patricof & Co. Ventures, Inc.
545 Madison Avenue
New York, NY 10022
Attn: Robert M. Chefitz
Tel.: 212-753-6300
Fax.: 212-319-6155
Mitchell, Silberberg & Knupp LLP
1377 West Olympic Boulevard
Los Angeles, CA 90064-1683
Attn: Lessing E. Gold, Esq.
Tel.: 310-312-3228
Fax.: 310-312-3798
Any party may change his address for the purposes of this
paragraph by giving written notice of such change to the other party in the
manner herein provided for giving notice.
____________________
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Employment Agreement as of the day and year first written
above.
PROTECTION ONE, INC.
By: /s/ James M. Mackenzie, Jr. /s/ Thomas K. Rankin
------------------------------ -------------------------------
James M. Mackenzie, Jr. THOMAS K. RANKIN
President
<PAGE> 1
EXHIBIT 10.7
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into as of the
19th day of February, 1996 by and between PROTECTION ONE, INC., a Delaware
corporation with an address at 6011 Bristol Parkway, Culver City, CA 90230
(hereinafter referred to as the "Company") and BEN ENIS, an individual, having
an address at 4097 Robin Hill Road, La Canada, California 91011 (hereinafter
referred to as "Consultant").
A. The Company is engaged in the business of providing alarm monitoring
services. The Company desires to engage Consultant, who is a Professor of
Marketing at the University of Southern California, to provide consulting
services for advertising and marketing the Company's services and products.
B. Consultant desires to accept such engagement on the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
promises contained herein, the parties hereto covenant and agree as follows:
1. Consulting Services. The Company hereby engages Consultant to
provide consulting services to the Company. Such consulting services will
consist of advising and assisting the Company in the formulation and
implementation of advertising and marketing objectives and strategies for the
Company and its affiliates in the alarm monitoring and security industry. The
Consultant shall spend such a number of hours in provision of such consulting
services as shall be reasonably required to assure the satisfactory performance
of such services. Consultant hereby agrees to provide such consulting services
in consideration of the compensation specified in Section 2 of this Agreement.
The exact times and circumstances of the provision of such consulting services
will be determined by the mutual agreement of Consultant and the Company.
2. Compensation. Consultant's compensation for services performed
hereunder shall be Seven Thousand Five Hundred Dollars ($7,500.00) per month,
payable in advance on the 19th day of the month preceding the month in which
consulting services are to be rendered. Consultant shall be solely responsible
for his out-of-pocket costs and expenses related to the provision of consulting
services and the Company shall have no obligation to reimburse Consultant for
such costs and expenses, except for expenses expressly approved by an officer
of Company.
3. Term of Agreement. The term of this Agreement shall commence on the
date hereof and, and unless terminated sooner pursuant to the terms of this
Agreement, shall expire on March 31, 1997.
4. Termination. The term of this Agreement may be terminated prior
to the time set forth in Section 3 as follows:
(a) The Company shall have the right to terminate this
Agreement at any time for Cause by giving Consultant written notice of the
effective date of termination (which effective date may be the date of such
notice). For purposes of this Agreement only, Cause shall be limited solely
to: (i) fraud, misappropriation, embezzlement or other act of material
misconduct by Consultant against the Company or any of its affiliates or an
act contrary their best interests; (ii) willful neglect or gross
2
<PAGE> 2
negligence by Consultant in the performance of his services in accordance
with the terms of this Agreement; (iv) Consultant's breach of or failure to
perform when due any material obligation of Consultant under this Agreement,
which breach is not cured within thirty (30) days of such breach; (v)
violation of the duty of loyalty to the Company; (vi) death or disability
(which shall determined at the sole discretion of the Company) of Consultant;
(vii) conviction of or plea of nolo contendere to a felony; or (viii)
the occurrence of an event of bankruptcy with respect to Consultant.
(b) Consultant shall have the right to terminate this Agreement
by giving the Company written notice of the effective date of termination
(which effective date may be the effective date of such notice) upon the
occurrence of any of the following events: (i) the Company's breach of or
failure to perform when due any material obligation of the Company under this
Agreement, which breach is not cured within thirty (30) days of such breach;
(ii) the occurrence of an event of bankruptcy with respect to the Company; or
(iii) Consultant's death or disability (which shall be determined at the sole
discretion of Consultant).
(c) Either party can terminate this agreement at any time upon
giving the other ninety (90) days prior written notice.
Upon termination of this Agreement, neither party shall have any further
obligation or liability to the other, except as provided in Sections 5 and 6.
5. Confidentiality. The parties acknowledge that in the course of
performing this Agreement, the Company may reveal to Consultant confidential
information. "Confidential Information" shall mean business information and
trade secrets, including but not limited to, customer and vendor information,
marketing programs and plans, financial information, customer lists, price
lists, techniques and other data of the Company or its affiliates or customers
which the Consultant knows or reasonably should know should be treated as
confidential. Consultant shall hold in confidence and shall not disclose to
anyone, or otherwise exploit for his own benefit or the benefit of any person
or entity, the Confidential Information, except in connection with services to
be rendered pursuant to this Agreement. Upon the termination of this
Agreement, Consultant shall promptly return any Confidential Information and
all copies thereof to the Company. The provisions of this Section 5 and of
Section 6 shall survive the termination of this Agreement.
6. Injunctive Relief. Consultant acknowledges and agrees that the
disclosure of any aspect of Confidential Information, except as permitted
herein, will give rise to irreparable injury to the Company inadequately
compensable in damages. Accordingly, the Company may obtain injunctive relief
against the breach or threatened breach of Consultant's obligations of
confidentiality pursuant to Section 5 of this Agreement.
7. Relationship of Parties. As of the date of this Agreement,
Consultant is a director of the Company. Nothing contained herein modifies or
amends Consultant's rights (including reimbursement for expenses incurred while
acting in the capacity of director), obligations and duties as a director of
Company. In the performance of this Agreement, it is mutually understood and
agreed that Consultant is at all times acting and performing as an independent
contractor and as such he shall remain professionally and economically
independent of the Company. Consultant is not, and no act or failure to act by
either party hereto shall be construed to make or render Consultant, the
Company's partner, joint venturer, employee or associate.
3
<PAGE> 3
8. Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and
supersedes any oral or written agreements or understandings with respect to
that subject matter. This Agreement shall be binding upon and inure to the
benefit of the parties' successors and permitted assigns and may not be
modified in any way without the written consent of both parties.
9. Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or three (3) days after mailed by certified or registered
mail, postage prepaid, return receipt requested, to the parties at the
addresses set forth above (a copy to each of James M. Mackenzie, Jr., President
and John E. Mack III, Vice President in case of the Company), or at such other
addresses as the parties may designate by written notice in the manner
aforesaid.
10. Assignment. This Agreement may not be assigned by Consultant
without the prior written approval of the Company.
11. Governing Law. This Agreement and its application shall be
construed according to the laws of the State of California.
12. Waiver of Breach. The waiver by either party of the other
party's breach of any term or condition of this Agreement shall not be, or
deemed to be, a waiver of any subsequent breach by such party of the same or
any other term or condition of this Agreement, and the failure by either party
to enforce any right or remedy it might have by reason of the failure of the
other party to perform any obligation under this Agreement shall not be, or be
deemed to be, a waiver of any subsequent failure by such other party to perform
the same or any other obligation under this Agreement.
13. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PROTECTION ONE, INC.
By: /s/ John E. Mack, III
---------------------------------
John E. Mack III, Vice President
/s/ Ben Enis
---------------------------------
BEN ENIS
4
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